CMS’ changes to IPPS will affect your hospital’s reimbursements

CMS expands post-acute transfers, ties reimbursement to quality reporting

The Centers for Medicare & Medicaid Services (CMS) has made sweeping changes to the Inpatient Prospective Payment System (IPPS) that will have a major impact on hospital reimbursement.

The final rule, issued Aug. 1 and effective Oct. 1, 2005, expands the number of diagnosis-related groups (DRGs) covered by the post-acute care transfer policy from 30 to 182 and takes an additional step toward its pay-for-performance initiatives by giving the full 3.7% marketbasket reimbursement increase only to hospitals that submit previously voluntary quality data, and only if the quality data meet accuracy standards for two consecutive quarters.

The new CMS regulations make it more important than ever for case managers to ensure patients get the best possible care in a timely manner and everything done for the patient is documented correctly, says Deborah Hale, CCS, president of Administrative Consultant Services Inc., a health care consulting firm based in Shawnee, OK.

Case managers should continue to ensure their patients receive the right services at the right time, she suggests.

"The main thing that case managers need to do is to focus on the appropriate site of service and not push patients prematurely into a post-acute level of care," Hale says.

According to CMS estimates, the expansion of the post-acute care transfer policy will result in approximately $780 million in reduced payments to hospitals, or 1% of the total Medicare payments.

"We were very disappointed with CMS ordering this provision at a time when Medicare payments are already not covering the cost of care for Medicare patients," says Don May, vice president for policy for the Chicago-based American Hospital Association (AHA).

The AHA is continuing to work with Congress on other options. Congress has the power to override the final rule, May points out. He suggests hospital officials write to their senators and representatives and urge them to do so.

CMS had proposed to expand the post-acute care transfer policy from 30 to 231 DRGs at a cost of $880 million, but in response to public comments reduced the number of DRGs to 182.

In the final rule, CMS issued new criteria for including a DRG in the post-acute transfer rule:

  • The DRG has a geometric mean length of stay of at least three days.
  • There are at least 2,050 post-acute transfer cases.
  • At least 5.5% of the cases in the DRG are discharged to post-acute care prior to the geometric mean length of stay.
  • In the case of DRGs that are paired, based on the presence or absences of comorbid conditions, both DRGs are included in the policy if either meets the other criteria.

The post-acute transfer provision covers discharges to skilled nursing facilities and to other hospitals that are reimbursed under IPPS. It also covers home health services provided by a home health agency if the services are provided within three days and related to the reason for the hospitalization.

"We are taking this step because in many cases of incomplete hospital stays when patients are transferred, it is not appropriate to pay for a full hospital stay. At the same time, we have limited the payment changes based on concerns raised about the criteria for transfer payments that we proposed earlier this year," according to Mark B. McClellan, MD, PhD, CMS administrator.

The payment rate paid to a transferring hospital for 169 of the 182 new transfer DRGs is calculated by dividing the full DRG payment by the geometric mean length of stay for that DRG.

Under the post-acute transfer rule, hospitals receive twice the per-diem rate for the first day of the hospital stay since most of the costs occur on the first day. After that, they receive the regular per-diem rate up to and not exceeding the full DRG payment.

"Hospitals will get the full DRG payment if the patient stay is one day less than the geometric mean length of stay," Hale points out.

In the case of the remaining 13 of the 182 DRGs, which have exhibited an even higher share of costs very early in the hospital stay, the hospital will receive 50% of the full DRG payment plus single per diem for the first day of the stay and 50% of the per diem for the remaining days up to the full DRG payment.

As a practical matter, the inclusion of so many DRGs in the post-acute transfer rule means case managers are unlikely to be able to track which cases they manage are covered by the rule, Hale notes. "When there were 10 DRGs covered by the rule, it wasn’t hard to keep up with them and track the length of stay. With 182, it will be very difficult for case managers to know which patients are covered by the post-acute care transfer rule." [Editor’s note: For a list of the DRGs covered by the post-acute transfer rule, see 70 Federal Register 47,617 (Aug. 12, 2005).] Case managers should be extremely careful to make sure that documentation regarding post-discharge placements is very clear, she recommends.

For instance, discharge status codes for placement in nursing homes following acute care are different for skilled nursing beds, which Medicare pays for, and nonskilled beds, for which Medicare will not reimburse. "If the case manager or social worker writes that the patient was discharged to a particular nursing home, the person responsible for billing doesn’t know if the patient went to a skilled bed or an intermediate care bed," Hale adds.

The transfer provision covers discharge with home health services within three days, unless the home health services are unrelated to the reason for hospitalization.

"Sometimes, the patient or family refuses home health services but changes their mind after a day or so. If they call the doctor, who then orders home health services and they are received within three days of discharge, the hospital is held accountable for that discharge status to home health," she says.

In the final rule, CMS moved to stabilize the post-acute transfer payment policy by tentatively proposing to conduct a review of the DRGs every five years instead of annually. Unless CMS makes a change to a specific DRG, the list of those covered by the policy will remain the same. When new DRGs become effective, they will be subject to the policy if the total number of discharges and proportion of short-stay discharges to post-acute care exceed the 55th percentile for all DRGs.