Re: CMS-1177-P- Medicare Prospective Payment System for Long Term Care Hospitals Proposed Rule (67 Federal Register 13416), March 22, 2002.

Liberty Place, Suite 700
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Wednesday, May 22nd 2002

Thomas A. Scully
Centers for Medicare & Medicaid Services
200 Independence Avenue, S.W., Room 443-G
Washington, DC 20201

Dear Mr. Scully:

On behalf of our nearly 5,000 hospital, health system and other health care provider members, the American Hospital Association (AHA) welcomes the opportunity to respond to the Centers for Medicare & Medicaid Services' (CMS) proposed rule establishing the prospective payment system for long term care hospitals (LTCHs).

The AHA supports a prospective payment system (PPS) for LTCHs, which provides incentives for the efficient use of resources at the appropriate level of care. For the most part, we believe the proposed system accurately predicts resources expended to treat long term acute care patients, given the constraints of the available data and the relatively limited numbers of LTCHs. The proposed long term care hospital PPS moves in this direction by using a case-mix-adjusted discharge as the unit of payment, which the AHA strongly supports. We commend CMS for its work in developing the case-mix and payment system.

While the AHA supports adoption of a discharge-based PPS, we are concerned about some of CMS' policy decisions, as well as the design of specific technical features of the PPS. Our major concerns are summarized below, and a more detailed discussion of specific issues and recommendations is contained in the attachment.

  • We are concerned about the practical effect of changing the 25-day length of stay rule for determining whether a hospital can be certified as an LTCH, particularly on those hospitals with disproportionate numbers of patients that exhaust their inpatient Medicare Part A coverage during a stay at an LTCH.

  • The proposed LTCH-PPS lacks critical payment adjustments considered routine in other Medicare prospective payment systems, such as a wage index or disproportionate share adjustment.

  • CMS appears over-sensitive to the financial implications of short-stay cases and has proposed excessively redundant policies.

Together, these policy decisions raise the prospect that certain LTCHs, particularly those that admit large numbers of dually eligible (Medicare & Medicaid) patients, may be treated unfairly under the new LTCH-PPS. As with other Medicare payment systems, the AHA is also concerned about the impact of prospective payment on those hospitals that admit and retain medically complex patients, such as spinal cord injury and ventilator patients.

The AHA believes that these concerns can be addressed prior to implementation and we look forward to continuing to work with CMS to that end. If you have any questions regarding these comments, please feel free to contact Brian Ellsworth, Senior Associate Director, Policy, at (202) 626-2320.


Rick Pollack
Executive Vice President



Comments by the American Hospital Association on the
Proposed Prospective Payment System for Long-Term Care Hospitals


On March 22, 2002, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register a proposed rule to establish a prospective payment system (PPS) for inpatient services provided by long term care hospitals (LTCHs). Such hospitals were excluded from the FY 1984 implementation of the acute care hospital inpatient PPS because their patients, on average, had longer stays than average general acute care hospitals. Currently, Medicare payments to such hospitals are based on reimbursable costs and paid under the TEFRA system.

The proposed LTCH-PPS is effective for all designated LTCHs beginning October 1, 2002. The LTCH-PPS would use a discharge as the payment unit and payment amounts would be updated annually. The proposed payment rates would include both inpatient operating and capital-related costs, but not certain other costs such as bad debts, approved educational activities, blood clotting factors, etc. Such costs would continue to be paid on a cost reimbursement basis.

LTCHs' PPS rates would be determined using relative weights to account for variation in resource use among LTC-DRGs, and additional payments would be made to high cost outliers. During FY 2003, the LTCH-PPS would be implemented in a budget neutral manner. The new payment system would be phased in over five years.

CMS proposes to use a patient classification system called long-term care diagnosis-related groups (LTC-DRGs).1 The LTC-DRG system is based on the DRG system used for the acute care hospital PPS-modified as appropriate and feasible to reflect the different LTCH patient mix. The determination of these rates is based on LTCH discharge data from FY 2000. The proposed LTC-DRG system would consist of 501 DRGs, two of which are for very short-stay discharges and two for error DRGs (for discharges that cannot be assigned to a valid DRG).

Proposed revision to LTCH determination

Current Medicare law requires that to be designated as an LTCH a hospital's average inpatient length of stay (LOS) must be greater than 25 days. BBA added an exception to this general definition, which included an LTCH that was first excluded from the acute hospital PPS in 1986. The facility has an average inpatient length of stay of greater than 20 days, and had 80 percent or more of its annual Medicare inpatient discharges with a principal diagnosis of neoplastic disease in the 12-month cost reporting period ending in FY 1997.

The underlying statute gives CMS authority in determining whether a facility has an average inpatient LOS of greater than the 25 days necessary to qualify as an LTCH. Currently, CMS uses the stays of all inpatients, (i.e., Medicare and non-Medicare beneficiaries) in its calculations. CMS has proposed to revise its general LTCH determination methodology by limiting the calculations to Medicare patients-excluding non-Medicare inpatients.2

In proposing this change, CMS noted that it would " . . . be a strong incentive for LTCHs not to admit many short-stay Medicare patients since doing so could jeopardize their status as an LTCH." CMS also said it " . . . is possible that hospitals that currently qualify as either rehabilitation hospitals or psychiatric hospitals would also qualify as LTCHs . . . and could be paid as an LTCH in order to maximize Medicare payments."

Approximately 39 of the 270 LTCHs would have failed to have an average LOS of 25 days for their Medicare patients in 1999. Based on discussions with member LTCHs, the AHA believes that most, if not all, LTCHs that fail the proposed Medicare-only 25-day LOS test do so because the LTCH admits disproportionate numbers of patients that either exhaust their Medicare coverage or die during their stay. To exclude hospitals from qualifying as LTCHs for these reasons is unfair and discriminatory to indigent and medically complex patients.

Accordingly, the AHA recommends that if CMS moves forward with revisions to the criteria for determining qualification as an LTCH, that the full LOS, including days paid for by other payors after the patient exhausts Medicare coverage, be counted for all patients that were Medicare-covered at admission. Additionally, in order to ensure access to LTCH services in communities that rely on these hospitals, and consistent with current policy, LTCHs should be granted a grace period of one year in the event that the LTCH fails to meet the 25-day LOS test.

Very short-stay discharges

A very short-stay discharge would be defined as seven days or less regardless of the LTC-DRG assignment, and such cases would be paid under per diem methodology. However, the LTC-DRG option would be limited to the very short-stay psychiatric LTC-DRG or the very short-stay non-psychiatric LTC-DRG.

The first few days of care tend to be the most expensive due to the front-loading of admission costs, diagnostic work-ups and initiation of medical interventions. Because of the methodology CMS used to calculate the per diem payment, the very short stay payment adjustment would result in payments that are significantly below actual costs of care.

The severe underpayment for the very short stay also creates an undesirable "notch effect" for cases whose length of stay is eight days instead of seven. Payment for such cases would be significantly higher, creating an incentive to retain patients longer than may otherwise be necessary.

The AHA believes that the adjustment for very short stay cases is unnecessary given all of the other payment adjustments and rules in the LTCH-PPS designed to minimize short stays. The AHA recommends that this adjustment be eliminated and such cases be folded into the short stay outlier adjustment.

Short-stay outliers

CMS would define a short stay outlier as a case that has a LOS between eight days and two-thirds of the arithmetic mean LOS for each LTC-DRG. CMS proposes to pay such short-stay outliers the least of (1) 150 percent of the LTC-DRG specific per diem based payment; (2) 150 percent of the cost of the case; or (3) the full LTC-DRG payment.

The AHA generally supports this payment adjustment and we believe that, in combination with the 25-day LOS test (as amended above), it will be more than sufficient to protect the LTCH-PPS from overpayment due to short stays.

Interrupted stay cases

CMS would define interrupted stay cases as those cases in which an LTCH patient is discharged to an acute care hospital, inpatient rehabilitation facility (IRF) or skilled nursing facility (SNF) for treatment and services not available at the LTCH for a time-limited period followed by readmission to the LTCH. CMS proposes to make one discharge payment for an interrupted stay case. An LTCH could be paid for more than one discharge only if the patient's LOS in the acute care hospital exceeded nine days, 27 days in an IRF and 45 days in a SNF. Under these situations, the beneficiary would be deemed to have had two separate stays at the LTCH, resulting in two separate payments.

A simple day threshold does not necessarily reflect the various clinical reasons for discharge and readmission that are beyond the control of LTCHs. The AHA recommends that cases that are readmitted to the LTCH from another facility in less than the specified timeframes be treated as separate cases under the PPS if the second admission (e.g., post-acute care for a myocardial infarction) to the LTCH is unrelated to the primary reason for the initial admission (e.g., wound care).

The AHA recommends that the day thresholds for determining payment under the interrupted stay policy be lowered to the average Medicare-covered LOS for acute care hospitals, IRFs and SNFs (from the proposed average plus one standard deviation).

Onsite discharges and readmissions

CMS is proposing a transfer policy between LTCHs and distinct-part SNFs, acute care hospitals, rehabilitation facilities, or psychiatric facilities when the LTCH and any of these other providers are co-located. CMS is proposing a similar policy to one adopted in 1999 that would allow only one payment for each discharge and readmission to an LTCH if, during a cost reporting period, the LTCH readmits more than five percent of its Medicare patients who are discharged to an onsite SNF, IRF or psychiatric facility, or to an onsite acute care hospital.

The AHA believes that existing and proposed policies are sufficient to ensure appropriate placement of patients in LTCHs co-located with other providers. The AHA recommends that definitions of on-site facility be clarified to clearly separate the concept of co-location from common ownership (but not necessarily co-located).

Payment adjustments

Congress required CMS to consider several payment adjustments to the LTCH-PPS. As a result of its analysis, CMS will not provide any adjustments for area wage variation, geographic inequities or reclassifications, disproportionate share of low-income patients (i.e., DSH status) or the indirect cost of medical education.3

Lack of area wage adjustment

As justification not to provide an adjustment for variation in wages, CMS said their analysis showed that such an adjustment would actually reduce the ability of the payment system to explain variation in costs of LTCHs. While CMS found no significant relationship between the costs and geographic location of LTCHs, the agency said it would review the issue in developing the final rule.4

Based on analysis by The Lewin Group conducted for the National Association for Long Term Hospitals (NALTH), the AHA understands that the statistical results found by CMS may be influenced by a small number of extreme values from a few hospitals that unduly influenced the statistical models. We also suspect that longstanding cost patterns as a result of pre-PPS payment incentives may mask important and real variation in wages, especially for very high wage index Metropolitan Statistical Areas. The AHA recommends that the LTCH-PPS contain an appropriate area wage adjustment for high wage areas, and a concomitant positive adjustment for LTCHs located in rural areas.

Adjustment for high cost outliers

CMS is proposing to establish a high outlier payment policy that would set numerical criteria prospectively for each fiscal year so that outlier payments would equal eight percent of total payments under the LTCH-PPS. CMS said that this policy would "optimize the extent to which we could protect vulnerable hospitals, while still providing adequate payment for all other cases." Outlier payments would be made for any discharges where the estimated cost would exceed the LTCH-PPS payment amount for the LTC-DRG, plus a fixed loss amount.

The projected fixed loss amount for FY 2003 is $29,852. Medicare would pay 80 percent of estimated costs above this sum. The set fixed loss threshold across all LTC-DRGs means that each case must experience losses of this amount prior to receiving any outlier payments, regardless of the base LTC-DRG payment. Once that fixed loss threshold is exceeded, the LTCH gets 80 percent of their additional losses reimbursed. These fixed policies implicitly assume that the underlying variation of high-cost cases is the same across LTC-DRGs. Because of the smaller size and potentially wide variation in LOS in LTCHs, as compared to inpatient acute care, this assumption may be suspect.

Some patients, such as those with spinal cord injuries and/or requiring a ventilator, are more likely than others to experience difficulties in being discharged on a timely basis. LTCHs that admit and retain a disproportionate number of these patients may experience significant losses serving those patients. The AHA requests that CMS consider varying both the fixed loss threshold and outlier payment percentage by LTC-DRG to ensure that LTCHs with disproportionate numbers of difficult to discharge cases receive adequate payment.

Lack of disproportionate share (DSH) adjustment

The LTCH-PPS does not contain any adjustment for disproportionate share hospitals, despite the fact that both the inpatient and IRF payment systems contain such an adjustment. The AHA is concerned that the lack of a DSH adjustment, combined with other proposed payment policies in the LTCH-PPS, may create disincentives for LTCHs to admit dually eligible patients, especially those likely to exhaust their Medicare benefits during their stay.

The AHA recommends that the LTCH-PPS include a DSH adjustment that takes into account the smaller size and nature of LTCHs.

Budget neutrality offset for the transition option

CMS projects that about 58 percent of LTCHs hospitals will elect to bypass the five-year transition and go straight to the full LTCH-PPS. CMS said this will result in costs to the Medicare program of about $230 million over the course of the transition. To ensure budget neutrality, CMS proposes to reduce payments to all hospitals over the course of the transition to adjust for this additional cost. In this regard, CMS proposes to reduce FY 2003 payments by 5.1 percent to all LTCHs; FY 2004 payments by 3.9 percent; FY 2005 payments by 2.6 percent; and FY 2006 payments by 1.3 percent. Out of concern that it may have underestimated the budget neutrality adjustment, CMS noted that it reserves the option for a one-time adjustment by FY 2007 to make any appropriate corrections in the budget neutrality adjustments.

The AHA opposes CMS' reserved one-time option to make any corrections in the budget neutrality adjustments. We believe that CMS should be able to predict, with reasonable certainty, the number of LTCHs that will elect to move directly to the full federal rate, since it would not be rational for any lower cost LTCHs to forgo this option. Moreover, CMS should go through normal rulemaking prior to any rates being adjusted downward, because any such adjustment would be vulnerable to budgetary pressures of the moment.

Coding procedures

We applaud CMS for proposing to use ICD-9-CM codes and the Official Guidelines for Coding and Reporting, but LTCHs will need clarification regarding which portion of the guidelines applies to them. In many instances, it appears that CMS is leaning toward the application of the Uniform Hospital Discharge Data Set definitions, and coding rules and guidelines consistent with current use in acute care hospitals. However, the scenario presented as an example of principal diagnosis selection for a stroke patient (p. 13436 of the March 22, 2002 Federal Register) selects the 438 ICD-9-CM codes rather than the 436 codes that the acute care hospital would report.

Thank you for your support of the Coding Clinic for ICD-9-CM Editorial Advisory Board process and CMS' participation as one of the cooperating parties. We look forward to working with the cooperating parties to define guidelines for LTCHs.


In the proposed rule, CMS is soliciting comments on possible changes to CMS' payment policy regarding ownership and control of "hospitals-within-hospitals." The basis for this request is that Medicare payments could be manipulated "by a single entity that controls the acute care hospital and co-located LTCH."

The AHA believes that existing policies, as well as proposed rules governing interrupted stays and transfers from co-located facilities, are sufficient to ensure the integrity of the LTCH-PPS with respect to hospitals-within-hospitals. If, after full implementation and extensive evaluation of LTCH-PPS, CMS feels that changes to longstanding grandfather policies for hospitals-within-hospitals should be proposed, such changes should go through the normal rulemaking process with public comment.

Medigap policies

NALTH questioned the application of Medigap policies to LTCHs, especially in the case of patients who exhaust their Medicare Part A inpatient benefit and would be an outlier case under LTCH-PPS. The AHA shares their concern and requests that CMS confirm that Medicare supplemental insurers are not authorized to reduce their payment to LTCHs for a patient that has exhausted Medicare Part A inpatient benefits solely because of implementation of the LTCH-PPS.

Contact Brian Ellsworth at for questions or clarification.

DRGs are intended to relate a hospital's case-mix to the resource demands and associated costs experienced by the hospital.
This change would not apply to the Balanced Budget Act of 1997 exception policy.
CMS will, however, provide a COLA for the one LTCH in Hawaii based on the higher costs found in Hawaii.
If this provision remains in the final rule, the LTCH-PPS will be the only Medicare inpatient or outpatient PPS without an adjustment for area wages.

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