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Hospital Payment Increase Totals $27 Million Nationwide in Proposed CMS Rule

By Jane Norman and John Reichard, CQ HealthBeat Associate Editor

April 26, 2013 -- Hospitals would get a fairly skimpy net rate increase of 0.8 percent in fiscal 2014, under a rule that the Centers for Medicare and Medicaid Services (CMS) posted late last week.

In addition, that large of an increase would go only to hospitals that successfully participate in a quality reporting program developed by CMS, according to documents released by the agency. Those hospitals that are not successful would get slapped with a penalty equal to a 2-percentage-point reduction in that proposed payment increase.

In addition, the proposal reveals how CMS plans to administer a new patient safety program that's part of the health care law (PL 111-148, PL 111-152) and will be launched in fiscal 2015.

These quality-focused provisions and others continue the Obama administration's stress on trying to more closely link hospital payments to how well institutions perform, rather than simply the number of patients they treat.

"The new policies in this proposed rule support hospitals' important work and the people with Medicare who depend on them by promoting safety and care improvement," said Marilyn Tavenner, acting CMS administrator, in a statement.

Compared with fiscal 2013, total inpatient hospital payments for both operating and capital payments in fiscal 2014 are projected to increase by $27 million.

The proposal would apply to about 3,400 acute-care hospitals as well as 440 long-term-care hospitals and would be effective for discharges on or after Oct. 1. Long-term-care hospitals would receive a payment increase of 1.1 percent under the proposal, or about $62 million in all.

The proposed 1,424-page rule will be published in the Federal Register on May 10.

CMS sets rates in advance for hospitals based on patients' diagnoses and the severity of their illnesses.

Overall, the increase would be 0.8 percent. That is computed by starting with a 2.5 percent increase to account for increases in the costs of goods and services used by hospitals. But that's then decreased after CMS takes into account various adjustments, including reductions required under the health care law and for earlier overpayments due to documentation and coding changes. Those overpayments of $11 billion are to be recovered during the next three years as well.

Among the notable features of the proposal are the shifts of money that occur among states stemming from what are known as the "rural floor" and the "imputed floor" provisions. For example, Massachusetts hospitals together would get $169 million more from Medicare even though only one facility in the state is designated as rural. Many other states are in for reductions stemming from the floor provisions, in part because of the shift to Massachusetts. Massachusetts is by far the biggest beneficiary of the floor provisions, with critics calling the shift of money to the state's hospitals "the Massachusetts manipulation."

Health law provisions leave a big imprint on the proposal. For example, more money is being tied to how well hospitals perform on quality measures. This is part of what's called the Value Based Purchasing program.

The proposal increases to $1.1 billion the pool of money from which payments are taken to pay facilities that perform well on quality scores. The proposal creates that pool by reducing Medicare inpatient hospital payments to all facilities initially by 1.25 percent. Facilities that perform well get all that back and more and would end up with a net increase of 0.8 percentage points.

Another big change relates to provisions of the overhaul that lower payments if patients in a hospital acquire an infection or the facility performs poorly on other patient safety measures. Infections and unsafe forms of care fall under the rubric of "hospital-acquired conditions."

The proposal outlines a framework for starting these payment changes in fiscal 2015. "Under this program, hospitals that rank in the lowest-performing quartile of hospital acquired conditions would be paid 99 percent of what they would otherwise would be paid" in fiscal 2015, the proposed rule says.

Two sets of measurements would be applied. One consists of six patient safety measures. These include the incidence of pressure ulcers, or bed sores; the "volume of foreign objects left in the body; "the rate of "accidental puncture and laceration"; and post-operative pulmonary embolism, among others.

The second set of measures relates to infections. They include catheter associated urinary tract infections and blood stream infections associated with the "central line" used to stream medications into the patient through insertion in the neck or chest.

The proposal also increases penalties in fiscal 2014 for certain preventable hospital readmissions. The maximum reduction under this program was 1 percent of payments in fiscal 2013. In fiscal 2014, the proposal increases that to 2 percent. The readmission penalties currently relate to heart attack, heart failure, and pneumonia. CMS is proposing to add two new readmission measures in fiscal 2014 that would be used to dock payments in fiscal 2015. They are readmissions for chronic obstructive pulmonary disease and for hip/knee arthroplasty.

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