CMS, in its federal fiscal year (FFY) 2014 final rule, has allowed its five-year moratorium on the 25 percent threshold payment adjustment policy to expire. Following the lifting of this moratorium, LTCHs that admit more than 25 percent of their patients from a single acute care hospital will face payment adjustments. CMS explained that it was “allowing the moratoria to expire because we continue to be concerned that LTCHs that admitted more than the applicable percentage of patients from a particular referring hospital were, in effect, behaving like step-down units of the referring hospital, which results in two separate Medicare payments — one to the referring hospital and one to the LTCH — for what we believe should be structured as one episode of care.” The 25 percent threshold rule will apply for cost reporting periods beginning on or after October 1, 2013. Refer to Section VIII.D of CMS’ final rules [PDF] for LTCH’s Prospective Payment System updates for Fiscal Year 2014.

LTCHs that are subject to the 25 percent threshold rule will be paid using IPPS-comparable rates. Such LTCHs can expect to see significantly diminished payment rates. CMS has begun the process of establishing patient-level criteria that will render the 25 percent threshold rule unnecessary, but has declined requests to stay enforcement of the rule pending establishment of such criteria.

Ober|Kaler’s Comments

LTCHs that see admissions from a relatively small number of hospitals should look carefully at the profile of their admissions and determine whether the 25 percent threshold applies. In many cases, rural LTCHs and LTCHs located near large CBSA-dominating hospitals will not be able to avoid application of the rule. In such cases, the significantly diminished payment rates may render it impossible to continue LTCH operations.