On August 1, the Centers for Medicare & Medicaid Services (CMS) issued its final rule for inpatient rates and payment policy for Federal fiscal year (FY) 2013, beginning October 1, 2012. Under the rule, payment rates for inpatient stays will increase by 2.8%, which includes the market basket update of 2.6% combined with a multi-factor productivity adjustment of -0.7 percentage points, an additional -0.1 percentage point adjustment required by the Affordable Care Act (ACA), and a net adjustment of 1% for documentation and coding. CMS projects an aggregate increase in payments of about $2 billion in FY 2013, or 2.3%.
The final rule’s net 1% documentation and coding adjustment reflects a -1.9% adjustment to permanently eliminate documentation and coding changes from FYs 2008 and 2009, and a 2.9% adjustment to restore a one-time cut made in FY 2012 to recoup past overpayments. CMS did not finalize its proposed new 0.8% cut for what it claimed was the effect of documentation and coding in FY 2010. This additional “coding offset” would have reduced hospital payments by nearly $1 billion nationwide in FY 2013—approximately $70 million of which would come from New York hospitals. GNYHA and others worked closely with the New York Congressional delegation on a bipartisan letter to the President opposing the cut.
CMS also finalized its proposal to implement readmissions penalties for hospitals with higher-than-expected readmission rates for heart attack, heart failure, and pneumonia. The policy’s overall impact is to reduce payments to hospitals by approximately $270 million, or 0.3%. GNYHA continues to be extremely concerned that the statutory formula results in penalties that are grossly exaggerated, and will continue to work with Congress to fix this issue.
The other major quality-related provision relates to implementing a Value-Based Purchasing (VBP) program, beginning with process and patient satisfaction measures. While budget neutral, the VBP program will redistribute 1% of inpatient base payments in FY 2013, or nearly $90 million. The redistribution will increase to 1.25% in FY 2014, 1.50% in FY 2015, 1.75% in FY 2016, and 2% in FY 2017. The program will expand in FY 2014 to include mortality rates and other outcomes measures, and expand again in FY 2015 to include a new efficiency measure: Medicare Spending per Beneficiary.
The ACA required that both the readmissions penalties and the VBP program be established.
GME Provisions The final rule included changes to Medicare graduate medical education (GME) policies and regulations. Many changes concerned implementing ACA Section 5506, which directed CMS to redistribute resident slot positions from closed teaching hospitals to other hospitals interested in receiving a permanent increase in their resident caps.
New Application Timeframe CMS finalized a change in the timeframe for hospitals to apply under the program. Applications will now be due 90 days after CMS issues a public notice indicating the availability of resident slots.
Ranking Criteria Modification In regulations issued in November 2010, CMS finalized a set of seven ranking criteria that would be used within a priority category to distinguish among applications from hospitals all located in the same priority area. The first priority category for the redistributed slots is the same or a contiguous core-based statistical area as the one in which the closed hospital was located.
In general, the ranking criteria were established to give greatest preference to teaching hospitals that took over all or part of a closed hospital’s program, or had been using slots from the closed hospital by virtue of a Medicare affiliation agreement. Additional ranking criteria gave preference to teaching hospitals that wished to start or expand geriatrics, other primary care, or general surgery programs. In the FY 2013 final rule, CMS added an additional ranking criterion, the goal of which was to permit CMS to give higher preference to applications for slots for primary care and general surgery programs in cases where the hospital is also applying for slots to expand or establish other programs, which they could not do using the current list.
Timing of Permanent Cap Increase Awards In the FY 2013 final rule, CMS indicated that it will not allow hospitals to be given slots and awarded a resident cap increase before the hospital is able to demonstrate that it actually needs the slots. Medicare Administrative Contractors (MACs) are being directed to withhold permanent awarded hospital slots until the hospital can demonstrate a need for the slots as stated in its application to CMS. The hospital will be required to submit documentation to its MAC showing that it had actually added residents and expanded a program in accordance with its award from CMS and needs the slots because it is otherwise over its hospital cap. In the final rule, CMS also finalized a policy that slots awarded for general cap relief (as opposed to a specific program purpose) would not be awarded before the date of the award announcement or when the slots become available after being used by a displaced resident, whichever is later.
Replacing a Temporary Cap Increase with a Permanent Cap Increase CMS states in the final rule that permanent cap increases will not become effective until after displaced residents complete their training, and a hospital’s awarded permanent slot will not replace a temporary slot increase being used for a displaced resident’s training. This change will not affect resident slots awarded under the January 30, 2012, cycle of awards or apply to resident slots redistributed from the closing of St. Vincent’s Medical Center.
New Application Cycle for Resident Slots In the FY 2013 final rule, CMS issued a public notice indicating additional teaching hospital closures and the availability of more residency slots for redistribution. The notice indicated that three hospitals—Hawaii Medical Center East in Honolulu, Hawaii, Oak Forest Hospital in Oak Forest, Illinois, and Huron Hospital in Cleveland, Ohio—had closed in 2011 and early 2012, and 68.97 direct GME and 65.79 indirect medical education (IME) resident slots from the hospitals were available for redistribution.
New Teaching Hospital Rules Additional GME changes in the FY 2013 final rule focused on CMS policies permitting a non-teaching hospital to become a teaching hospital and begin receiving Medicare GME reimbursement. Under current policy, a non-teaching hospital that seeks to begin training residents and become a teaching hospital has three years to begin new residency programs and have a cap set. CMS finalized two modifications to this policy. Effective for any hospital that begins training residents on or after October 1, 2012, the window for non-teaching hospitals to start new programs would be extended to five years. As a practical matter, the change will only apply to non-teaching hospitals that become teaching hospitals and train their first cohort of residents on or after July 1, 2013. CMS also finalized a change to its policy regarding how new teaching hospitals’ caps would be calculated. Rather than looking solely at the final year of the cap-building process (under the new policy, the fifth year), CMS will now look at all five years and consider the ratio of training done in the new teaching hospital to all training to determine the new teaching hospital’s cap.