Talking Points: Restore the 2 percent cut to rehabilitation PPS payments


The Balanced Budget Act of 1997 (BBA) reduced Medicare payments to rehabilitation hospitals and units, resulting in significantly lower inpatient margins. In addition, the entire payment baseline is to be reduced by 2 percent before rehabilitation prospective payment is implemented in FY 2001.

HCFA has yet again delayed the release of the proposed regulations for the rehabilitation prospective payment system. It now appears that the regulations will not be issued until late summer. And startup of rehabilitation PPS has been delayed from October 1, 2000 until April 1, 2001.

The BBA also provided a zero inflation update in FY 1998, limited updates over the remaining four years of the budget, cut capital payments by 15 percent, reduced incentive payments, and capped payment ceilings.

What the Research Shows:

More Medicare savings have been generated from BBA cuts than were intended. Reductions to rehabilitation facilities are contributing to the overall reductions to hospitals. Those reductions, now estimated at more than $70 billion, are far beyond the $44 billion originally targeted by Congress.

Evidence shows that additional payment reductions for rehabilitation providers are not warranted:

-- The Lewin Group has estimated that PPS exempt operating margins will be 7 percentage points less as a result of the combined effects of the BBA's provisions.

-- MedPAC, in its June 2000 report, revealed a 4 -7 percentage point reduction in Medicare operating margins for PPS-exempt hospitals and units as a result of the BBA, and recommended a 3 percent increase in FY 2001 to help these facilities cover inflation costs.

--These analyses and recommendations provide compelling evidence that there is no justification for additional reductions to the rehabilitation baseline at the outset of prospective payment.

The cost of restoring the 2 percent cut is estimated to be $67 million in FY 2001, and $350 million over five years.

What We Need:

Our Top Priority for Rehabilitation:

Restore the 2 percent cut in the rehabilitation payment baseline.
Other Approaches:

Restore the 15 percent reduction in capital payments imposed by the BBA.
Provide rehabilitation hospitals and units the option of moving to full PPS before the scheduled transition is complete.
Increase incentive payments under the current payment system from 2 percent to 3 percent of the target amount.



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