CMS-1243-P — Medicare Program; Proposed Changes in Methodology for Determining Payment for Extraordinarily High-Cost Cases (Cost Outliers) Under the Acute Care Hospital Inpatient Prospective Payment System; Proposed Rule (68 Federal Register 10420).

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Monday, March 31st 2003

Thomas A. Scully, Administrator
The Centers for Medicare & Medicaid Services
200 Independence Avenue, S.W.
Room 445-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 care, the American Hospital Association (AHA) appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services’ (CMS) proposed rule that would revise the methodology for determining payment for extraordinarily high-cost cases (outliers) under the inpatient prospective payment system (PPS). 

Outlier payments are a critical and necessary component of any prospective payment system based on averages.  Congress created these payments to limit hospitals’ financial risk while ensuring that elderly patients with especially serious illnesses receive appropriate care.  Given the importance of these payments, the AHA formed an Outlier Advisory Panel to develop AHA's position and policy regarding outlier payments, as well as help draft our response to the proposed rule.  The Panel was chaired by a member of AHA's Board of Trustees, and consisted of senior leadership from geographically diverse hospitals across the nation, including urban and rural, teaching and non-teaching, as well as those facilities with low and high outlier experience. 

While the AHA supports changes to the current system in order to ensure the accuracy of outlier payments, we are deeply concerned that certain elements of this proposal will have significant negative consequences on hospitals and the overall inpatient payment system.  Given the significance of this issue -- which has moved from one affecting a small number facilities to one that impacts nearly every hospital in the country -- and the extensive changes proposed, we are tremendously disappointed that CMS chose to provide a shortened 30-day, rather than the customary 60-day, period for public comment.  Moreover, we are deeply troubled that CMS is recommending such major revisions without providing any quantitative data or analysis on the impact of the proposed regulation on hospitals and the patients we serve.   The shortened comment period and lack of data make it very challenging for hospitals to evaluate and provide meaningful comment on the proposed regulation.  While AHA has attempted to generate the data -- and even engaged outside consulting assistance -- the results are only projections.  We urge CMS to make their data publicly available, and allow additional time for comments to be submitted so that hospitals may have an opportunity to fully analyze this critical information.

While we support proposals to use more recent cost-to-charge ratios to calculate outlier payments and eliminate the use of the statewide average cost-to-charge ratio floor, we are concerned that such an immediate, abrupt change in cost-to-charge ratios would create significant and unanticipated reductions in outlier payments to providers.  Our analysis indicates that the majority of hospitals in the country would be negatively affected by these changes.  These proposed mid-year changes could be financially devastating to providers, especially given increased pressures of skyrocketing labor costs, rising pharmaceutical and technology costs, soaring medical liability premiums, state budget crises, and an increase in the number of uninsured Americans.  The AHA strongly urges implementation of a transition period for all hospitals adversely affected by these policy changes.

The AHA is deeply troubled that CMS did not lower the outlier threshold, which would allow more hospitals to qualify for these critical payments.  Given that the 2003 threshold was calculated to equal 5.1 percent of total inpatient PPS payments based on policies in place at the beginning of the year, major mid-year changes, such as updating the cost-to-charge ratios and eliminating the use of the statewide average floor, should, by definition, result in a lower threshold amount.  The AHA strongly recommends that CMS lower the outlier threshold.

In a fundamental policy change, CMS is proposing that outlier payments be subject to a retrospective reconciliation process affecting ALL hospitals.  This policy would require that inpatient claims be reprocessed upon final settlement of a hospital’s cost report to determine if each claim still qualifies for an outlier payment and how much the payment should be.  CMS' other proposed provisions to use more current cost-to-charge ratios will ensure the accuracy and integrity of Medicare payments.  The proposed adjustment of outlier payments upon final settlement of the cost report is duplicative and undermines the PPS -- jeopardizing the predictability and stability of the system.  While we support an accurate accounting of costs, the proposal goes far beyond an acceptable policy option.  It imposes more red tape and its duplicative accountability process would divert resources away from patient care to unproductive paperwork.  The AHA adamantly opposes this proposal.

Outlier payments help mitigate the financial burden hospitals incur in caring for the most costly cases.  At the same time, it is important to remember that hospitals still lose money treating Medicare's sickest patients.  Under this proposed policy, all hospitals still would receive less than the cost of care for outlier patients.

Attached are our detailed comments on the proposed outlier rule.  If you have any questions about these remarks, please feel free to contact me or Ashley Thompson, senior associate director for policy, at (202) 626-2340.


Rick Pollack
Executive Vice President

Attachment:  Comments on Change to Medicare Outlier Payments


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