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AAMC Expresses Concern about FY 2014 IPPS Proposed Rule HAC Reductions Program and DSH Payment Formula Changes

June 28, 2013—The AAMC submitted a June 25 letter on the Medicare fiscal year (FY) 2014 hospital inpatient proposed rule, commenting on the methodology to change the disproportionate share hospital (DSH) payment formula as required by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152).  The letter also expresses concerns about CMS proposals to implement the Hospital-Acquired Conditions (HAC) Reductions Program in FY 2015 and its disproportional impact to teaching hospitals.

While DSH payments were originally designed to compensate hospitals for the additional costs of treating uninsured patients, Congress changed the formula under the ACA to account for the increasing number of individuals who will be insured.  The AAMC letter supports several of the agency’s proposals to implement these changes, but urges CMS to modify certain proposals to avoid unintended consequences. 

Specifically, the AAMC letter supports the proposed proxy of using Medicaid inpatient days and Medicare Supplemental Security Income inpatient days to calculate a hospital’s costs in treating the uninsured until a better source of data is identified and validated.  At the same time, the Association is very concerned that Medicare Advantage (MA) plans will underpay hospitals if the CMS-proposed uncompensated care payment methodology is finalized as a periodic interim payment as proposed.  To prevent this, the AAMC urges CMS to ensure that all DSH payments and uncompensated care payments are accounted for in the Medicare rates and the CMS Medicare IPPS PRICER components on which MA plan payments are based.  Otherwise, MA payments in FY 2014 may be based on a 75 percent cut in hospital Medicare DSH payments.  As a result, AAMC estimates hospitals will be underpaid by $3 billion.

The AAMC also comments on the new HAC Reduction program, which is proposed to start in FY 2015.  This pay-for-performance program, created under section 3008 of the ACA, will automatically affect 25 percent of all hospitals with the worst performance on HACs.  The penalty disproportionately affects teaching hospitals, as CMS estimates that over half of these institutions will be hit with the HAC penalty. 

The AAMC expresses concern that the penalty is more correlated to the size of the institution than to the quality of care being provided; however, CMS has not released the data files that were used to perform their analysis, making further review difficult.  The AAMC strongly recommends in its comments that CMS release these files and provide additional time for stakeholders to make informed comments on the program’s methodology before it is finalized. 

Under the statute, hospitals that are affected by this penalty will face a 1 percent reduction in all discharge payments, which could be interpreted to include add-ons such as DSH and Medicare Indirect Medical Education (IME) payments.  Including add-on payments increases the penalty for major teaching hospitals by more than 60 percent, compared to 20 percent for all other hospitals. The Association strongly recommends that the penalty be restricted to only the base-operating MS-DRG payment, as is the case for the Readmissions Reduction and Value-Based Purchasing (VBP) programs. 

The AAMC made additional comments that CMS review all of the hospital quality pay-for-performance programs holistically to examine and remove overlapping measures in multiple programs, particularly for measures in the HAC and VBP programs.  The AAMC also comments that all quality measures proposed for any performance program be first adopted for the inpatient quality reporting program (IQR). Regarding the VBP program, the Association urges CMS to place greater weight on the process of care measures for FYs 2016 and 2017, and notes concerns with the methodology and relative weight of the Medicare Spending Per Beneficiary (MSPB) measure. Lastly, in the Readmissions Reduction program, the AAMC again urges CMS to adjust or stratify readmissions rates by socio-economic status factors to ensure that institutions that treat medically complex and disadvantage patients are not unfairly penalized.

On the graduate medical education front, the AAMC letter encourages CMS not to finalize the proposal to include labor and delivery days as inpatient days in the Medicare utilization calculation used to determine Direct Graduate Medical Education (DGME) payments.  The Association’s comments explain that Congress did not direct CMS to make this change, and the Medicare program does not generally cover services for labor and delivery.  The AAMC letter also strongly urges CMS not to finalize the proposal that prohibits teaching hospitals from counting the time residents spend training in rotations to critical access hospitals (CAHs) for DGME and IME purposes.  This proposed change would have the adverse effect of discouraging training outside the hospital that plays a critical role in combating physician shortages in rural and underserved areas.


Scott Wetzel, M.P.P.
Lead, Quality Reporting
Telephone: 202-828-0495

Mary Patton Wheatley, M.S.
Director, Health Care Affairs
Telephone: 202-862-6297


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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