Summary and Analysis of Fiscal
Year 2003 Medicare Inpatient Prospective Payment System Proposed
Rule
On May 9, 2002, the Centers for Medicare & Medicaid Services
(CMS) published its annual proposed rule containing changes
to the Medicare hospital inpatient prospective payment system
(PPS) and the PPS payment update for Federal fiscal year (FFY)
2003. See Medicare Program; Changes to the Hospital Inpatient
Prospective Payment Systems and Fiscal Year 2003 Rates; Proposed
Rule. 67 Fed. Reg. 31404. The proposed
rule can be obtained by accessing the AAMC's issue brief
on this topic.
Comments on the proposed rule are due July 8, 2002.
This year's proposed rule contains a number of important
proposed changes. Items that potentially should be addressed
in comment letters include:
- Opposing the proposal that would forbid hospital participants
in resident limit affiliation agreements from determining
how resident limits will be distributed at the end of the
agreement,
- Opposing CMS' proposal to expand the post-acute care transfer
policy to all DRGs,
- Supporting the increase in the labor related share of
DRG payments to which the wage index is applied,
- Opposing going directly to a 100 percent removal of GME
and CRNA costs from the calculation of the hospital wage
index, and;
- Supporting CMS' proposed changes relating to EMTALA obligations
and provider-based requirements.
Other important items in the proposed rule include the
update factor for the inpatient PPS standardized payment
rate, changes affecting indirect medical education (IME)
and Medicare disproportionate share (DSH) payments, the
outlier payment threshold, the methodology for recognizing
the costs of cutting-edge technologies, rebasing the hospital
market basket, and changes related to diagnosis-related
groups (DRGs).
Despite proposing an update of 2.75 percent (see below),
the financial impact analysis included in the proposed
rule estimates that, in aggregate, average per case payments
in FFY 2003 for all hospitals will increase by only 0.4
percent, compared to FFY 2002 payments. In part because
of the scheduled FFY 2003 cut in IME payments (from 6.5
percent to 5.5 percent), CMS estimates that teaching
hospitals with 100 or more residents will see average
per case decreases of 1.7 percent, compared to gains
of 0.5 percent and 1.5 percent for other teaching and
nonteaching hospitals, respectively. The AAMC is advocating
for legislation to halt the FFY 2003 cut to IME payments.
I. Inpatient PPS Payment Rate Update
The proposed rule would implement an increase to the
standardized payment amount for hospitals' per case payments
under the PPS of 2.75 percent in FFY 2003. This update
reflects the requirement in the Medicare, Medicaid, and
SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) that the Medicare payment update equal the increase
in the hospital market basket less 0.55 percentage points.
As of the publication of the proposed rule, the estimate
of the market basket increase was 3.3 percent.
Analysis
The actual update will reflect the most recent estimate
of the market basket increase at the time the final rule
is published in early August. The AAMC, along with other
associations, is seeking legislation to eliminate the
0.55 reduction. Two bills have been introduced, H.R. 1556
and S. 839, that would set the payment update equal to
the full market basket increase for FFY 2003.
II. Proposals Affecting Both DGME and IME Payments
A. Resident Limit Affiliation Agreements (pages 31468-69)
Background
The Balanced Budget Act of 1997 (BBA) mandated that,
for purposes of Medicare indirect medical education (IME)
and direct graduate medical education (DGME) reimbursement,
a hospital's number of allopathic and osteopathic residents
may not exceed the number reported on the hospital's most
recent cost report that ended on or before December 31,
1996 (42 U.S.C. 1395ww(h)(4)(F)). Dental and podiatry
residents are excluded from the resident limit provision.
The BBA permitted the Secretary to establish a system
by which hospitals could elect to apply their resident
limits on an aggregate basis. Briefly, hospitals that
qualify may execute an "affiliation" agreement that would
set forth an aggregate limit (the sum of the individual
hospital limits) as well as the individual hospital resident
limits agreed upon by the parties. For example, if Hospital
A and Hospital B each had resident limits of 100, their
aggregate limit would be 200. In the agreement for a particular
academic year, they might specify that Hospital A would
agree to a resident limit of 90 so that Hospital B could
have a limit of 110. According to CMS, one of the reasons
for establishing a resident limit affiliation agreement
mechanism was to permit hospitals that share resident
rotations some flexibility in complying with the resident
limits.
Proposed Rule
CMS proposes to add two new regulatory sections: 413.86(b)
would set forth a definition of "affiliated agreement"
and 413.86(g)(7) would add additional requirements for
hospitals that enter into affiliation agreements. Under
proposed 413.86(b), an affiliated agreement would be defined
to mean:
"a written, signed, and dated agreement
by responsible representatives of each respective
hospital in an affiliated group, as defined in this section,
that specifies-
1. The term of the agreement (which,
at a minimum is one year), beginning on July 1 of a
year;
2. Each participating hospital's direct
and indirect FTE caps existing at the time of affiliation;
3. The adjustment to each hospital's
FTE caps in each year that the affiliation agreement
is in effect, for both direct GME and IME, that reflects
a positive adjustment to one hospital's direct and indirect
FTE caps that is offset by a negative adjustment to
the other hospital's (or hospitals') direct and indirect
FTE caps of at least the same amount; and
4. The names of the participating hospitals
and their Medicare provider numbers.
Proposed section 413.86(g)(7) would be expanded to include:
(i)Each hospital in the affiliated
group must submit the affiliation agreement, as defined
under paragraph (b) of this section, to the CMS fiscal
intermediary servicing the hospital and send a copy
to CMS's Central Office no later than July 1 of the
residency program year during which the affiliation
agreement will be in effect.
(ii)There must be a rotation of resident(s)
among the hospitals participating in the affiliated
group during the term of the affiliation agreement such
that more than one of the hospitals count the proportionate
amount of the time spent by the resident(s) in their
FTE resident counts. No resident may be counted in the
aggregate as more than one FTE.
(iii)The net effect of the adjustments
(positive or negative) on the affiliated hospitals'
aggregate FTE cap for each affiliation agreement must
not exceed zero.
(iv)If the affiliation agreement terminates
for any reason, the FTE cap of each hospital in the
affiliated group will revert to the individual hospital's
pre-affiliation FTE cap that is determined under the
provisions of paragraph (g)(4) of this section.
While the proposed regulations would appear as part of
the DGME regulations, they would also apply to IME payments
(as proposed under 412.105(f)(1)(vi)). The proposed rule
provisions would be effective for agreements that terminate
on or after October 1, 2002.
Analysis
Currently, only the definition of an "affiliated group"
is set forth in regulation. The requirements relating
to the affiliation agreement had previously been set forth
in the preambles to the August 29, 1997 and May 12, 1998
inpatient PPS final rules. CMS notes that its proposed
regulatory language on the agreements is the same as its
policy set forth in the 1997 and 1998 final rules, with
the exception of what happens to the participating hospitals'
resident limits upon termination of the agreements.
Under existing policy (as set forth in the 1997 and
1998 rules), hospitals that participate in resident limit
affiliation agreements may agree to a permanent change
of their resident limits upon termination of the agreement
so long as the aggregate count remains unchanged. (In
addition to the discussion in this year's proposed rule,
see page 26341 of the May 12, 1998 Federal Register.)
Thus, for example, hospitals A and B, above, could specify
that upon termination of the resident limit agreement,
hospital A would keep a resident limit of 90 permanently
and hospital B would keep a permanent limit of 110. Under
CMS' proposal, at the end of the agreement, the hospitals
would have no choice but to revert to their original resident
limits of 100 each.
We believe the existing policy makes sense, is fair,
and should not be changed. According to Congressional
views accompanying the BBA, one of the purposes for implementing
resident limits was to limit the aggregate number of residents
reimbursed under Medicare. CMS was given certain flexibility
in implementing the resident limits, but that flexibility
is "limited by the conference agreement that the aggregate
number of FTE residents should not increase over current
levels." (BBA Conference Agreement at S-203).
The existing policy complies with this Congressional
intent because the aggregate limit does not change.
The Conference Agreement also states that CMS should
not be involved in decision-making about workforce matters: "such
decisions should remain within each facility, which
is best able to respond to clinical needs and opportunities"
(ibid.). The existing policy also advances this intent.
Individual hospitals are in the best position to determine
whether the training needs of residents within the local
community is best served by redistributing the aggregate
limit among participating hospitals. These decisions
are not entered into lightly, particularly given that
a change means that one hospital will have a permanent
resident limit that is lower than it otherwise is entitled
to under the BBA so that another hospital can have a
higher limit. We will urge CMS to rescind its proposal
and permit hospitals the flexibility to agree to permanently
change their resident limits at the end of an affiliation
agreement, so long as the aggregate limit (the sum of
both hospitals' limits) is not exceeded.
While we oppose any change to existing policy, we also
believe that to the extent any changes are included in
the final rule, they should be effective with affiliation
agreements beginning, not terminating, after October 1,
2002. A number of hospitals may have entered into affiliation
agreements that comply with existing policy that would
become noncompliant after October 1. A policy should not
be implemented that would require retroactive changes
to existing lawful agreements.
B. Clarification Regarding Rotating Residents to Other
Hospitals (page 31469)
While no regulations were proposed, CMS used the preamble
to the proposed rule to issue the following clarification
of what they view as longstanding CMS policy:
"It is longstanding Medicare policy, based on language
in both regulations and the statute, to prohibit one hospital
from claiming the FTEs training at another hospital for IME
and direct GME payment. This policy applies even when the
hospital that proposes to count the FTE resident(s) actually
incurs the costs of training the resident(s) (such as salary
and other training costs) at another hospital." (67 Fed.
Reg. at 31469)
Analysis
It is important to remember that the policy regarding IME
and DGME reimbursements for residents rotating among hospitals
is different than when the resident rotates to a nonhospital
site. A hospital cannot receive these reimbursements for resident
time spent at another hospital, regardless of which entity
incurs the costs. However, a hospital can claim the time a
resident spends training at a nonhospital site if the hospital
incurs "all or substantially all" of the training costs at
the nonhospital site (see 42 C.F.R. §413.86(f)(3)).
III. Other Changes Associated With Indirect Medical Education
(IME) Payments
A. Level of the IME Adjustment (page 31461)
Proposed Rule
The proposed rule reduces the IME adjustment factor to implement
the BIPA requirement that the adjustment for FFY 2003 and
beyond equal a 5.5 percentage payment increase for every 10
percent increase in the resident-to-bed ratio. Specifically,
for purposes of the IME calculation, the multiplier would
be 1.35.
Analysis
The AAMC is strongly advocating Congressional intervention
to stop the scheduled IME reduction. Three bills have been
introduced, HR 1556, S. 839, and S.2447 that would permanently
maintain Medicare IME payments at the 6.5 percent level.
B. IRB Limit and Residency Program Closures (pages 31461-62)
Background
In addition to mandating a resident limit for purposes of
IME payments, the BBA also imposed a cap on the intern and
resident-to-bed (IRB) ratio-a key component in determining
a teaching hospital's IME payment level. In general, the IRB
may not exceed the ratio calculated during the prior cost
reporting period.
In the August 1, 2001 inpatient PPS final rule, CMS provided
for a temporary adjustment to the resident limits of hospitals
that take on and complete the training of residents from residency
programs that have closed. However, no provision was made
to address the receiving hospital's IRB limit in this situation.
Proposed Rule
The proposed rule would permit an adjustment to a hospital's
prior year IRB to account for the displaced residents, but
only for the first year in which the receiving hospital is
training the displaced residents. In the cost reporting period
following the departure of the last displaced residents, CMS
proposes to calculate the IRB ratio for the prior year as
if the displaced residents had not trained at the receiving
hospital in the prior year. The proposed rule preamble contains
several examples to illustrate how the proposed regulatory
change would be applied.
Analysis
The AAMC had advocated that hospitals not be penalized,
by virtue of the IRB cap, for training residents from closed
hospitals or programs. Thus, we are pleased by the proposal
to increase a hospital's prior year IRB for the first year
in which a receiving hospital is training the displaced residents.
However, CMS' response concerning the IRB calculation for
the year after the displaced residents have left seems to
be overly burdensome, particularly in light of the number
of residents that likely are to be involved.
CMS' reasoning is as follows. If they are not otherwise
above their resident limits, in the year after all of the
displaced residents have completed their training, hospitals
will have a lower IRB ratio than the previous year because
they no longer have the displaced residents. However, their
prior year IRB ratio will be higher because the displaced
residents were still in training at that time. CMS is concerned
that hospitals that are over their resident limits in general,
will be able to take advantage of the higher prior-year IRB
ratio to be able to get IME reimbursement associated with
a resident count above their resident limit.
This is a complicated and technical area. Hospitals should
review the examples on page 31462 to make sure they understand
CMS' proposed changes.
C. Counting Beds (pages 31462-63)
Proposed Rule
For purposes of both the IME and disproportionate share (DSH)
methodologies, CMS proposes to specify that if a hospital's
reported bed count results in an occupancy rate below 35 percent,
the applicable bed count for that hospital would be the number
of beds that would result in an occupancy rate of 35 percent.
Analysis
Bed counts factor into the IME methodology because of the
intern/resident-to-bed (IRB) ratio. The DSH adjustment is
based on nine different formulae, which include a bed count
as one of the factors. Relatively speaking, larger bed counts
result in lower IRB ratios, which result in lower IME payments.
By contrast, larger bed counts result in higher DSH adjustments.
CMS states that it is proposing this change to "exclude beds
that represent an excessive level of unused capacity." (67
Fed. Reg. at 31462). CMS believes that small urban hospitals,
in particular, might be maintaining excess beds in order to
qualify for higher DHS payments (69 Fed. Reg. at 31463).
Given that most, if not all, COTH members have occupancy
rates above 35 percent, it is unlikely that this policy will
have any practical effect on the COTH membership. However,
the principle behind CMS' proposal is disconcerting. There
already is significant guidance as to which beds may be counted
for purposes of these methodologies. Occupancy rates should
not be used as a means to subvert valid methodologies. In
addition, CMS is currently looking into modifying the DSH
methodology so that it better reflects a hospital's uncompensated
care burden. Given this, it seems unwise to implement a policy
at this time that is targeted predominantly at the DSH adjustment.
III. Other Change Affecting Direct Graduate Medical Education
(DGME) Payments: Calculating a PRA for Newly Participating
Hospitals (pages 31467-68)
Background
DGME payments are based on a hospital's "per resident amount
(PRA)." A new teaching hospital is assigned a PRA that is
equal to the lower of its actual allowable direct GME costs
per resident or a weighted average PRA based on the PRAs of
surrounding teaching hospitals. According to the proposed
rule, existing policy requires fiscal intermediaries to calculate
the weighted average PRA, based on 1984 PRAs trended forward,
rather than using current year PRAs.
Proposed Rule
The proposed rule would use PRAs from teaching hospitals'
most recently settled cost reports for purposes of calculating
the weighted average PRA. In addition, the weighed average
would reflect both primary care and non-primary care PRAs.
As a result, the new teaching hospital would have only one
PRA compared to most current teaching hospitals that have
different PRAs for primary care residents and other residents.1
Analysis
These changes appear to be innocuous. Please let us know
if there are impacts that we have not identified.
IV. Transfer Payment Policy (pages 31455-58)
Background
Medicare patients who were sent from one acute care hospital
to another are viewed as "transfers." Under Medicare's transfer
payment policy, a full DRG payment is made to the final discharging
hospital and each transferring hospital is paid a per diem
rate for each day of the state, not to exceed the full DRG
payment.
In FFY 1999, in accordance with the BBA, CMS expanded its
transfer policy such that hospitals that discharge patients
associated with one of 10 specified DRGs to either a PPS-exempt
hospital or unit, skilled nursing facility, or home health
agency, will receive per diem payments, not to exceed the
fully DRG payment.
Proposed Rule
CMS proposes to expand the post-acute care transfer policy
to include additional DRGs. Two options are presented. The
first would be to expand the policy to all DRGs. According
to CMS, this option would result in $1.9 billion less in Medicare
program payments to hospitals. The second option would expand
the policy to a subset of DRGs, CMS suggested 13, that have
high rates of transfers. This option would result in about
$916 million less in payments to hospitals.
Analysis
Under CMS' proposed policy, hospitals that discharge patients
to post-acute care facilities prior to the corresponding DRG's
average length of stay would receive less payment because
of the per diem methodology. Based on the preamble discussion,
it appears that CMS is learning towards expanding the transfer
policy to all DRGs. The known and unknown consequences of
such a drastic change could have far reaching effects. For
example, CMS' proposed policy could penalize hospitals that
are making sure that patients are treated in the most appropriate
setting. We will oppose this proposal in our comment letter
to the Agency.
V. Payments For New Technologies(pages 31427-31)
Background
Pursuant to a provision in BIPA, in a September 7, 2001 final
rule (66 Fed. Reg. 46902), CMS established a methodology that
would provide additional payments to hospitals for new technologies
that they use that are not yet reflected in the DRG payment
system. In order to qualify for the additional payments the
new service must meet thresholds related to "new," "significant
improvement" over current service, and "inadequate payment"
under the DRG system. (See the September 7, 2001 final rule
for a more complete discussion of these criteria.) The additional
payments are to be funded by reducing the standardized payment.
CMS had set a target limit of 1.0 percent of estimated total
operating PPS payments for the new technology payments. If
CMS estimates that the new technology payments will exceed
the one percent target, it will reduce these payments until
the one percent level is attained.
Proposed Rule
According to the proposed rule, it is likely that no new
technology payments will be made in FFY 2003 because no new
technology applications met the applicable criteria (but see
discussion of Xigris, and Bone Morphogenetic Proteins, below).
Consequently, no reduction to the standardized payments is
likely.
Only five new technology applications were submitted to
CMS. One was subsequently withdrawn, the remaining technologies
are:
1. XigrisTM
An Eli Lilly product used to treat patients with
severe sepsis. CMS stated that it was not provided with enough
data to determine that XigrisTM represents an "advance
that substantially improves, relative to technology previously
available, treatment for Medicare beneficiaries." (67 Fed.
Reg. at 31428). However, the proposed rule indicates the Agency
is continuing its assessment and will announce a final determination
in the final rule. If Xigris ultimately qualifies for additional
payments, under CMS' methodology, hospitals would receive
up to $3,400, which, according to CMS, represents 50 percent
of the average cost of the drug.
2. Bone Morphogenetic Proteins (BMPs)
These proteins have the capacity to induce new bone
formation which could be used for a number of applications,
including spinal fusions. This application was rejected because
the technology has not yet been approved by the FDA for general
use. CMS states that if the FDA does provide approval prior
to when the PPS final rule is published (August 1, 2002) the
Agency will make a determination whether the proteins represent
a "substantial clinical improvement" over current options.
If the BMPs are approved, CMS estimates a maximum new technology
payment of $2,843.
3. ZyvoxTM
This drug is currently used predominantly for cases of gram-positive
bacteria that are resistant to other therapies. CMS rejected
this application because it stated that drug has been in use
since 2000, thus its costs are currently reflected in the
DRG weights.
4. RenewTM Radio Frequency Spinal Cord Stimulation
Therapy
This therapy is for the treatment of chronic intractable
pain of the trunk and limbs. CMS rejected this application
because it stated that the therapy has been in use since 1999,
thus its costs are currently reflected in the DRG weights.
Analysis
This policy is intended to pay for new cutting edge services
and technologies that would not otherwise receive adequate
Medicare reimbursement because the associated cost data is
not reflected in Medicare's MedPAR file. It is somewhat unclear
as to why so few applications were submitted. One reason may
be that submitters had to submit data concerning the new technology
by October, 2001-only one month after the issuance of the
September 7 final rule. Another issue may be that the qualifying
criteria are so stringent that only a very few number of technology
applications have a potential of being approved.
The AAMC has been following this issue closely. We seek any
input you may have regarding CMS' process for identifying
and paying for new technologies.
VI. The Disproportionate Share (DSH) Adjustment
A. Counting Beds (page 31462-63)
See discussion under IME section, II C, above.
B. Level of DSH Adjustment
While not addressed in the proposed rule, it is worth noting
that the DSH payment reductions that were specified in the
Balanced Budget Act of 1997 and subsequent legislation have
ended, effective with FFY 2003. Thus, FFY 2003 DSH payments
will not reflect the 3 percent reduction that was applied
to FFY 2002 DSH payments.
VII. Changes To The Hospital Wage Index (pages 31431-38)
The Medicare hospital wage index adjusts DRG payments to
reflect differences in labor costs across geographic areas.
The FFY 2003 wage index will be based on data from FFY 1999
hospital cost reports. Hospitals have until June 7 to notify
CMS of errors in its wage data due to a fiscal intermediary
or CMS error in the entry or tabulation of the final wage
data. To make this determination, hospitals should review
Table 2 of the proposed rule addendum (page 31519) as well
as the May 2002 final public use wage
data file, which is located on the CMS web site.
Increase in the Labor-Related Share (page 31447--49)
Background
The proportion of the PPS standardized rate to which the
wage index is applied is known as the "labor-related share."
Proposed Rule
As part of its initiative to update the hospital market
basket (see below), CMS recalculated the labor-related share
and has proposed to increase the share to 72.5 percent
from the current share of 71.1 percent.
Analysis
Most major teaching hospitals are in market areas that have
a wage index greater than one. Consequently, a higher labor
share would mean slightly higher DRG payments for these institutions.
While CMS has proposed increasing the labor share, its enthusiasm
for its decision seems equivocal. The Agency states it is
concerned about the impact of its decision on rural hospitals
because their wage indices generally are less than one. CMS
is currently in the process of reevaluating its current assumptions
used in the methodology to calculate the labor-related share.
B. Removal of Wage Costs Related to GME and Certified
Registered Nurse Anesthetists (CRNAs) (page 31432)
Background
In FFY 2000, CMS began a five-year phase-out of salaries
related to teaching physicians, residents and CRNAs in the
calculation of the wage index. Under that schedule, the FFY
2003 wage index would blend 20 percent of a wage index with
GME and CRNA costs included and 80 percent of a wage index
with GME and CRNA costs removed.
Proposed Rule
The proposed rule would remove 100 percent of the GME and
CRNA costs, rather than 80 percent, for the FFY 2003 wage
index.
Analysis
CMS' rationale for going directly to the 100 percent removal
is based on the results of an analysis Agency staff conducted
that removed 100 percent of these costs from the wage index.
The results indicated that 293 out of 373 labor market areas
would benefit from the removal. Of urban labor market areas
that would be negatively affected, the impacts on all but
two areas are less than 0.50 percent and the largest negative
impact is 1.12 percent. The proposed rule also notes that
the Medicare Payment Advisory Commission (MedPAC) had recommended
100 percent removal of GME and CRNA costs beginning with the
FFY 2002 wage index.
We oppose CMS' decision and believe the FFY 2003 wage index
should be based on only an 80 percent removal of the GME and
CRNA costs, which continues the 5 year phase-out process that
CMS has adhered to since FFY 2000. According to CMS' analysis
more than 20 percent of labor market areas (80) would be negatively
affected by the proposal to go directly to a 100 percent cave
out. Almost all of these areas are urban--where teaching hospitals
are more likely to be located. Moreover, regardless of the
impact, CMS' proposal would undo the results of an arduous
negotiating process among hospital associations that resulted
in the five-year phase-out plan that CMS adopted.
C. Collection of Occupational Mix Data (page 31432)
BIPA mandates that, beginning in FFY 2005, the hospital
wage index be adjusted to reflect the occupational mix of
employees. The initial data collection is to be completed
by September 30, 2003. In the proposed ruled, CMS stated that
the Agency is still working on developing a data collection
tool. CMS will issue instructions as to the type of data to
be collected in advance of actually requiring submission of
the data by hospitals.
Additional discussion on the inclusion of occupational mix
data in the wage index calculation can be found in the FFY
2002 inpatient PPS final rule (66 Fed. Reg. at 39860 (August
1, 2001)).
Analysis
The inclusion of an occupational mix adjustment into the
Medicare wage index could have important implications for
teaching hospitals. Many teaching hospitals tend to have a
more expensive "mix" of employees, which under the current
wage index methodology can result in a higher wage index for
the area where the hospital is located. The inclusion of an
occupational mix adjustment would essentially only recognize
differences across geographic areas in terms of the price
hospitals must pay for a particular labor category-the fact
that a hospital might have a larger quantity of higher-priced
employers (i.e., a richer "mix") would no longer be reflected
in the index. Consequently, it is possible that wage indices
for areas where teaching hospitals are located could be reduced.
The AAMC has been monitoring this issue closely and will
continue to do so. We will inform COTH members when CMS issues
its data collection instructions.
VIII. Outlier Payment Threshold (pages 31509-11)
Proposed Rule
The proposed rule would increase the fixed loss cost threshold
for outlier payments to be equal to a case's DRG payment plus
any IME and DSH payments, and any additional payments for
new technologies, plus $33,450. The threshold would applicable
for both operating and capital outlier payments. In FFY 2002,
the threshold was the DRG payment plus any IME and DSH payments,
plus $21,025. As in past years, hospitals will receive 80
percent of the costs that exceed the threshold levels.
Analysis
The FFY 2003 proposed cost threshold is almost 60 percent
higher than the level in FFY 2002-continuing a series of outlier
threshold increases that have occurred over the past several
years. A primary reason for the increase is due to higher
than expected outlier payments made in recent years. Outlier
payments are funded through a 5.1 percent reduction in the
PPS standardized payment amount. Consequently, CMS sets the
outlier cost threshold at a level that it believes will result
in outlier payments that equal 5.1 percent of total DRG payments.
However, CMS estimates that outlier payments represented 7.6
percent of total payments in FFY 2001, and 6.8 percent for
FFY 2001-amounts significantly more than the 5.1 percent payment
"pool." Thus, in order to reduce future outlier payments to
the projected 5.1 percent, CMS believes it must increase the
outlier threshold.
The AAMC is very concerned about the dramatic increase in
the outlier threshold, and the corresponding impact on teaching
hospitals that historically have received these payments.
We will be analyzing CMS' methodology closely to determine
whether such an increase is necessary.
IX. Rebasing The Hospital Market Basket (pages 31438-52)
Proposed Rule
CMS proposes to rebase and revise the hospital market basket
used as the basis for setting the standardized payment update.
The "basket" in the phrase "market basket" refers to the mix
of goods and services hospitals purchase to furnish inpatient
care. Each type of goods and services, for example employee
wages, are given a "weight" such that the total of all of
the weights in the market basket equals 100 percent. The percentage
change in the market basket reflects the average change in
the price of goods and services hospitals purchase in order
to furnish inpatient care.
Among other changes, CMS proposes to update the market basket
so that it reflects FFY 1997, rather than 1992 cost data.
In addition, CMS is planning on changing the source for obtaining
wage data, which would better reflect salary changes in hospitals.
CMS also proposes to add a separate component to the market
basket index to account for changes in blood prices.
Analysis
Having an updated and accurate hospital market basket is
critical because of its role in determining the update to
the DRG standardized payment rate. We are happy to see that
CMS is moving to a wage proxy that more closely reflects wage
changes within the hospital industry--the current index reflects
a blend of wages reflecting both hospitals and the general
economy. According to the proposed rule, hospital wages are
currently growing faster than those in the general economy.
X. DRG and ICD-9-CM Coding Changes (pages 31407-26)
Proposed Rule
The proposed rule would make a number of changes to the
DRGs, including creating a new DRG for heart assist devices.
CMS also reviewed whether a new DRG should be developed for
intestinal transplants. CMS decided against creating a new
DRG given that only nine intestinal transplantation cases
have been reported to the Agency.
CMS also addressed the issue of drug-eluting stents. CMS
noted that the FDA has not yet approved this technology. When
it is approved, CMS will assess to which DRG it should be
assigned. The manufacturer has been concerned that CMS will
assign it to a low-paying DRG.
Analysis
CMS' annual review of the DRG classification is critical
to ensure that cases are classified to the DRG with the most
appropriate payment rate. Unfortunately, the data lag associated
with newer cases and treatments may mean that a service could
be assigned to a low-paying DRG inappropriately and this assignment
cannot be changed until Medicare claims data are received
and reviewed by CMS staff--generally 2-3 years. It is because
of this situation that the new technology payment mechanism
was established (see above).
The discussion concerning drug-eluting stents is interesting.
These items have been purported to drastically improve the
treatment of multivessel disease, however they are significantly
more costly than current stents. We will be monitoring closely
CMS' activities regarding how to most appropriately pay for
these stents when they come on the market.
XI. Proposed Changes/Clarifications to EMTALA Requirements
(pages 31469-79)
Over the past several years, the enforcement and interpretation
of EMTALA (the Emergency Medical Treatment and Active Labor
Act, also known as the "anti-dumping law") has raised many
issues. CMS took the opportunity of the publication of
the proposed rule to also suggest important changes to
the EMTALA regulation and to clarify some requirements.
All proposed changes should be reviewed carefully. Below
are summaries of some of CMS's major proposals:
- Prior Authorization An emergency physician is not
precluded from contacting the patient's physician at any
time to seek advice regarding the patient's medical history
and needs that may be relevant to the medical screening
and treatment of the patient, as long as this consultation
does not inappropriately delay required screening or stabilization
services. A hospital must promptly contact the Medicare+Choice
organization after a Medicare+Choice enrollee who is treated
for an emergency medical condition is stabilized.
- Clarification of "Comes to the Emergency Department"
There has been much controversy about how to interpret the
meaning of the requirement "comes to the emergency department"
which is a trigger for EMTALA. CMS is proposing that EMTALA
will require that an individual comes to a "dedicated emergency
department." That term is defined as "a specially equipped
and staffed area of the hospital that is used a significant
portion of the time for the initial evaluation and treatment
of outpatients for emergency medical conditions . . .and
is either located: (1) on the main hospital campus; or (2)
off the main hospital campus and is treated by Medicare
as a department of the hospital." An individual who comes
to an area of a hospital other than a dedicated emergency
department must receive a medical screening only when the
individual requests examination or treatment for what may
be an emergency medical condition.
- Applicability of EMTALA: Individual Comes to the Dedicated
Emergency Department for Nonemergency Service. A hospital
has an EMTALA obligation with respect to any individual
who comes to the dedicated emergency department, if a request
is made on the individual's behalf for examination or treatment
for a medical condition, whether or not the treatment requested
is explicitly for an emergency condition. Hospitals are
not obligated to provide screening services beyond those
needed to determine whether or not there is an emergency.
- Applicability of EMTALA: Individual Comes to the Dedicated
Emergency Department for Emergency Service EMTALA is
triggered in on-campus areas of the hospital other than
a dedicated emergency department where, in an attempt to
gain access to the hospital for emergency care, an individual
comes to a hospital and requests an examination or treatment
for a medical condition that may be an emergency. There
would not be a requirement that each hospital have emergency
screening or treatment capabilities. The department may
arrange for appropriate staff to provide these services,
and care should be provided in the most appropriate setting,
as determined by the hospital.
- Applicability to Hospital Inpatients CMS has clarified
that except under limited circumstances, EMTALA does not
apply to hospital inpatients. However, once a hospital has
incurred an EMTALA obligation with respect to an individual,
that obligation continues while the individual remains at
the hospital, so that any transfer to another medial facility
or discharge must be in compliance with the rules restricting
transfer until the individual is stabilized.
- Applicability of EMTALA to Provider-Based Entities
CMS is proposing to narrow the applicability of EMTALA to
only those off-campus departments that fit within the definition
of a "dedicated emergency departments." If emergency services
are provided at the hospital but not at an off-campus department
of the hospital, the hospital's governing body must assure
that the medical staff of the hospital has written policies
and procedures with respect to off-campus departments for
appraisal of emergencies and referral when appropriate.
CMS proposes to clarify that EMTALA applies only to those
departments on the hospital's main campus that are provider-based.
It would not apply to provider-based entities (such as rural
health centers, or RHCs) that are on the hospital's main
campus.
- Applicability to Hospital-Owned Ambulances Currently
regulations state that if an individual is in an ambulance
owned and operated by a hospital, the individual is considered
to have come to the hospital's emergency department, even
if the ambulance is not on hospital property. CMS is proposing
to change the rule to state that EMTALA does not apply if
the ambulance is operating under a community-wide EMS protocol
that requires it to transport the individual to a hospital
other than the hospital that owns the ambulance.
Analysis
The AAMC supports the proposed change since they appear to
solve many of the problems with the current EMTALA regulation.
After members have reviewed the proposals, the Association
would appreciate hearing about whether there members believe
that additional clarifications or changes are needed.
XII. Provider-Based Entities (pages 31480-88)
CMS is proposing a number of changes related to criteria
for provider-based entities. It is important for every institution
that has provider-based entities, or is considering establishing
them, to review the proposals in detail. Below are synopses
of selected proposed changes.
- Further Delay in Effective Date of Provider-Based Rules
CMS is proposing that if a facility was treated as provider-based
in relation to a hospital or CAH on October 1, 2000 it will
continue to be treated as provider-based until the start
of the hospital's first cost reporting period beginning
on or after July 1, 2003. A facility will be considered
to have been provider-based on October 1, 2000 if, on that
date, it either has a written determination from CMS, or
was billing and being paid as aprovider-based entity
- Scope of Provider-Based Requirements CMS will not
make provider-based determinations with respect to various
organizational components or units of providers that may
be designated as "departments" or "organizations" but do
not themselves furnish types of services for which separate
payment could be claimed under Medicare or Medicaid. The
Agency then provides some examples of when it would be appropriate
to make a provider based determination. For instance, CMS
discusses the case of two acute care hospitals that have
approved graduate medical education programs (GME) merging
to form a single, multicampus hospital that consists of
the main hospital campus and a remote location. According
to CMS, it would be appropriate to make a determination
as to whether the remote location is provider-based with
respect to the main hospital campus because each hospital
with an approved residency training program has its own
specific cap on the number of residents, its own per resident
amount, and its own Medicare utilization for purposes of
receiving Medicare GME payments. This would result in a
level of Medicare GME payment to the merged hospital that
exceeds the sum of the payments that would be made to each
hospital as separate entities.
- Requirements Applicable to All Facilities or Organizations
CMS is proposing to simplify the requirements currently
in the regulation. All facilities seeking provider-based
status, including both on-campus and off-campus facilities,
would be required to comply with the existing requirements
regarding licensure, clinical services integration, and
public awareness. CMS is proposing a change to the financial
integration requirement in the current rule so that the
costs of a facility or organization that is a hospital department
must be reported in a cost center of the provider, and the
costs of a provider-based facility or organization other
than a hospital department must be reported in the appropriate
cost center(s) of the main provider.
- Additional Requirements for Off-Campus Facilities
CMS is proposing to retain requirements for off-campus facilities
that will ensure they are appropriately integrated with
the main provider, such as those related to operation under
the ownership and control of the main provider, administration
and s supervision, and location within 35 miles of the main
provider. The provider-based entity or organization also
would have to be located in the same state or, when consistent
with the laws of both states, in adjacent states.
Analysis
The AAMC supports the proposed changes in the provider-based
criteria. Members should review the complete changes thoroughly.
If problems with the CMS proposals are found, please notify
the AAMC.
XIII. Summary
This year's proposed rule has a number of important proposed
changes that could have a significant impact on teaching hospitals'
Medicare payments and other decisions regarding residency
education and clinical decisionmaking. If you have any questions
regarding the proposed rule or this summer, or additional
issues of which we should be aware, please contact Karen Fisher,
kfisher@aamc.org, 202-862-6140
(all issues except for EMTALA or provider-based) or Ivy Baer,
ibaer@aamc.org, 202-828-0490
(EMTALA and provider-based issues).
1. This is because in FFYs 1994 and 1995, an inflation update
was provided for primary care PRAs, but not for non-primary
care PRAs.
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