2007 CMS issues
The biggest regulatory issue for hospitals in 2007 will be the ongoing phase-in of the new payment system for inpatient care.
In 2006, CMS made major changes related to the DRG system for inpatient services. They replaced the old DRG system with a system that bases payments on hospital costs rather than charges. They reclassified DRG's to more accurately reflect severity of illness in patients and will be phasing in the changes over several years.
Some hospitals will win while others lose under this new plan. Payments for some admissions will increase while others decrease causing concern for some facilities.
Some believe that depending on their case mix, specialty hospitals with less-intensive cases are likely to see a reduction in revenue. There is also speculation that community hospitals like Floyd that have emphasized cardiac care and other profitable business lines will experience similar reductions.
RTI International, an independent, non-for-profit corporation based in Research Triangle Park, N.C., will be releasing a study and making specific recommendations to the CMS sometime this month or in February on a complex issue known as “charge compression. Charge compression, as defined by the Medicare Payment Advisory Commission, results from the interaction of hospitals’ methods of setting charges and the CMS’ method of converting charges into costs. It is a complex issue and in the past, the federal agency generally used a single cost-to-charge ratio to convert charges for all services in a single revenue center—such as pharmacy—into costs.
But some hospitals have been known to mark up inexpensive products more than they do expensive products, which leads to charge compression. This has been a way hospitals got more money from the system, and that’s where the government’s concern lies. How much markup should there be for a Tylenol capsule?
Last year we talked about the new DRG system being contemplated, but as of now, CMS has backed off of replacing the 526 DRG’s with the larger system of all new, severity-adjusted DRG’s. They have adopted more limited changes, introducing 20 new DRG’s and redefining 32 existing ones for 2007
The CMS also has plans to base payments for ambulatory surgical centers on the same methodology for hospital outpatient departments. This is all part of a congressionally mandated effort to streamline Medicare.
The agency’s proposal is to set payments for ASCs at 62% of the outpatient rate at this rate; many ASCs will simply not be able to afford to provide services. Discussion is being held to increase the rate into the mid-70s (percentages) which would still achieve cost savings for the Medicare program.
The other change for 2007 is the continued phase-in of the so-called “75% rule” for inpatient rehabilitation hospitals like Southern Indiana Rehab. Under this regulation, 75% of the rehab hospital’s admissions in a given year have to come from at least one of 13 diagnoses in order to receive higher reimbursement rates for rehab services. The percentage is currently at 60% and will increase to 65% on July 1, and then max out at 75% the following July. Hospitals don’t necessarily support this rule because it limits what type of patients they can or will accept. If they have a choice between patients who fall in one of the 13 categories and one who doesn’t, they make choose the one who does in order to meet their 75% rule. It is hard to predict what type of patients you will be receiving at a rehab hospital.
In 2006, CMS made major changes related to the DRG system for inpatient services. They replaced the old DRG system with a system that bases payments on hospital costs rather than charges. They reclassified DRG's to more accurately reflect severity of illness in patients and will be phasing in the changes over several years.
Some hospitals will win while others lose under this new plan. Payments for some admissions will increase while others decrease causing concern for some facilities.
Some believe that depending on their case mix, specialty hospitals with less-intensive cases are likely to see a reduction in revenue. There is also speculation that community hospitals like Floyd that have emphasized cardiac care and other profitable business lines will experience similar reductions.
RTI International, an independent, non-for-profit corporation based in Research Triangle Park, N.C., will be releasing a study and making specific recommendations to the CMS sometime this month or in February on a complex issue known as “charge compression. Charge compression, as defined by the Medicare Payment Advisory Commission, results from the interaction of hospitals’ methods of setting charges and the CMS’ method of converting charges into costs. It is a complex issue and in the past, the federal agency generally used a single cost-to-charge ratio to convert charges for all services in a single revenue center—such as pharmacy—into costs.
But some hospitals have been known to mark up inexpensive products more than they do expensive products, which leads to charge compression. This has been a way hospitals got more money from the system, and that’s where the government’s concern lies. How much markup should there be for a Tylenol capsule?
Last year we talked about the new DRG system being contemplated, but as of now, CMS has backed off of replacing the 526 DRG’s with the larger system of all new, severity-adjusted DRG’s. They have adopted more limited changes, introducing 20 new DRG’s and redefining 32 existing ones for 2007
The CMS also has plans to base payments for ambulatory surgical centers on the same methodology for hospital outpatient departments. This is all part of a congressionally mandated effort to streamline Medicare.
The agency’s proposal is to set payments for ASCs at 62% of the outpatient rate at this rate; many ASCs will simply not be able to afford to provide services. Discussion is being held to increase the rate into the mid-70s (percentages) which would still achieve cost savings for the Medicare program.
The other change for 2007 is the continued phase-in of the so-called “75% rule” for inpatient rehabilitation hospitals like Southern Indiana Rehab. Under this regulation, 75% of the rehab hospital’s admissions in a given year have to come from at least one of 13 diagnoses in order to receive higher reimbursement rates for rehab services. The percentage is currently at 60% and will increase to 65% on July 1, and then max out at 75% the following July. Hospitals don’t necessarily support this rule because it limits what type of patients they can or will accept. If they have a choice between patients who fall in one of the 13 categories and one who doesn’t, they make choose the one who does in order to meet their 75% rule. It is hard to predict what type of patients you will be receiving at a rehab hospital.
Labels: DRG, financial, regulation
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