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CMS Goes on Offense on IPPS Proposal

By Mary Agnes Carey, CQ HealthBeat Associate Editor

JULY 21, 2006 -- Within one week, the Centers for Medicare and Medicaid Services (CMS) has twice defended its sweeping plan to change the way Medicare pays for inpatient hospital procedures as lawmakers and medical groups continue to push for a one-year delay.

In a July 20 letter to Sen. Rick Santorum, R-Pa., that CMS made public late Thursday, Administrator Mark B. McClellan wrote that proposed changes to Medicare's hospital inpatient prospective payment system (IPPS) to be issued Aug. 1 "will reflect modifications as appropriate to achieve the goal of smooth and effective implementation" based on a review of comments the agency has received. Santorum and 52 other senators, as well as 189 House lawmakers, had written to McClellan on July 13 asking for the payment changes to be delayed for one year.

McClellan's letter, which was sent to all the lawmakers, came just three days after CMS published a news release that detailed why the agency believes the payment changes are necessary. The Bush administration wants to ensure that taxpayer dollars "are spent wisely so Medicare is not overpaying for some services, while underpaying for more severely ill patients and those with more complex illnesses," the agency stated, adding that payments to all hospitals would increase by 3.4 percent in fiscal 2007.

Both CMS moves follow pressure by Capitol Hill lawmakers, a coalition of medical device makers, hospitals, and medical specialty and patient groups that have urged a one-year delay for implementation of the changes. Among other concerns, the groups and legislators have questioned the accuracy of the methods used to calculate the proposed changes, and they say that hospitals need more time to adjust their planning and business operations for the changes, of which some are scheduled to take effect Oct. 1, 2006.

While the letter and news release show the administration pushing back against key lawmakers and powerful health care interest groups, McClellan's wording that the agency is "acutely aware of the disruptions that could occur if major changes are made too quickly or inappropriately" also might mean CMS is leaning toward a delay.

"McClellan's letter suggests that the proposal will be phased in," Paul Heldman, health care analyst for the investment firm Citigroup, wrote in a July 20 report. "We also infer from the letter that Medicare will propose at least a modest delay in the start of the new payment system."

At issue are two parts of the rule proposed by CMS for updating Medicare inpatient payments to hospitals. One is switching to "cost-based payment weights" in an attempt to make payments more closely reflect a hospital's actual cost of delivering care to a patient rather than its charges for doing so. The second calls for adoption of "severity-adjusted payments," which seek to pay hospitals less if a patient with a particular condition is relatively healthy otherwise or more if the patient is relatively sick and therefore more costly to treat.

The proposed rule calls for the cost-based payment weights to begin Oct. 1, 2006, and the severity adjustments to start one year later.

In his letter, McClellan said CMS had received comments "on how the recommended reforms can be improved, what transition steps are needed to avoid any disruptions from sudden changes in the payment system, and what steps can be taken to limit any potential short-term impact of the proposal. "

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