Medicare FY 2016 IPPS Regulational Update Jim Olson, Director Medicare Part A Audit Noridian Healthcare Solutions February 3,

FY 2016 Inpatient Prospective Payment Policy Changes  Final Rule published – Federal Register dated August 17, 2015  Policies continue to shift Medicare payments from volume to value  Pay providers based on the quality, rather than the quantity of care given  Create a health care system resulting in better care, smarter spending, and healthier people 2

Components of the Inpatient Hospital Update for FY 2016  Market Basket FY 2016 uses an update of 2.4%. FY 2015 update was 2.9% CMS rebases the market basket and labor share every four years; last rebased in 2014 Hospitals not considered meaningful Electronic Health Record users will have a 66 2/3% reduction to three-quarters of the applicable percentage increase (prior to other statutory adjustments)  Affordable Care Act Market Basket Adjustment FY 2016 mandated a decrease of 0.2% FY 2017 – 2019 mandates a decrease of 0.75% 3

 Multifactor Productivity (MFP) Adjustment MFP is derived from subtracting the contribution of labor and capital input growth from output growth Based on a 10-year moving average of changes in annual non-farm productivity, as determined by the Secretary Negative adjustments of 1.0% in FY 2012, 0.3% in FY 2014, 0.5% in FY 2015, and 0.5% in FY 2016 Can result in a market basket increase of less than zero Payments in current year may be less than the prior year 4

Components of the Inpatient Hospital Update for FY 2016  Documentation and Coding Recoupment Adjustment Pub. L requires the Secretary to make a recoupment adjustment to the standardized amount to eliminate the full effect of documentation and coding changes not reflecting real changes in case mix American Taxpayer Relief Act (ATRA) imposes an aggregate $11 billion recoupment of asserted coding overpayments in FYs Recoupment to take place over four years, FYs 2014 – 2017 The Secretary has chosen a level adjustment reduction factor of 0.8% per year to the standardized amount to make the $11 billion recoupment 5

Medical Review of Inpatient Admissions Criteria (Two-Midnight Rule)  Two-Midnight IPPS Payment Reduction Adjustment Effective October 1, 2013 Less than “two midnights” is generally considered an outpatient stay Greater than “two midnights” is generally considered an inpatient stay Permanent adjustment of -0.2% made to IPPS Rates to reflect inpatient encounters moving from IPPS to OPPS CMS allowing exceptions on a case-by-case basis based on physician documentation subject to medical review Quality Improvement Organization (QIO) contractors will conduct reviews of short inpatient stays focusing on enforcement and education 6

Disproportionate Share Hospital (DSH) Payment  DSH Implementation of Affordable Care Act, Section 3313 Effective with discharges on or after 10/1/ % of estimated Medicare DSH payments – based on current DSH methodology 75% of estimated Medicare DSH payments – based on the individual hospital’s proportion of uncompensated care to all DSH hospitals uncompensated care CMS currently using prior period Medicaid and SSI days to distribute uncompensated care (for individual hospital and all DSH-eligible hospitals) instead of uncompensated care data The Secretary has elected to use this alternative approach in lieu of existing Worksheet S-10 data CMS distributing an estimated $6.4 billion in FY 2016, a decrease of $1.2 billion from the estimated FY 2015 amount 7

Disproportionate Share Hospital (DSH) Payment  DSH Implementation of Affordable Care Act, Section 3313 (Cont.) Decrease primarily attributable to continued declines in the number of uninsured individuals Uncompensated Care payments are currently being paid as follows: 1.MAC receives a flat rate from CMS based on Medicaid and SSI days to total days and enters into FISS for payment 2.Rates are updated by CMS every October 1 st 3.Paid on a claim-by-claim basis 4.Paid as a fixed add-on to the DRG payment. 5.Payment not based on DRG or DRG weight 8

CMS Use of Wkst. S-10 to Calculate Uncompensated Care for DSH Payment  CMS Moving Toward Using Wkst. S-10 data Many errors have been identified in filed S-10 data that indicate data is unreliable as basis to distribute provider share of uncompensated care costs 1.Many hospitals did not report S-10 data at all, about 5% 2.14% had no total bad debt data, but 90% of that group reported Medicare bad debt data 3.Some had a CCR of 1.0, many had CCRs above.6, a few had more gross charges on S-10 than on Wkst. C CMS continues to work toward improving Wkst. S-10 to accurately and consistently capture uncompensated care costs CMS plans to address the use of Wkst S-10 in the FY 2017 Proposed Rule for uncompensated care distribution 9

Changes Affecting Medicare Payments to Acute Care Hospitals  Hospital Value-Based Purchasing Applies to discharges on or after 10/1/2012 Additional payment results from DRG reductions, 1% in FY 2013, 1.25% in FY 2014, 1.5% in FY 2015, 1.75% in FY 2016 and 2.0% in FY 2017 and thereafter Incentive payments are made in a fiscal year to hospitals based on their performance on measures established for the performance period New measures must be posted on Hospital Compare website one year prior to implementation 10

Changes Affecting Medicare Payments to Acute Care Hospitals  Hospital-Acquired Conditions (HAC) Reduction Program Effective for discharges on or after 10/1/2014 Applies to hospitals in the top quartile (25 percent of all applicable hospitals) of the risk adjusted HAC measure Payment shall be equal of 99 percent of the amount of payment that would otherwise apply  Hospital Payment Reduction for Excessive Readmissions Effective for fiscal years starting on or after 10/1/2012 Requires a reduction to a hospital’s base operating DRG payment to account for excess readmissions of selected conditions Applies to the base operating DRG payment 11

Changes Affecting Medicare Payments to Acute Care Hospitals  Hospital Payment Reduction for Excessive Readmissions (Cont.) FY 2015 and FY 2016 Final Rule covered conditions: Acute myocardial infarction (AMI) Heart failure (HF) Pneumonia (PN) Chronic obstructive pulmonary disease (COPD) Total hip arthroplasty (THA) Total Knee arthroplasty (TKA) FY 2017 adds: Coronary artery bypass graft surgery Refinement to the pneumonia readmissions measure 12

Changes Affecting Medicare Payments to Acute Care Hospitals  SGR Reform Act of 2013 as amended by section 204 and 205 of the Medicare Access and CHIP Reauthorization Act of 2015 Critical Access Hospitals will continue to be paid for inpatient and outpatient services at 101% of reasonable cost Extends the inpatient hospital payment adjustment for Low Volume Hospitals and Medicare Dependent Hospitals through FY

Questions  Question: Bad debt reimbursement is removed at Tentative Settlement and we get it back during the audit. Reported on Form CMS-339, Exhibit 5 Per Provider Reimbursement Manual, HIM-15, Part I, Chapter 28, Section : “Costs are accepted as reported except for obvious errors or inconsistencies – subject to later audit” Examples of obvious errors or inconsistencies: 1.Current year write-off dates 2.Missing HIC numbers 14

Questions  Question: Is IME at risk for future reductions? The presidents FY 2016 budget would reduce indirect medical education (IME) adjustment by 10 percent This would cut Medicare IME payments by approximately $16.3 billion over 10 years On July 29, 2015, the Medicare IME Pool Act of 2015 (H.R. 3292) was introduced The bill would discontinue Medicare IME add-on payments paid to teaching hospitals beginning in FY 2019 Establishes a Medicare IME Pool to distribute lump sum payments to teaching hospitals The Medicare Pool Act of 2015 would not phase in. It would start in its entirety in FY

Questions  Question: Is IME at risk for future reductions? (cont.) The Medicare IME Pool would have a $9.5 billion base allocation The IME Pool would be adjusted for: 1.Establishment of new teaching programs 2.Market basket updates Allocations from the Medicare IME Pool based on following formula: Wt. Avg. of Hospital’s # FTE Residents / Wt. Avg. of total # of FTE residents nationwide X Total IME Pool Funds = Hospital’s allocation The methodology establishes a uniform per-FTE-resident IME amount and includes no adjustments for hospital CMI, Medicare volume, patient severity, geographic variations in wages or other operating costs 16

Questions  Question: Is IME at risk for future reductions? (cont.) Could impact the projected shortage of between 46,000 and 90,000 physicians by 2025  Question: Is DGME at risk for future reductions? In July 2014, an Institute of Medicine (IOM) committee recommended phasing out over a 10 year period Medicare’s current separate payment for direct GME and replace with one geographically adjusted national adjusted per resident amount The IOM Committee projects in year 5 of a 10 year phase out of DGME funding, teaching hospitals would experience a 35 percent cut in payment for DGME The IOM Committee recommends termination of Medicare support at the end of 10 years with no new funding source 17

Questions  Question: Will the Medicare bundle payment program (total joints) go live in April: Based on information received, it is slated to go live April 1, 2016  Question: How will the hospital’s be reimbursed if they beat their target rate? When will the target price data be shared to participating hospitals to analyze? Waiting on updates from CMS to clarify 18

Questions  Question: Currently, what issue (payment policy) is the most appealed by providers? Accuracy of the SSI ratio Whether Medicaid eligible Medicare Part C patients can be included in the Medicaid fraction of the DSH adjustment Whether Medicaid eligible Medicare Part A patients that did not have their claims paid by Medicare (exhausted benefits or MSP) can be included in the Medicaid fraction of the DSH adjustment  Question: Is it true if you appeal an issue on the cost report but don’t list a dollar amount that you are appealing, you will not be eligible for settlements on that issue in the future? A provider can only appeal an issue if they can demonstrate theywere dissatisfied with a Contractor or CMS determination 19

Questions  Question: Is it true if you appeal an issue on the cost report but don’t list a dollar amount that you are appealing, you will not be eligible for settlements on that issue in the future? (cont.) To prove dissatisfaction, a provider would need to (1) claim reimbursement for an item on the cost report or (2) protest the item on the cost report (Wkst. E, Part A, line 75) Provide a detailed explanation of what is being protested and how the protested amount was calculated When the MAC proposes it’s adjustment to either disallow the claimed item or remove the protested amount, that would be the adjustment the provider would appeal If the provider does not claim or protest an item and no adjustment is made, the MAC would challenge the Boards jurisdiction to hear the issue 20

Questions  Question: Would the provider have to protest the item each year they had a concern? Would one year carry forward to future years? The provider would need to claim or protest the item each year. Each cost report stands alone, there is no carry forward in the appeals world  Question: Will new Off-Campus Departments be limited to Physician Fee Schedule or ASC Payment beginning January 1, 2017? Section 603 of the proposed Bipartisan Budget Act of 2015 Effective as of January 1, 2017 Would use either the Physician Fee Schedule or the Ambulatory Surgery Center Payment System to pay for most services furnished in any off-campus hospital department established after the date the proposal becomes law 21

Questions  Question: Will new Off-Campus Departments be limited to Physician Fee Schedule or ASC Payment beginning January 1, 2017? (cont.) Off-Campus hospital departments in existence as of the date the proposal is signed into law would be grandfathered and continue receiving reimbursement under the Medicare Hospital Outpatient Prospective Payment System (OPPS) Applies to off-campus provider-based clinics, physician offices and surgical centers located within a 35-mile radius of the main hospital Would not apply to other off-campus remote locations of a hospital (i.e. inpatient campuses of a multi-campus hospital), satellite facilities, and provider based rural health clinics even if established or acquired after January 1,

Questions  Question: Will new Off-Campus Departments be limited to Physician Fee Schedule or ASC Payment beginning January 1, 2017? (cont.) The Act would not apply to on-campus outpatient departments (OPD) On-campus OPD departments would continue to be paid OPPS rates into 2017 and beyond On-campus includes the area located within a 250-yard radius around the hospitals main buildings On-campus also includes each campus of a multi-campus hospital plus the area located within the surrounding 250-yard area 23

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Thank you! Jim Olson Noridian Healthcare Solutions