Medicare Compliance & Reimbursement

The Centers for Medicare and Medicaid Services says hospitals would get a 3.5-percent pay raise under the proposed inpatient rule released May 9. The American Hospital Association says the average per-case increase would be more like 2.5 percent, once various adjustments are taken into account, according to AHA News.

Whether it's 2.5 percent or 3.5 percent, the proposed rule could turn out to be the high water mark for hospitals, which may end up getting significantly less next year under the inpatient prospective payment system. That's because the rule gives hospitals a "market-basket update," as required by current law, while the administration and House Ways and Means Committee Chair Bill Thomas (R-CA) favor an update of market basket minus 0.55 percentage points for 2004, as suggested by the Medicare Payment Advisory Commission.

The rule would expand the post-acute transfer policy from 10 to 19 diagnostic related groups, the payment categories under the IPPS. The policy treats patient movements from acute-care hospitals to post-acute settings as transfers, meaning the hospital is paid a per diem rate, rather than the full DRG amount it would normally receive.

Ashley Thompson, AHA's senior associate director of policy, told AHA News that expanding the policy "penalizes hospitals and undermines the IPPS" and would cost hospitals $160 million in 2004.

The rule lowers the threshold for special add-on payments for expensive new technologies. These payments are currently available when a technology's costs exceed "one standard deviation beyond the geometric mean standardized charge for all cases in the DRGs to which the new technology is assigned." The new rule proposes bumping the threshold down to 75 percent of one standard deviation, beginning with applications submitted in 2005.

The add-on payments are designed to avoid discouraging the use of innovative treatments while CMS adjusts reimbursements the relevant DRGs, a process that takes about two or three years once cost data for the new technology begin to become available. To qualify for payments - equal to 50 percent of the technology's cost in excess of the full DRG reimbursement - a pricey technology must "substantially improve, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries."

The medical-device trade association AdvaMed issued a May 12 statement welcoming the lower threshold but arguing that it should be effective earlier and be lower still. In the proposed rule CMS outlined the balancing act behind its recommendation. On the one hand, the need for some reduction was suggested by the small number of applications for add-on payments: five for 2003 and two for 2004. On the other hand, since a DRG typically contains a range of procedures, too big a reduction could mean that technologies could qualify for add-on payments merely by being associated with one of the more expensive procedures contained in the DRG.