CMS-1472-P — Medicare Program; Prospective Payment System for Long-Term Care Hospitals: Proposed Annual Payment Rate Updates and Policy Changes (68 Federal Register 11234)

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Monday, May 12th 2003

Thomas A. Scully
The Centers for Medicare & Medicaid Services
Room 443-G, Hubert H. Humphrey Building
200 Independence Avenue, SW
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 update the payment rates for the Medicare Long Term Care Hospital Prospective Payment System (LTCH PPS) and recommends other policy changes including revision of the methodology for determining payment for extraordinarily high-cost cases (outliers).  

We have identified three key concerns with the proposed rule: its proposed changes to outlier payment policy; its proposed adjustment to achieve budget neutrality; and the excessive administrative burden associated with its implementation.  Each of these concerns is detailed below.

Outlier Payment Policy in LTCHs

CMS’ proposal to change LTCH outlier payments is consistent with the proposed outlier policy changes for acute care hospitals discussed in the March 4, 2003 Inpatient PPS proposed rule.  Key provisions include:

  • Using More Recent Cost Reports.  Fiscal Intermediaries (FI) would use either the most recent final settled cost report or the most recent tentative settled cost report, whichever is later, in determining an LTCH’s cost-to-charge ratio.  This change should reduce the lag time associated with use of cost-to-charge ratios from approximately 3-5 years to 8-20 months, thereby improving the accuracy of the outlier calculation.
  • Eliminating Use of the Statewide Average Cost-to-Charge Ratio.  Under the proposed rule, CMS would remove the policy of substituting the statewide average ratio when a hospital’s cost-to-charge ratio is more than three standard deviations below the geometric mean.  Instead, outlier payments for these providers would be calculated using the hospital’s actual cost-to-charge ratio.  Hospitals with cost-to-charge ratios exceeding the outlier ceiling would continue to have their cost-to-charge ratios adjusted to the statewide average ratio.
  • Retroactive Settlement.  CMS is proposing to reconcile payments for high-cost and short-stay outliers upon cost report settlement to account for differences between the estimated cost-to-charge ratio and the actual cost-to-charge ratio for the period during which the discharge occurs. 

The AHA supports the provisions 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 believe this will yield more accurate payments for outlier cases.  We are concerned, however, that an immediate change in cost-to-charge ratios would create significant and unanticipated reductions in outlier payments to providers.

Transition Period is Essential.  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 hurt hospitals and the overall payment system.  In addition, we are concerned that such an abrupt change in cost-to-charge ratios would create significant and unanticipated reductions in outlier payments to providers.  These proposed changes would financially harm many providers, who already struggle with the increased pressures of skyrocketing labor costs, rising pharmaceutical and technology costs, soaring medical liability premiums, state budget crises, and an increased number of uninsured Americans.  Therefore, the AHA strongly urges implementation of a transition period for all hospitals adversely affected by these policy changes. 

Retroactive Cost Settlement Would Deteriorate the Stability of the PPS.  The proposed adjustment of outlier payments upon final settlement of the cost report is duplicative and undermines the LTCH PPS – jeopardizing the predictability and stability the new prospective system was designed to create.  The fundamental policy change to a retrospective reconciliation process would create uncertainty and complexity for providers – especially those under full PPS payment.  This policy would require that LTCH 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.  The AHA adamantly opposes this provision.  CMS’ other proposed provisions to use more current cost-to-charge ratios and to eliminate use of the statewide-average ratio would be adequate to ensure the accuracy and integrity of Medicare payments and fulfill Congress’ intent to pay LTCHs using prospective rather than cost-based reimbursement. 

Proposed Outlier Changes and Impact on Lifetime Reserve Days.  CMS should ensure a clear, equitable method for determining outlier status in cases allowing beneficiaries to use lifetime reserve days.  This is especially important because of the greater propensity for Medicare beneficiaries treated in LTCHs to exhaust their 60 lifetime reserve days.  Our concerns:

  • Gap in Coverage under PPS.  Under the PPS, a gap in coverage exists between the 90-day spell-of-illness period reimbursed by a DRG payment and the point at which a case qualifies for an outlier payment.  (This determination is based on hospital charges, not the number of days services were received.)  In this coverage gap, the LTCH is not eligible for payment for services by Medicare and must bear the cost of care for beneficiaries lacking supplemental coverage for those unable to pay.  Under the former cost-based reimbursement method, no such gap existed since Medicare covered every day of care via a per diem payment until cost outlier status was reached.
  • Reconciliation Creates Problems.  Under the proposed reconciliation process, the eligibility for outlier status for a particular beneficiary stay may change, which would also change the commencement date for qualification to use lifetime reserve days.  The uncertainty created by this retroactive process creates confusion concerning the liability of supplemental payers during the payment gap noted above.

If CMS does implement the outlier payment policy as proposed in either the short-term or LTCH setting, it should address how it intends to administer the impact of retroactive adjustment to cost-to-charge ratios on available Medicare lifetime reserve days in a manner that minimizes inequity and confusion for beneficiaries.

Proposed Adjustments and Budget Neutrality

Under the Balanced Budget Refinement Act of 1999, CMS must maintain budget neutrality during the transition from the LTCH TEFRA payment system to PPS.  In order to maintain budget neutrality in Fiscal Year (FY) 2004 and future years, CMS proposes several adjustments to LTCH payments to account for the transition to the full PPS and the proposed new rate year.  In addition, CMS has proposed additional PPS changes that raise concerns.

CMS has indicated it may implement a provision in the LTCH PPS final rule (August 30, 2002) that allows a one-time prospective adjustment to the LTCH PPS rates to reconcile any differences between projected and actual payments during the transition to PPS.  This retroactive adjustment would wrongly penalize LTCHs for a CMS calculation error, thereby further weakening the intent and value of the prospective payment system design.  CMS’ proposed rule lacks detail about the method to implement the one-time reconciliation.  The proposed reconciliation assumes that CMS will be able to distinguish actual payment differences due to inaccurate projections from all other possible sources of payment differences.  CMS should publish the methodology and data used to assess compliance with the budget neutrality mandate and proposed efforts to achieve compliance. 

Administrative Burden Created by Proposed Rule

Several provisions in the LTCH proposed rule would create unnecessary burdens including the following.

Multiple Implementation Dates.  The fragmented implementation of individual provisions of the proposed rule would generate significant confusion and unnecessary costs for LTCHs.  Under the proposed rule, LTCHs would have to accommodate updates of the standardized amount, budget neutrality adjustment, and outlier threshold on July 1 and DRG updates and the phase-in of the  LTCH geographic wage adjustment on October 1.  These changes significantly increase the potential for payment calculation errors and would be administratively complicated and costly for providers.  As such, the change in the standardized rate year, outlier rates, wage index and related adjustments should be aligned with the October 1 DRG update timeline to avoid an irrational and excessively burdensome schedule.   The AHA does not support changing the rate year at this time.

Retroactive Cost Settlement.  As discussed earlier, retroactive cost settlement is extremely burdensome and unnecessary.  In order to implement retroactive cost settlement of outlier payments, both hospitals and FIs would have to keep their outlier accounts open in anticipation of an adjusted payment until the cost report for that fiscal period is closed, which would in most cases go well beyond three years from the date of service and initial payment.  It is unclear whether this would result in hospitals having to request reprocessing when Medicaid or another third-party payer is involved.  In addition, amending payments could require hospitals to adjust their financial statements, including adding new notes to explain their statement of revenues.  Since cost settlement sometimes occurs several years after submission of the cost report, this burden would be exponential.  The impact on beneficiary reserve days is unclear, and this initiative would impair efforts to promote cost-report simplification.

Timing of Final Rule Publication.  The proposed rule indicates that the publication of the final rule for the long-term hospital rate year will be June 1, with implementation beginning July 1.  Under this proposed rule, LTCH providers would have only one month to make changes to their payment systems for implementation on July 1.  This significantly shortens the time available for payment system and other adjustments and increases the burden on LTCH personnel and resources.  CMS must publish the final rule to allow a two-month preparatory period between the final rule and effective date.  Moreover, we believe CMS is required to allow a  60-day review period, as we consider this to be a “major rule” as defined under Executive Order 12866.  Changing the rate year to coincide with the federal fiscal year would allow for this.

CMS should not increase the LTCH administrative burden further during the LTCH PPS phase-in period.  Instead, the agency should use the PPS transition as an opportunity to analyze the impact of the new system to identify and implement targeted, informed improvements.  In addition to the administrative and operational challenges that would be created by the suggested phase-in and implementation processes concerning the wage index and final rule commencement, other unnecessary burdens would be imposed on LTCHs by the proposed rule.

Accuracy of LTCH Coding

The AHA appreciates the open exchange that has occurred between CMS and the LTCH field in recent months concerning medical record coding.  We strongly agree with CMS on the importance of accurate documentation and proper clinical coding in the LTCH setting, which requires dialogue and education among key stakeholders and subsequent training of clinicians, coders and others.  The AHA is pleased that CMS has provided the opportunity to address LTCH’s coding concerns through the Coding Clinic for ICD-9-CM Editorial Advisory Board process, as is the case for acute short-term hospitals and other users of ICD-9-CM codes.  In our role as one of the ICD-9-CM Cooperating Parties, the AHA will continue working with CMS, the National Center for Health Statistics and the American Health Information Management Association to identify the appropriate application of the Official Guidelines for Coding and Reporting in LTCHs. 

Thank you for considering our remarks on the proposed rule.  If you have any questions about our comments, please feel free to contact me or Rochelle Archuleta, senior associate director for policy, at (202) 626-2320.


Rick Pollack
Executive Vice President


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