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Washington Highlights

Ways and Means Committee Releases Medicare Hospital Bill

November 21, 2014—House Ways and Means Health Subcommittee Chair Kevin Brady (R-Texas) Nov. 19 released the Hospital Improvements for Payment (HIP) Act of 2014, discussion draft legislation that would address the Centers for Medicare and Medicaid Services’ (CMS) Two Midnight policy, create a new “hospital prospective payment system” (HPPS) for hospital short-term stays, and enact Recovery Audit Contractors (RAC) reform. The legislation also includes numerous hospital reform policy priorities introduced by Ways and Means Committee members during the 113th Congress. Chairman Brady is seeking stakeholder and public comments on the draft legislation prior to introduction in the 114th Congress.

To replace the Two Midnight rule, the draft would create a transitional policy for 2016-2019 and then a long-term short stay policy (the HPPS). A “short-term hospital stay” would be defined as either a discharge that has an actual length of stay (LOS) less than three days and is classified to an MS-DRG that has a national average LOS that is less than three days and is among the highest percentage (such as the top 50 percent) of DRGs for which payment has been denied for medical necessity by RACs, or as an observation stay longer than 24 hours. The Secretary of Health and Human Services (HHS) can expand this definition to include a larger subset of inpatient short-term discharges after fiscal year (FY) 2017.

The temporary short stay payment policy would create a payment pool for short-term hospital stays. This pool could be reduced by a currently undetermined amount, presumably to generate savings. The base payment rate for all short-term hospital stay services paid from the pool would be calculated based on the final size of the pool. 

The temporary policy would require hospitals to submit two claims for short-term hospital stays (one inpatient claim and one outpatient claim). The provider would be paid based on the inpatient claim, but the outpatient claim would be used to collect data and establish a new HPPS blended payment rate for short stays. Additionally, the draft includes a section to repeal the 0.2 percent ($220 million) cut to Inpatient Prospective Payment System payments that CMS finalized along with the Two Midnight rule.

Starting Oct. 1, 2019, the bill would replace the temporary short hospital stay payment policy with the site neutral HPPS. As part of the HPPS, Medicare indirect medical education (IME) and disproportionate share hospital (DSH) payment adjustments associated with inpatient short-term hospital services would be aggregated and incorporated into a blended base rate.

As a result, IME and DSH payments would be spread among all hospitals regardless of whether they engage in graduate medical education, provide continuous specialized services, or treat a disproportionate share of low-income patients. Once the blended payment rate is determined, no separate payment adjustments would be made to any hospitals for IME and DSH for short-term hospital stays (essentially eliminating IME and DSH from the HPPS). A separate weight system would also be established for short-term hospital stays.

The bill would establish a “RAC Compare” website by October 2015 to increase transparency regarding RAC reviews. Claims that are dismissed or remanded would not be considered claim denials, and therefore, would not be reported on the website. Other RAC reforms in the draft include maximizing the look-back period for RACs to three years instead of four, and requiring a period of 20 days for providers to have a discussion with the RAC before the RAC transmits to the Medicare Audit Contractor (MAC) for adjustment or recoupment. The bill would also create limits for additional documentation requests and includes language to prevent duplicative audits.

To address the current appeals backlog, the draft includes a new settlement process that would be available to hospitals for medical claims. Through notice and comment rulemaking, the secretary would have the discretion to set the rate to be paid for settlements. The draft also points out there are no data to support the 68 percent settlement rate that was offered to hospitals and that Chairman Brady sent a Sept. 15 letter to Secretary Burwell requesting “the empirical analysis used to justify offering a settlement rate.”

Finally, part of the member priority section the draft includes Rep. Jim Renacci’s (R-Ohio) Establishing Beneficiary Equity in the Hospital Readmissions Program Act (H.R. 4188). This AAMC-endorsed legislation would amend the Hospital Readmission Reduction Program (HRRP) to adjust for patient disparities such as socioeconomic status [see Washington Highlights, Feb. 28].


Len Marquez
Director, Government Relations
Telephone: 202-862-6281


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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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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806