Medicare Fiscal Year 2000
Hospital Inpatient Prospective Payment System: Final Rule
AAMC Summary and Analysis
On July 30, 1999, the Health Care Financing Administration
(HCFA) published its final rule
containing changes to the Medicare hospital inpatient prospective
payment system (PPS) and the PPS payment update for Federal
fiscal year 2000. See Medicare Program; Changes to the
Hospital Inpatient Prospective Payment Systems and Fiscal
Year 2000 Rates; Final Rule. 64 Fed. Reg. 41490. These
changes were initially published as a proposed
rule on May 7, 1999. See 64 Fed. Reg. 24716.
According to the final rule's fiscal impact analysis of the
Medicare changes for FY 2000, major teaching hospitals will
face the greatest losses. On average, all hospitals will lose
0.5 percent in operating payments per case. Teaching hospitals
with 100 or more residents will lose 1.5 percent, other teaching
hospitals will lose 0.6 percent, and nonteaching hospitals
will gain 0.2 percent. 64 Fed. Reg. at 41625.
I. PPS Payment Rate Update
The final rule implements the requirement in the Balanced
Budget Act of 1997 (BBA) that the hospital operating PPS standardized
payment rate be increased in fiscal year (FY) 2000 by the
increase in the hospital market basket (MB) less 1.8 percentage
points. According to the final rule, the most recent forecast
of the MB increase for FY 2000 is 2.9 percent. Thus, the update
factor will be 1.1 percent. 64 Fed. Reg. at 41545.
II. Changes Affecting Payments for Graduate Medical Education
The changes in the final rule affecting direct graduate medical
education (DGME) and the indirect medical education (IME)
adjustment focus on issues related to the resident limits
mandated by the BBA.
A. Hospital Closures and Temporary Resident Limit Adjustments
The final rule provides that, effective in FY 2000 (which
begins October 1, 1999), HCFA will temporarily adjust a hospital's
resident limit if the hospital assumes the training of additional
residents because of another hospital's closure and these
additional residents cause the receiving hospital to exceed
its resident limit. For this provision, "closure"
means the hospital terminates its Medicare participation agreement
with HCFA. The adjustment is intended to address situations
where residents are in a hospital's training program when
it closes and they would be unable to complete their training
without a residency position at another hospital. Once the
residents complete their training or otherwise leave the hospital,
the resident limit of the hospital that took on the residents
would revert to its previous level.
To be eligible for the adjustment, hospitals must meet the
following criteria:
- The hospital is training additional residents from a
hospital that closed on or after July 1, 1996
- No later than 60 days after the hospital begins training
the residents, it submits a request for a temporary adjustment
to its fiscal intermediary. This request should:
- Identify the residents who have come from the closed
hospital (by providing their social security numbers and
documentation that proves the residents were training
at the hospital that closed-see 64 Fed. Reg. at 41523),
and
- Specifies the length of time the adjustment is needed.
42 C.F.R. §413.86(g)(8).
Analysis-HCFA rejected comments by the AAMC and others
that the temporary adjustment should be broadened to include
situations when resident programs must close due to a hospital's
financial duress, loss of accreditation or other reasons.
Instead, HCFA suggests that in these situations, the affected
hospital should combine its resident limit with other hospitals
through a resident limit affiliation agreement. In this way,
the receiving hospital could have its limit increased and
receive Medicare teaching reimbursement associated with the
additional residents because the affected hospital would agree
to reduce its resident limit (since its resident count is
reduced due to the closed program).
There are several problems with this solution. The regulations
governing affiliation agreements require that the affiliating
hospitals be in the same geographic area and that "individual
residents work at each of the hospitals during the course
of the program." 42 C.F.R §413.86(b). Often when
a residency training program closes, a nationwide search is
needed to find hospitals that have the relevant residency
program and accredited slots available to take on the displaced
residents. As a result, it may not be possible to meet the
geographic criteria for affiliation agreements or the criteria
that residents work at each of the hospitals. The AAMC will
be pursing these issues with HCFA staff.
In response to an AAMC comment, HCFA did change the timing
requirement so that hospitals must submit the request to their
FI no later than 60 days after the hospital begins training
the additional residents. The proposed rule had initially
required that the submission had to occur before the
residents began training.
B. Hospitals That Did Not Reflect Resident Counts on Their
1996 Cost Reports
Hospitals that had no residents training during their 1996
cost reporting period are permitted to establish a resident
limit, even if they had trained residents prior to 1996. Prior
to the final rule, only hospitals that had never trained residents
could establish a resident limit. Consequently, without this
change, hospitals that had previously trained residents and
then suspended their programs (as reflected by having no resident
count on their 1996 cost report) would have a permanent resident
limit of zero.
The resident limit would be established in the same manner
as hospitals that never had residency training programs. That
is, hospitals would have three years to establish residency
programs, with the three years starting when the first program
is initiated. The residency limit would be based on the product
of the highest number of residents in any program years during
the third year of the first program's existence for all new
residency programs and the number of years in which residents
are expected to complete the program. 42 C.F.R. §413.86(g)(6)(i).
In response to a comment by the AAMC, HCFA stated in the
final rule preamble that nonteaching hospitals that participate
in resident limit affiliation agreements are not precluding
from later seeking establishing a resident limit.
The final rule also clarifies that urban hospitals that had
no residents in 1996 and later start residency training programs
are not permitted to enter into affiliation agreements. Rural
hospitals in this situation are permitted to enter into affiliation
agreements.
Analysis-The requirement that "new" urban
teaching hospitals are not permitted to enter into affiliation
agreements is troubling. HCFA's rationale for this provision
is to prevent current teaching hospitals from circumventing
the resident limits by encouraging a nonteaching hospital
to start a residency program and then enter into an affiliation
agreement that effectively gives the resident count associated
with the new program to the current teaching hospital.
While this rationale is plausible, it seems unfair to apply
it indefinitely. A more reasonable alternative would be to
apply the prohibition for a certain time period, for example
three or five years. After that period, the hospitals would
be permitted to enter into affiliation agreements. Unfortunately,
HCFA has rejected this option when the AAMC has urged it in
the past. The AAMC will continue to seek opportunities to
convey this message to HCFA.
C. Other GME Changes and Clarifications
The final rule includes several other changes and clarifications
relating to Medicare GME payments:
- A clarification to the adjustment for new programs to
address when residents spend part of their training at
one hospital and part at another hospital. The final rule
clarifies that the adjustment to the resident limit is
based on the number of years the residents are training
at each hospital, not the minimum accredited length for
the type of program. In other words, the adjustment to
the resident limit may not exceed the number of accredited
resident slots available to the hospital.
- During the first three years of a new program (prior
to when the permanent resident limit or adjustment is
established), a hospital's limit will be determined using
the actual number of residents in the new program.
- A technical change to the requirements for when hospitals
may receive GME payments associated with residents training
in nonhospital sites. The final rule clarifies the regulations
to reflect that not only must hospitals have agreements
with nonhospital sites verifying that they "will
incur"
the supervisory costs, but that they "actually incur"
these costs in order to receive the teaching payments.
- For purposes of teaching payments for residents training
in nonhospital sites, the final rule preamble clarifies
that the terms "nonprovider" and "nonhospital"
are interchangeable and that an excluded unit of a hospital
is not a "nonhospital" site.
- An adjustment to the resident limit for hospitals that
were under construction prior to August 5, 1997 (when
the BBA was enacted) and sponsored new training programs
but where the residents temporarily trained at another
hospital during the construction period. Without such
a provision, the newly constructed hospital could not
include the sponsored residents under its cap because
the general rule is that resident limits will not be adjusted
when residency training programs are "transferred" to
another hospital. This provision does not apply
to new hospitals that were constructed after August 5,
1997.
- The definition of "approved geriatric program,"
as used for purposes of extending the initial residency
periods, is modified to include those fellowship programs
approved by the American Osteopathic Association, the Commission
on Dental Accreditation, and the Council on Podiatric Medical
Education, in addition to the ACGME
II. Changes to the Hospital Wage Index
As proposed, HCFA will remove costs related to teaching physicians,
residents, and CRNAs from the calculation of the hospital
wage index. Beginning in FY 2000, 20 percent of the costs
will be removed. An additional 20 percent will be removed
in each subsequent year until all costs are phased-out. This
means that the FY 2000 wage index is based on a blend of 80
percent of an average hourly wage including teaching physician,
resident, and CRNA wages, and 20 percent of an average hourly
wage excluding these costs. 64 Fed. Reg. at 41505.
This change only affects a hospital's DRG payments. It does
not affect a hospital's reimbursement for either indirect
or direct graduate medical education costs.
The wage index data used to calculate the FY 2000 wage index
did not separately identify the physician Part A costs associated
with teaching activities (wages associated with other physician
activities are still included in the index calculation). Consequently,
the fiscal intermediaries attempted to collect this information
through a survey and other means. For responding hospitals,
HCFA reported in the proposed rule that teaching hospital
costs represented about 69 percent of total physician part
A costs. For hospitals that did not respond, and for which
there were no relevant data, HCFA removed 80 percent of the
hospital's reported total physician Part A costs and hours,
on the assumption that 80 percent of the total costs is due
to teaching activity.
Two commenters recommended that HCFA should remove 100 percent
of the physician part A costs from nonresponsive hospitals
as a penalty for not responding. While HCFA did not implement
this suggestion in the final rule, the final preamble stated
that the Agency would consider the comment in the future.
HCFA received two comments that suggested that overhead costs
associated with the teaching physician, resident and CRNA
direct costs should be excluded from the wage index. This
issue is likely to be discussed in the proposed rule for FY
2001.
III. Change in the Outlier Threshold
For FY 2000, the fixed loss cost outlier threshold is equal
to the prospective payment for the DRG plus the IME and DSH
payments, plus $14,050. In FY 1999, the threshold was $11,100.
64 Fed. Reg. at 41546.
IV. BBA Changes Not Addressed by the Final Regulation
The Balanced Budget Act of 1997 (BBA) contained a number
of other pertinent provisions that were not addressed in the
PPS 2000 final rule. Those affecting teaching hospitals include:
- For discharges occurring on or after October 1, 1998,
the indirect medical education (IME) adjustment will be
reduced from 6.5 percent to 6.0 percent. · Disproportionate
share payments will be reduced by 3 percent, effective
October 1, 1999. Beginning October 1, 1997, DSH payments
were reduced by 1 percent, increasing to a 2 percent
reduction on October 1, 1998. DSH will continue to be
reduced by 1 percent each year until a 5 percent reduction
is achieved starting October 1, 2001.
- Effective January 1, 2000, teaching hospitals will receive
60 percent of the calculated DGME and IME payments associated
with treating Medicare+Choice enrollees.
The BBA also included a provision to permit hospitals to
apply for incentive payments associated with voluntarily reducing
the number of residents they train. Applications to participate
in this program are due November 1, 1999. Despite a requirement
in the BBA that HCFA publish regulations by February, 1998,
and a subsequent letter sent by the AAMC, no regulations have
yet been issued. The AAMC will continue to pursue this issue
with HCFA. In the absence of regulations, hospitals that are
considering applying for the voluntary reduction program should
review the relevant language in the BBA and contact the local
intermediary to determine the best way to proceed.
Finally, the BBA included a provision that permitted HCFA
to conduct a demonstration project on the use of consortia.
While the BBA did not specify a time frame, the AAMC expects
regulations that set forth the criteria for participating
in the demonstration to be published in the late fall or early
winter.
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