Medicare Compliance & Reimbursement

Inflation adjustment calculations for LTC hospitals may soon change.

The Centers for Medicare & Medicaid Services is accepting comments on radical updates to the prospective payment system for long-term care hospitals.

In 2003, there were approximately 280 LTC hospitals; the new PPS would now affect about 375 facilities. CMS estimates Medicare payments under the new LTCH PPS will be $5.27 billion for 2007--a 70 percent increase since 2003.

The new PPS would freeze Medicare payment rates for LTCH discharges, and the federal rate would stay at $38,086 for the 2007 rate year. The method for calculating LTCHs' inflation adjustments may also change under the proposed rule. CMS is proposing to replace the Excluded Hospital With Capital market basket with the Rehabilitation, Psychiatric and Long-Term Care market basket. This change would also increase the labor share, which Medicare uses in area wage adjustments, from about 73 percent to nearly 76 percent.

The PPS revises the payment formula for short-stay outlier patients--about 37 percent of LTCH discharges--to ensure that payments don't exceed costs. Medicare will pay hospitals for unusually high-cost cases under the high-cost outlier policy. But to be eligible for the payment, a hospital's costs would need to exceed a higher fixed-loss amount--$18,489 in RY 2007, compared with $10,501 in RY 2006.

The proposed rule would also eliminate the surgical diagnosis related group exception to the three-day or less interrupted stay policy. This change would prevent Medicare from making a separate payment to an LTCH when the care the hospital delivered during a 3-day-or-less interruption is for inpatient surgery.

The proposed PPS is "more efficient and consistent with Medicare's other payment systems for similar patients," says CMS. The agency based the PPS changes on recent case-mix and cost reports; the changes are consistent with recent update recommendations from the Medicare Payment Advisory Commission.

"Our goal is to ensure that the Medicare beneficiaries who need long-term care hospital services receive high-quality care, while promoting the efficient delivery of services to all of our seriously ill beneficiaries," CMS Administrator Mark McClellan says. "We believe the proposed rule promotes high-quality, efficient care, and we are looking forward to comments from the public."

The proposed rule would take effect July 1, 2006 and continue through June 30, 2007. CMS is accepting comments on the PPS until March 20, 2006. For more information, visit www.cms.hhs.gov/providers/LongTermCareHospitalPPS.