Re: Medicare Program; Correction of Certain Calendar Year 2002 Payment Rates Under the Hospital Outpatient Prospective Payment System and the Pro Rata Reduction on Transitional Pass-Through Payments; Correction of Technical and Typographical Errors

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Thursday, March 14th 2002

Thomas Scully
The Centers for Medicare & Medicaid Services
200 Independence Avenue, S.W., Room 443-G
Hubert H. Humphrey Building
Washington, DC 20201

Dear Mr. Scully:

On behalf of our nearly 5,000 member hospitals, health care systems, networks and other providers of ambulatory care, the American Hospital Association (AHA) is writing to express serious concern regarding the outpatient prospective payment system final rule published on March 1, 2002, for implementation beginning April 1, 2002.

Like its predecessors, the new rule still lacks the information necessary to ensure that the technical errors the Centers for Medicare & Medicaid Services (CMS) identified in the November 30, 2001 outpatient final rule have been appropriately rectified. In addition, the rule makes significant changes to outlier payments without any explanation as to how these funds were reallocated, if they indeed were, among the ambulatory payment classifications (APCs).

CMS delayed implementation of the CY 2002 outpatient prospective payment system (PPS) rates set to take effect January 1, 2002. According to CMS, it did so in order to correct a number of technical miscalculations in the assignment of the cost of certain new technology devices to related procedure codes. CMS claimed the magnitude of these errors was significant enough to affect the payment rates for not just those APCs receiving pass-through payments, but for all procedure-related APCs. It now appears that these errors were so vast that the new rule estimates that the total pool for pass-through in CY 2002 will be $1.2 billion, hence subjecting it to a pro rata reduction of 63.6 percent rather than the previously estimated 68.9 percent.

The AHA continues to be concerned that CMS has not released complete data and methodology to allow interested parties to confirm CMS' calculations and assure that significant technical errors still do not remain. It is critical that any decision about payment reductions is based on sound data. Yet the data and crosswalk used to determine these new rates have not been released. Thus, it is impossible to perform any outside evaluation confirming the new APC weights and rates, the new estimated level of pass through payments, and the new pro rata reduction. Hospitals and other interested parties have not been given the data or information about methodology needed to review the new rates and codes to assure that they are, in fact, now accurate.

In the March 1, 2002 final rule, CMS announced that it would be reducing the amount set aside for outlier payments from 2.0 percent to 1.5 percent of total outpatient PPS payments. In doing so, it was necessary for CMS to increase the outlier threshold from 3.0 times to 3.5 times the applicable APC payment for a service. Outlier payments are necessary to offset a portion of the losses incurred by hospitals to treat extremely high-cost patients. The AHA has continually advocated for protection of this pool of funds, as it is our understanding that outlier payments are being fully utilized by both large and small, urban and rural, hospitals.

Again nothing in the rule provides the information necessary to identify where monies removed from the outlier pool, estimated at $85 million, have been reallocated. It is unclear whether these funds were used to increase the base rate, although it appears unlikely because the conversion factor remains at $50.90, or whether they were use to raise specific APC weights and rates, although no list of these APCs or rational as to how they were determined was provided, or whether the funds were used to diminish the pro rata reduction from 68.9 percent to 63.6 percent. Without information, it also appears possible that these funds may have been removed from the outpatient payment system altogether. Information about these outlier payments is critical and absolutely necessary in order to verify whether the policy changes made by CMS are accurate and sound.

The AHA requests that CMS immediately release the data and methodology on which the new March 1, 2002 final rule is based, and specifically clarify the use of the funds removed from the outlier pool. Without a release of the information on which CMS has based its decision, third parties cannot possibly analyze or help correct any mistakes in the rule, which would benefit the public at large.



Rick Pollack
Executive Vice President


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