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October 11, 2010

The Squeeze Is Coming — Hospitals Scramble to Absorb 2011 IPPS Changes
By Elizabeth S. Roop
For The Record
Vol. 22 No. 18 P. 10

Critics say the outlook is far from certain for cash-strapped, overburdened providers expected to do more with less.

Facing a 2.9% payment reduction and an expansion in the number of quality measures included in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, hospitals are scrambling to find ways to do more with far less in the wake of the issuance of the 2011 inpatient prospective payment system (IPPS) rules and policies.

The rules, issued in August by the Centers for Medicare & Medicaid Services (CMS), will decrease overall operating payments to acute and long-term care hospitals paid under the IPPS by an estimated average of 0.4% ($440 million) in 2011. Capital payments are expected to decrease by 0.5%, or $21 million.

Those reductions include an initial market basket increase for inflation of 2.6%, reduced by 0.25% to 2.35% as mandated by the Patient Protection and Affordable Care Act for those facilities that submit quality measures data.

It also increases by 12 the number of measures hospitals must submit under the RHQDAPU program for 2011, 10 of which will be used to determine a facility’s 2012 update and two of which will be used to set the 2013 update. Among the new measures are rates of occurrence for eight categories of conditions subject to the hospital-acquired conditions policy. It also retires one measure, mortality for selected surgical procedures (composite).

Hospitals successfully reporting RHQDAPU quality measures will receive the full 2.35% market basket update. Those that do not participate in the program will see their market basket update decreased by 2%.

The most controversial change for 2011, which also factors into the 0.4% average estimated reduction, is the 2.9% payment cut. That takes the form of documentation and coding offset designed to recoup 2008-2009 Medicare spending that the CMS says resulted from hospital coding practices that did not accurately reflect case mix changes.

The CMS “assumed there was no change in the intensity of services required by the inpatient population. Our analysis found that was not correct. The population has become sicker. Therefore, we thought CMS was going to make adjustments to the level of reduction that they calculated, but they didn’t,” says Blair Childs, senior vice president of public affairs for the Premier healthcare alliance. “Hospitals are being asked to do more with less income. They also face additional costs in the form of higher salaries, cost of goods, taxes, and other requirements being placed on employers. They’re being asked to find savings to compensate for the fact that they’re not going to be paid any more to cover those increased costs.”

Doing More With Less
Childs notes that the 2.9% cut for 2011 is just the beginning. In all, the CMS intends to recoup a total adjustment of 5.8% to recover all excess payments for fiscal years 2008 and 2009.

“You have the introduction of a new productivity factor that is included in the payment calculation that [starts] in 2012, which was included in the healthcare reform bill,” he adds. “We’ve been saying this overall, that in the next five years, at a minimum hospitals need to be planning for a very tight payment scenario where there will be zero or very small updates on a year-to-year basis.”

The final rules also do the following:

• lower the IPPS outlier threshold for 2011 to $23,075 to maintain projected outlier payments at 5.1%;

• address changes to the amounts and factors used to determine rates for operating and capital-related costs;

• update the rate-of-increase limits for certain hospitals excluded from the IPPS;

• implement provisions of reform legislation providing additional payments for hospitals in counties with low per-enrollee Medicare spending;

• revise the hospital wage index for facilities in frontier states;

• expand eligibility for certain low-volume payments;

• establish a national budget neutrality adjustment calculation of the rural floor for hospital wages;

• extend the Medicare Dependent Hospital program; and

• adjust payments to critical access hospitals for outpatient facility and ambulance services.

The challenge for most hospitals will be finding new ways to contain costs and invest in the systems necessary to comply with the new mandates, all while caring for higher-acuity patients. It is unlikely that many can accomplish this through changes in coding patterns and behaviors, which are already under scrutiny through recovery audit contractor audits.

“They [hospitals] have to continue to code the way they’ve been coding. They can’t artificially upcode; it is what it is,” says Childs. “Most hospitals are already looking at this from the standpoint of they are already coding correctly and capturing the severity of illness correctly, so there isn’t anything new there. There isn’t suddenly going to be an epiphany where they [realize] they need to be paying attention to this. … Most hospitals are already very focused on that.”

While it’s unlikely any relief will be found in coding behaviors, hospitals may want to more closely examine high-volume diagnosis-related groups (DRGs) and evaluate how they will be affected by changing weights, according to Joe Thear, vice president of product management-revenue cycle for QuadraMed.

He notes that the new fiscal year is expected to bring decreases in the weights applied to several high-volume DRGs, including renal failure, heart failure with shock, and chronic obstructive pulmonary disease. For example, Medicare is decreasing the weight on renal failure by 3%.

“The case mix is a huge driver in Medicare payments. … That [3% decrease] can be a significant amount of money. Someone in finance and in HIM should be analyzing the impact to see which high-volume cases should be taken into consideration,” says Thear. “The HIM department and the finance department need to be in lock-step when reviewing the final regulations and the potential impact, not only to see where weights are going down but also to their caseloads to see where they can deliver quality care at lower cost. It really is a conundrum.

“It’s easy to say that there is an overall market basket increase, but when you take out the coding adjustment impact and other [changes], hospitals are very nervous,” he adds.
In the past, one popular strategy for dealing with inpatient payment reductions was to shift costs to the outpatient side. However, looming changes to the outpatient PPS and the reality that most costs that can be shifted already have been mean this is “not as lucrative an area as it was a decade ago,” says Thear.

Therefore, in addition to evaluating case mix and lines of business, hospitals should focus on increasing the quantity and quality of data they collect. This helps ensure they are capturing the quality measures necessary to receive the full market basket update for participating in the RHQDAPU program. It also addresses the shift to a more consumer-centric perspective that focuses more heavily on quality indicators.

“This is an area where most hospitals tend to agree that while it’s an administrative burden, the quality of care and outcomes of consumer-led directives, as well as those of CMS, are winning the day,” says Thear. “Hospitals have to be prudent and make sure that the vendor they’ve chosen to partner with to submit [quality measures] has all the processes laid out, not just for next year but also for the following years when they’ll be asked to add postsurgical care. They need to sit down and talk with their core measures vendor and ensure they have the tools in place to assist them and ensure that they get 100% of their market basket increase.”

A Heavier Reporting Burden
Some consider the expanded quality measures required for RHQDAPU participation to be more onerous than the payment cuts for three reasons. First, as noted previously, failure to fully participate in the program means even less money—a 2% reduction in the market basket update.

Second, many hospitals are not prepared to comply with the expanded reporting requirements. Compounding the problem, many hospitals are focusing IT resources on complying with meaningful use mandates to ensure they are eligible for the incentive funds that will help cover the costs of the new systems and processes necessary to capture more and better quality data.

Third, there are many unknowns when it comes to exactly how the CMS wants quality measures to be reported, questions that require answers in time to establish the proper processes by the January 1, 2011, start date.

“Everything I’ve been reading and hearing is that some of the measures can be reported based on data submitted on the claims to CMS. But we don’t know how we’re going to submit those claims. Will there be a change in format? Will it be electronic? There is not enough elaboration for us to know how to get the information to [the CMS] or to set up 45 measures to start reporting on January 1,” says Lynn Keaton-Cockrell, CPC, CPC-H, CPC-I, director of HIM for Hickman Community Hospital in Centerville, Tenn., and president of LCA Consulting. “I would hope that they’ll provide more information as we move forward. … How will I set it up here if I don’t know? I’m stuck.”

Keaton-Cockrell, who is on the board of directors of the American Academy of Professional Coders (AAPC) Chapter Association and president of the Columbia, Tenn., AAPC chapter, has more questions for the CMS, including how frequently measures on each patient must be reported, what exactly will be reported, and how that reporting will take place.

She adds that a major struggle with the revised reporting requirements is the reality that many smaller rural hospitals and critical access hospitals don’t have the necessary financial resources to deploy the systems that will allow them to fully participate. This is especially true with the additional 12 measures that must be reported in 2011.
“They can’t even manage the 45. There’s not enough implementation time to do this and get the incentive,” says Keaton-Cockrell.

Adding to the complexity of the quality measure change, the CMS has proposed adding hospital-acquired conditions and the two patient safety indicators. Further, based on current information, some measure will be pulled from different quarters.

“How they’re looking at the outcomes is mixing apples and oranges,” Keaton-Cockrell says. “If I was doing cost reporting, I would go crazy. I don’t think it’s a good thing, and it’s a lot for hospitals to do. I understand it has to do with healthcare reform, but it’s a lot of change.”

Childs suggests that automation may be the best answer to the expanded reporting requirements, particularly given the proliferation of reporting that is now expected. In addition to the RHQDAPU program, hospitals will soon be required to report on meaningful use measures through their EHR systems.

Further, the Centers for Disease Control and Prevention’s National Healthcare Safety Network will require reporting on bloodstream infections beginning in 2011, and penalties for failing to comply with value-based purchasing measures designed to reduce hospital-acquired conditions will face incentive reductions beginning in 2015.

“Our overall point of view is that they can streamline this process, reduce the number of chart-extracted measures, and increase the number that can be reported through an automated process. That is where we need to go. What hospitals need to be looking to do is automating these processes,” says Childs.

At the same time, however, the CMS should be taking into consideration the magnitude of the burden being placed on hospitals, he adds. From meaningful use to expanded quality measure requirements, hospitals are being asked to design and implement a plethora of new systems and processes in a very limited time frame and with shrinking budgets.

Says Childs: “CMS has to be very conscious of the workload burden they’re creating.”

— Elizabeth S. Roop is a Tampa, Fla.-based freelance writer specializing in healthcare and HIT.