Responding to highly critical comments from hospital groups, the Centers for Medicare & Medicaid Services July 31 finalized three of nine proposed so-called “never events” for which it will no longer pay under the FY 2009 inpatient prospective payment system (IPPS) final rule.

CMS also released on July 31 the final inpatient rehabilitation facility rule, the skilled nursing facility payment final rule, and the 2009 hospice wage index.

Speaking about the agency's two-thirds reduction in never events included in the final rule, CMS acting Administrator Kerry N. Weems told reporters, “You shouldn't measure how we feel by how many [hospital-acquired conditions] we proposed and how many we ended up with. On quality, we are quite pleased.” He added that the level of “engagement” from industry and consensus-based organizations is significant because it is “the thing that is producing results.”

The agency's move is likely to be welcomed by providers, who voiced strong criticism of the agency's proposal to more than double both the number of hospital-acquired conditions the agency will no longer pay additional money for, and the number of quality measures that hospitals must report on to receive a full Medicare payment update .

CMS has defined never events as “serious and costly errors in the provision of health care services that should never happen,” a category that includes mistakes such as surgery on the wrong body part or mismatched blood transfusions, and that cause serious injury or death to patients. Some hospital-acquired infections are also in the category.

The final IPPS rule announced today updates payment policies and rates for more than 3,500 hospitals that are paid under Medicare's diagnosis related group (DRG) payment system and is designed to promote the administration's goal of transforming Medicare to a prudent purchaser of health care services, paying for quality of services, not just quantity. Overall, the final rule is estimated to increase Medicare payments to acute care hospitals by nearly $4.75 billion, the agency said in a release.

The IPPS final rule, slated for publication in the Aug. 19 Federal Register, is effective Oct. 1.

Quality Focus.

The agency is adding three new hospital-acquired conditions for which it will not pay additional money.

These conditions consist of:

• surgical site infections following certain elective procedures, including certain orthopedic surgeries, and bariatric surgery for obesity;

• certain manifestations of poor control of blood sugar levels; and

• deep vein thrombosis or pulmonary embolism following total knee replacement and hip replacement procedures.

CMS officials reiterated to reporters that the linking hospital-acquired conditions to Medicare payment is likely to increase in the future. Recently, officials said the agency is considering ways to make this payment policy more precise, including risk-adjusting for a condition's prevalence and assessing rates of a condition's occurrence over time, as well as potentially expanding the settings to which the policy would apply.

Additionally, Weems told reporters the agency is opening three national coverage determinations (NCD) addressing Medicare coverage of certain surgical procedures, consisting of surgery on the wrong body part, surgery on the wrong patient, and wrong surgery performed on a patient.

The agency is opening a national coverage analysis with a 30-day public comment period to begin the NCD process, and a proposed decision memorandum will be released on or before Feb. 1, 2009, for another round of public comments and then finalized no later than April 30, 2009, the agency said.

CMS today also sent a letter to state Medicaid directors providing information about how states can adopt the same never event practices. The letter specifically encourages states to adopt the same non-payment policies outlined in today's final Medicare rule. Nearly 20 states already have or are considering methods to eliminate payment for some never events, according to an agency release.

On the quality reporting front, the agency through the final IPPS rule expanded by 13 measures the Reporting Hospital Quality Data for Annual Payment Update Program, through which hospitals will experience a payment decrease if they do not publicly report on these measures, bringing the total number of measures for reporting in 2009 to 42.

Skilled Nursing Facilities.

Medicare payments to nursing homes in FY 2009 will increase $780 million, CMS said, reflecting a 3.4 percent marketbasket increase, according to the skilled nursing facility (SNF) final rule.

CMS delayed a proposed reduction in payments to SNFs that would have corrected a previous payment calculation error.

The delay was prompted by concerns from the nursing home industry that the cuts could have broad adverse effects, CMS said. Instead, the agency said it would continue studying the best way to correct the error that resulted from a 2005 final payment rule.

CMS initially proposed the 2009 SNF prospective payment system changes on May 7 (73 Fed. Reg. 25918).

In June, nursing home groups responded to the proposed cut, urging CMS not to implement the forecast error correction, saying it would amount to a $770 million payment cut for long-term care providers in FY 2009.

Nursing home groups argued that payment reductions would be inappropriate, because the skilled nursing facility payment system should reflect the increasing medical complexity of nursing home patients.

In particular, the proposed rule would have reduced skilled nursing facility payments to correct for an unintended increase in Medicare expenditures that resulted from the expansion of the Resource Utilization Groups (RUGs), or SNF payment categories that reflect illness severity and necessary services, made in a 2005 final rule.

Rehab Final Rule Cuts Pay.

A final rule for inpatient rehabilitation facilities (IRFs) will result in an estimated decrease in aggregate payments of $40 million, or 0.7 percent of total IRF payments, for FY 2009, the CMS said.

This decrease is the result of an update to the outlier threshold amount to maintain estimated outlier payments at 3.0 percent for FY 2009, the agency said.

In a proposed rule published in April, CMS said that the update would account for an estimated decrease in aggregate IRF payments of $20 million.

CMS is setting the outlier threshold for FY 2009 at $10,250, the amount estimated to maintain estimated outlier payments equal to 3.0 percent of total estimated payments for FY 2009.

In the April proposal, the agency said it planned to increase the outlier threshold for FY 2009 to $9,191, up from $7,362 in the FY 2008 final rule. It said that amount was necessary to maintain estimated outlier payments equal to 3 percent of total estimated payments for FY 2009.

CMS is updating the IRF PPS payment rates by zero percent for FY 2009, in compliance with the statute, which sets the increase factor for IRFs at zero percent for FYs 2008 and 2009, effective for discharges beginning on or after April 1.

The final rule continues to use the pre-reclassified and pre-floor hospital wage indexes to determine the FY 2009 rates. For the purposes of the final rule, CMS is using the final FY 2008 pre-reclassified and pre-floor hospital wage indexes.

CMS makes a single prospective payment to the facility for the inpatient stay based on the relative resource intensity that would typically be associated with each patient's clinical condition, as reflected in the relative weight assigned to each CMG and tier.

The payment rate is then adjusted at the facility level for teaching status, the applicable geographic wage index, and the percentage of low-income patients served by the facility. IRFs in rural areas receive an additional payment adjustment. Cases with extraordinarily high costs, compared to the prospectively set payment, may qualify for an outlier payment.

In accordance with the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), CMS set the compliance rate at no higher than 60 percent for cost reporting periods beginning on or after July 1, 2006.

In other words, to be paid the higher rates for providing rehabilitation services, an IRF must demonstrate that its annual inpatient population consists of at least 60 percent of patients with one or more qualifying conditions.

The compliance rate was scheduled to increase to 75 percent on or after July 1. Hospital groups had said that the change would help to ensure that patients who could benefit from treatment at the IRF level of care continued to receive the appropriate level of care.

Further, the MMSEA required CMS to continue the use of comorbidities in addition to the patient's primary reason for being in the IRF, in determining the IRF's compliance percentage under this rule.

The final rule, which would apply to more than 200 freestanding IRFs and to more than 1,000 IRF units in acute care hospitals, is scheduled to appear in the Aug. 8 Federal Register, and will be effective for discharges beginning Oct. 1.

Final Hospice Wage Hike 2.5 Percent.

Hospices will receive a 2.5 percent increase in their Medicare reimbursements in 2009, under CMS's hospice wage increase plan.

The increase in the hospice wage index is the net result of a 3.6 percent increase in the so-called marketbasket indicator of cost, offset by a 1.1 percent decrease in payments to hospices, as CMS phases out a transitional payment.

Under a proposed rule, published in May, CMS estimated the marketbasket increase for 2009 to be 3 percent.

CMS is phasing out an adjustment to the hospice wage index that was put into place in 1997 to help hospices through a transition to the new wage index.

Phasing out this budget neutrality adjustment factor will save Medicare $2.18 billion over five years, CMS said. Whiles the rates are to increase, it is estimated that the increase will be 1.1 percent lower for FY 2009, the first year of the three-year phase-out of the adjustment.

Weems said that the phase-out will help CMS maintain responsible “fiscal stewardship” of the Medicare Trust Fund.

CMS updates the hospice wage index annually based on the most current available hospital wage data, and wage index values are computed using the Office of Management and Budget's geographic location definitions, called Core-Based Statistical Areas (CBSAs).

The neutrality adjustment is proposed to be phased out over three years, beginning with a 25 percent reduction in FY 2009, an additional 50 percent reduction in FY 2010, and a complete elimination in FY 2011.

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The IPPS final rule is at http://federalregister.gov/OFRUpload/OFRData/2008-17914_PI.pdf. The Rehabilitation final rule is at http://federalregister.gov/OFRUpload/OFRData/2008-17795_PI.pdf. The nursing home final rule is expected to be posted at http://www.cms.hhs.gov/SNFPPS/LSNFF/list.asp#TopOfPage.

Copyright 2008, The Bureau of National Affairs, Inc.