Category: Reimbursement

CMS Releases CY 2018 OPPS and ASC Payment System Final Rules Slashing Reimbursement for the 340B Program

On November 1, 2017 the Centers for Medicare and Medicaid Services (CMS) issued its final rule updating payment rates and policy changes for the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System.

The most controversial aspect of the Rule is the significant reductions to reimbursement for drugs purchased through the 340B program. The final Rule reduces reimbursement for such drugs from the Average Sale Price (ASP) plus 6% to ASP minus 22.5%.  CMS indicated that it selected this reimbursement rate based on an analysis previously performed by the Medicare Payment Advisory Commission (MedPAC).  However, this reduction greatly exceeds that suggested by MedPAC who when commenting on the proposed Rule recommended a reduction of only 10% of the ASP.  Thus, it is unclear exactly what CMS ultimately relied upon to determine the appropriateness of the ASP minus 22.5% rate.

These reductions exclude certain facilities including Rural Sole Community Hospitals, Children’s’ Hospitals and PPS-Exempt Cancer Hospitals. The Rule also does not apply to Critical Access Hospitals and non-excepted provider based sites under Section 603 of the Bipartisan Budget Act.  Each of these facilities will continue to be paid at the prior rate of ASP plus 6%.

CMS anticipates this policy will result in a decrease of $1.6 billion in drug payments which will be redistributed to non-drug items and services throughout the OPPS to maintain budget neutrality. CMS indicates that overall OPPS payments will increase in 2018 by 1.4%.  Nevertheless, 340B facilities will see significant decreases in drug reimbursement in CY 2018.

Unsurprisingly, the reductions in 340B reimbursement have been met with great criticism from the impacted parties. Indeed, within two weeks of the issuance of the final rule several hospital associations and hospitals filed suit seeking to enjoin the implementation of this provision in the CY 2018 OPPS Rule.  The government has moved to dismiss and a hearing on the matter is scheduled for December 21, 2017.

While the reduction in 340B payments is the most significant change in the final Rule, there are several other aspects of the Rule worth commenting on:

  • The Rule increases OPPS payment rates by 1.35% and ASC payment rates by 1.2%.
  • The Rule removes Total Knee Arthroplasty from the Medicare inpatient only list, thereby allowing reimbursement for such procedures performed on an outpatient basis.
  • The Rule also establishes a new modifier, “FY” to be used to identify X-rays taken using computed radiography technology. Claims submitted with this modifier will be subject to phased-in payment reductions of 7% for services provided in CY 2018 through CY 2022 and 10% for services provided in or after CY 2023.
  • The Rule will also allow laboratories to bill Medicare directly for molecular pathology tests and advanced diagnostic laboratory tests in order to reduce concerns that the current date of service policy known as the “14 Day Rule” creates operational burdens for hospitals and laboratories.

Absent the Court issuing a preliminary injunction in the previously mentioned lawsuit, each of these rule changes will become effective January 1, 2018.

Hospitals Challenged by the Required Care to Undocumented Immigrants

Medical institutions are facing a dilemma in providing care to undocumented immigrants. While being required to administer emergency care upon a patient’s arrival, once stabilized, providers are finding it difficult to place these individuals in long term care and other sub-acute care facilities. This is the result of their immigration status, which prevents many of the potential financial compensation that might otherwise be available via Medicare, Medicaid or private payor. Without any insurance, these sub-acute care facilities refuse to take the patients leaving the acute care facilities with patients that are unable to be discharged and have no source of funding for their care.

Undocumented immigrants typically have no insurance so they rely on emergency rooms. Federal and state laws require healthcare providers to provide care regardless of legal status and/or ability to pay. The New Jersey “Take all Comers” Statute (N.J.S.A. 26:2H-18.64) dictates that no hospital shall deny any admission or appropriate service to a patient on the basis of that patient’s ability to pay or source of payment. However, this does not require a hospital to perform non-emergency or elective services. Hospitals across the country find themselves in a mystified state and ask themselves “What can we do?”. In order to best accommodate the needs of undocumented individuals and protect the hospital it is vital to make sure ER physicians are appropriately triaging patients and only admitting those that need to be admitted. Additionally, social workers and staff must be diligent in determining elective medical requests.

Many health care providers are left with the difficult decision of whether to attempt to try and return the undocumented immigrant to their native land via coordination of a transfer to an appropriate sub-acute facility there. This is referred to as repatriation. This process is not regulated by the federal government and limited case law exists on the subject. Moreover, no New Jersey State agency has a policy in place on the practice. Hospitals willing to pursue this course of action must be mindful that many patients do not wish to voluntarily go. Thus, hospitals in those situations should consider seeking a court order to permit an involuntary transport. As in many areas of the law, litigation is a constant threat and predicting the outcome is difficult given the lack of precedent in this area of the law. As such, hospitals should proceed with caution and following consultation with counsel whenever met with resistance from an undocumented patient. Ultimately, coordination with families and social workers is critical in exploring all options for both the patient and the hospital before resorting to litigation. However, when faced with a patient that refused to cooperate and the threat of limitless uncompensated medical bills, repatriation may be a hospital’s only remaining option.

 

Say Goodnight To The Two Midnight Rule’s Payment Reductions

The Two Midnight Rule, which was introduced as part of CMS’ FY 2014 Inpatient Prospective Payment System (“IPPS”) rule, dictates that when a physician expects a beneficiary to require care that crosses two midnights and admits the beneficiary based on that expectation, Medicare Part A payment is generally appropriate.  Conversely, if the beneficiary’s hospital stay is expected to be less than a period spanning two midnights, payment under Medicare Part A is generally inappropriate.

Because CMS anticipated significant increases in expenditures as a result of the Two Midnight Rule, CMS exercised the Secretary’s “broad authority” under 42 U.S.C. 11395ww(d)(5)(I)(i) to impose a 0.2% reduction to the national capital federal rate in FY 2014 to offset the anticipated increase in expenditures.  That same reduction was applied to the national capital federal rate in FY 2015 and FY 2016 as well.

In connection with the adoption of the Two Midnight Rule numerous commenters questioned the validity of the Secretary’s prediction of increased expenditures, upon which the decision to reduce rates was based. However, CMS never addressed these comments in detail when adopting its final rule except to say that the reductions were an appropriate use of the Secretary’s statutory exceptions and adjustments authority.

Having not received an adequate response to their comments during the rule making process, numerous hospitals filed suit challenging the 0.2% reduction. Several of those suits were consolidated before the United States District Court for the District of Columbia under the caption Shands Jacksonville Medical Center, et al. v. Burwell, Consolidated Civil Case Nos. 14-263, 14-503, 14-536, 14-607, 14-976, 14-1477 (the “Shands Litigation”).

On September 21, 2015 the Court in the Shands Litigation found that the Secretary’s failure to disclose critical assumptions made by the actuaries who calculated the alleged increase in expenditures, which was relied upon to impose the 0.2% reduction, failed to meet the standards of the Administrative Procedures Act by depriving the public of a meaningful opportunity to comment on the proposed rule. As a result, the Court remanded the matter back to the agency for further proceedings regarding the adequacy of the 0.2% reduction.

After remand, CMS issued public notice of the basis for the 0.2% reduction and its underlying assumptions.  As a result of the comments received to that public notice, CMS eliminated the 0.2% reduction for FY 2017 in connection with the FY 2017 IPPS final rule.  Additionally, CMS adjusted the FY 2017 capital IPPS rate to effectively eliminate the impact of the 0.2% reduction to rates in previous years by implementing a one-time prospective adjustment of 1.006 in FY 2017 to the national capital Federal rate.

Despite implementing this adjustment, CMS denies any error and continues to maintain that “the assumptions underlying the 0.2% reduction to the rates put in place beginning in FY 2014 were reasonable at the time we made them in 2013.”  Nevertheless, whether CMS recognized its error, or felt compelled to make this change as a result of the Shands Litigation, the end result is the same for hospitals throughout the country.  They have been relieved of the burden imposed by the 0.2% reduction associated with the adoption of the Two Midnight Rule.

 

Extrapolation – Coming to a Hospital Near You

A review of the OIG’s daily bulletins reveals the common use of extrapolation in its audit of hospitals. Subsets of records identified by the government as statistically valid are regularly reviewed at hospitals across the country and then the identified error rate projected out across all reimbursement for the facility. As a result, $600,000 worth of identified overpayments within a subset is routinely extrapolated to a demand for repayment of over $10 million. One such recent example occurred at the University of Cincinnati Medical Center. This leaves hospitals in the precarious position of deciding whether to challenge the government’s error rate and risk revealing an even greater percentage of overpayments or accepting a repayment the facility knows is not based on a review of all claims composing that $10 million figure.

This controversial practice of extrapolation has been around for decades as courts have permitted the practice by government agencies and their contractors. Courts have recognized the importance of extrapolation as a means of performing realistic and practical audits, given the enormous number of claims at issue and the limited resources of the federal government to investigate. See e.g. Ratanasen v. California, 11 F.3d 1467 (9th Cir. 1993); Yorktown Medical Laboratory, Inc. v. Perales, 948 F.2d 84, 89–90 (2d Cir. 1991); and Chaves County Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991). As previously discussed on this blog, the United States District Court in Tennessee has even go so far as to allow extrapolation as a means of establishing liability in a False Claims Act litigation.

Extrapolation does have its limits and Congress has specifically stated that “[a] medicare contractor may not use extrapolation to determine overpayment amounts to be recovered by recoupment, offset, or otherwise unless the Secretary determines that — (A) there is a sustained or high level of payment error; or (B) documented educational intervention has failed to correct the payment error.” However, there is no such express limitation on audits conducted by the OIG, which is what has caused concern for many hospitals and the American Hospital Association (“AHA”). The concern is that the government is using the OIG as a proxy for CMS and the Medicare Administrative Contractors to perform extrapolation despite no determination by the Secretary that “there [was] a sustained or high level of payment error” or that “documented educational intervention [had] failed to correct the payment error.” Thus, by having the OIG perform the audits, this prerequisite to extrapolation is avoided. The AHA has argued that the MAC has been using the OIG as a sort of subcontractor and impermissibly attempting to do an end-run around the congressionally-imposed limits on the MAC’s ability to utilize extrapolation. To date, challenges to the practice have been unsuccessful and thus the practice continues.

Thus, hospitals must be proactive in identifying and correcting errors before the auditors arrive. A review of recent OIG audits reveals a pattern of common areas of problems that are being seized upon by the government. These areas include inpatient short stays, incorrectly billed inpatient stays and improper DRG coding. For additional information please see our prior posts discussing these areas of focus by the OIG audits and our discussion of the new additions to the OIG Work Plan for 2015, both of which will provide some insight into where the government is focusing its efforts.

Extrapolation appears to be here to stay and therefore hospitals must be proactive in their compliance efforts and in coordinating the proactive internal reviews necessary to identify and correct these issues before the OIG auditors knock on the door.

Be Prepared for the New ICD-10 Reimbursement Coding Standard

On October 1, 2014 the reimbursement process for the United States health care system will become significantly more complicated. On this date, a new system for recording injuries, medical diagnoses, and inpatient procedures will go into effect. It is known as ICD-10, the 10th version of the International Classification of Diseases created by the World Health Organization.

Of particular concern to the industry is the explosion of the number of codes from 17,000 under the current system to approximately 155,000 under ICD-10. As a consequence, the pressure and stress on already strained health care professionals and their staffs to properly code a particular service will only increase. This means the new system must be implemented and learned by the deadline or providers risk losing reimbursement due to coding errors. And, with the explosion of new codes, many in the health care industry fear there will be a significant learning curve when diagnoses in ICD-10 have exploded to include every conceivable iteration of an injury or disease. For example, in ICD-9 there were nine codes for bites while under ICD-10 there are over 300. Proponents of the new standard argue that there is a systematic approach and hierarchy to the coding which makes it easy to navigate. They also argue that such a system is beneficial because it provides a greater level of detail for predictive analytics, which every business can utilize to better assess its services and improve quality and performance. Many in the industry appear skeptical that this will be the case. Regardless, the health care system will have to become familiar with the following, which are only a sampling of the entertaining and frankly absurd examples of coding specificity in ICD-10:

  • V9733XA – sucked into jet engine, initial encounter;
  • V80731A – occupant of animal-drawn vehicle injured in collision with streetcar, initial encounter;
  • V9027XA – drowning and submersion due to falling or jumping from burning water-skis, initial encounter;
  • T71232A – asphyxiation due to being trapped in a (discarded) refrigerator, intentional self-harm, initial encounter; and
  • T63813A – toxic effect of contact with venomous frog, assault, initial encounter.

Aside from the complexity of the new system, what is also alarming is the fact that until recently, despite the numerous setbacks and embarrassments from implementation of the Affordable Care Act and HealthCare,gov, the Center for Medicare and Medicaid Services (CMS) had no plans to conduct end-to-end testing of the system before the October launch date. A February 18, 2014 letter from four Republican senators to the CMS administrator, which urged testing, finally resulted in CMS announcing it would offer limited end-to-end testing sometime in the summer of 2014 with details to be disseminated at a later time. It remains to be seen if the testing will actually occur or how robust it will be to prepare the system for this major change.

While the deadline for implementation has already been delayed twice, CMS has issued stern warnings to the industry that the current October 1, 2014 deadline is a firm deadline. As a result, the health care system is trying to figure out how to go about implementing and preparing for the changes. As of 2008, a study by the health care IT firm Nachimson Advisors warned that estimated total costs for implementation would be $83,290 for a small practice (3 physicians and 2 administrative staffers), $285,195 for a medium practice (10 providers, 1 professional coder, and 6 administrative staffers), and $2.7 million for a large practice (100 providers, 10 full-time coding staffers, and 54 medical records staffers).

The American Medical Association, an opponent of the ICD-10 implementation, has a significant amount of literature on its website regarding challenges to the adoption of the standard as well as recommended action for providers to prepare for the October 1, 2014 deadline. The materials can be found here.