Overview:

On January 22, 2008, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would establish payment rates and policy changes for hospitals paid under the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for the 2009 Rate Year.  The proposed rule is intended to assure appropriate payment for services to severely ill patients or patients having medically complex conditions while giving LTCHs incentives to provide more efficient care to Medicare beneficiaries. 

Background:

Long-term care hospitals are generally defined as hospitals that have an average Medicare inpatient length of stay of greater than 25 days.  These hospitals typically provide extended medical and rehabilitative care for patients who may suffer from multiple acute or chronic conditions or require clinically complex care, such as respiratory therapy and pain management.  Approximately 390 long-term care hospitals are paid under the LTCH PPS. 

Since 2002, Medicare has paid for services to beneficiaries in LTCHs under the LTCH PPS, which provides a single payment to the hospital for the patient’s stay based on the patient’s diagnosis.  The new payment system was made effective for LTCHs for cost reporting periods beginning on or after October 1, 2002.  The Medicare-severity long-term care diagnosis related groups (MS-LTC-DRG) which are used to categorize LTCH patients are based on the MS-DRGs used in the acute care hospital inpatient prospective payment system (IPPS), but are modified to reflect the different resources used by LTCHs in treating this more complex patient population.

Payment rates and policies under the LTCH PPS are presently updated annually for a rate year that runs from July 1 through June 30.  However, because the MS-LTC-DRGs are based on the IPPS DRGs, changes to the LTC-DRGs are included in the IPPS final rule published each year in August and are effective on October 1.

Change in the Effective Date of the Annual Payment Rate Update:

CMS is proposing to change the effective date of the annual update for the LTCH PPS payment rate and related policy changes which are currently effective beginning each July 1 to coincide with the annual update of the MS-LTC-DRG classifications and recalibration of the relative weights which are effective beginning each October 1.  This policy is being proposed in response to industry concerns, as well as to maximize the use of CMS resources.  CMS is proposing to make the Rate Year (RY) 2009 rates effective for a 15-month period, from July 1, 2008 through September 30, 2009, to consolidate the annual update to payment rates and the changes to the MS-LTC-DRGs so both become effective on October 1, beginning on October 1, 2009.

Update of the Standard Federal Rate for 2009 Rate Year:

• CMS is proposing that for Rate Year (RY) 2009, the LTCH PPS standard Federal rate be updated by 2.6 percent to $39,076.28 for Medicare discharges occurring on or after July 1, 2008, through September 30, 2009.  This proposed update is based on an analysis of LTCH case-mix data and the proposed LTCH PPS RY 2009 market basket.  Our analysis of the latest available LTCH claims data indicates that there was an estimated 1.9 percent increase in observed case mix between FY 2005 and 2006, but that 0.9 percent of that increase was due to changes in coding practices and documentation rather than the treatment of more resource intensive patients.  
• By way of comparison, for RY 2008, CMS finalized an update of 0.71 percent, which was based on an LTCH PPS market basket of 3.2% and a 2.49% reduction due to increased observed case mix due to changes in coding and documentation rather than the treatment of more resource intensive patients.
• Consistent with the proposal to change the 2009 rate year to a July 1, 2008 to September 30, 2009 rate year, CMS proposes to use the most recent estimate of the LTCH PPS market basket calculated for a 15-month rate year for RY 2009, i.e., 3.5 percent.  Accordingly, CMS is proposing to update the LTCH PPS Federal rate by 2.6 percent, the 3.5 percent market basket and a proposed 0.9 percent reduction for changes due to coding practices in FY 2006.)

Effect of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (Medicare Extension Act) on the Proposed Standard Federal Rate:

RY 2008 Update:

• The Medicare Extension Act of 2007, which President Bush signed into law on December 29, 2007, revised the rate for RY 2008.  The standard Federal rate had been established at $38,356.45 in the RY 2008 LTCH PPS final rule.
• With the enactment of the Medicare Extension Act, the rate for RY 2008 is required to be the same as the rate for RY 2007, $38,086.04. 
• In the proposed rule issued today, CMS is proposing to update the revised RY 2008 standard Federal rate of $38,086.04 by 2.6 percent, resulting in a proposed RY 2009 standard Federal rate of $39,076.28.

The One-Time Prospective Adjustment to the Standard Federal Rate:

·        At the outset of the LTCH PPS, CMS regulations specified that the agency would review payments under the LTCH PPS, and, if appropriate, propose a one‑time prospective adjustment to the LTCH PPS rates by October 1, 2006 (later changed to July 1, 2008). 

·        The purpose of this adjustment was to ensure that the effect of any significant difference between the original budget neutrality calculations and a budget neutrality calculation based on more recent data would not be perpetuated in the LTCH PPS rates for future years. 

·        CMS is not proposing to implement the one-time prospective adjustment to the standard Federal rate for RY 2009 because of the impact of the provisions of the Medicare Extension Act.  However, the proposed rule presents a possible methodology for evaluating whether a one-time budget neutrality adjustment may be appropriate. 

Proposed Outlier Threshold:

In unusually costly cases, Medicare may pay a LTCH an additional amount, called an outlier payment, in addition to the Federal prospective payment under the LTCH PPS for the MS-LTC-DRG.  To be eligible for this payment, the LTCH’s estimated costs in treating the case must exceed the MS-LTC-DRG payment by the outlier fixed-loss amount.  For RY 2009, CMS is proposing to increase the fixed-loss amount for high cost outlier cases to $21,199 from $20,738.  As under current regulations, estimated aggregate high cost outlier case payments are limited to 8 percent of total estimated LTCH payments. 

 Wage Index Provisions:

The proposed rule contains a number of proposals that would affect the wage index, including:

• an annual update to the wage index based on the most current data available. 
• updating the labor-related share from 75.788 percent to 75.920 percent, based on the most recent data from the 15-month Rehabilitation, Psychiatric and Long-Term Care (RPL) market basket. 
• establishing policies for determining a LTCH PPS wage index value for Core Based Statistical Areas (CBSA), where there is no IPPS wage data.  (There are currently no LTCHs located in any of these areas.) 
• updating the CBSA labor market area definitions based on the most recent revisions issued by OMB, which CMS adopted under the IPPS in the FY 2008 final rule. 
• codifying the definitions of urban and rural directly in the LTCH PPS regulations rather than referring to the definitions in the IPPS regulations. 

Clarifications of Wage Index Policies:

• CMS adopted a policy in the final IPPS rule for FY 2008 that apportions the average hourly wage data for multi-campus hospitals located in different labor market areas among each CBSA where the campuses are located, for purposes of determining the IPPS wage index.  CMS is clarifying that the pre-reclassified wage data, upon which the LTCH wage index is based, can be affected by this policy, and this policy is reflected in the proposed RY 2009 LTCH PPS wage index values.
• Prior to FY 2008, the IPPS regulations treated certain rural New England counties as urban.  In the FY 2008 final rule, the IPPS regulations were revised to treat those “New England deemed” counties that are still considered rural by the OMB (Litchfield county, CT and Merrimack county, NH) as rural under IPPS, and the IPPS hospitals located in those areas (Litchfield county and Merrimack county) as being reclassified to an urban area.  In this proposed rule, CMS is clarifying that for the LTCH PPS, Litchfield and Merrimack counties will be treated as urban until July 1, 2008.  However, beginning with discharges occurring on or after July 1, 2008, Litchfield and Merrimack counties will be considered rural under the LTCH PPS.
• The calculation of the proposed RY 2009 LTCH PPS wage index values is consistent with the above wage index policies. 

 Projected Impact of Proposals on LTCH Payments from RY 2008 to RY 2009:

·        CMS estimates that if all the changes presented in this proposed rule were finalized, total payments to LTCHs would increase by approximately 2.9 percent, or approximately $124 million, for RY 2009, as compared to estimated RY 2008 LTCH PPS payments.  Aggregate LTCH PPS payments for 2009, based on the proposed changes in this proposed rule, are estimated at approximately $4.44 billion.

·        The projected increase in total estimated payments is due primarily to the proposed rate update of 2.6 percent.  

• Routine payment rate changes such as the proposed change in the high cost outlier fixed-loss amount, and the effect of the estimated increase in payments for high cost and short stay outlier cases in RY 2009 as compared to RY 2008, also contribute to the increase in estimated total LTCH PPS payments for RY 2009. 
• If appropriate, CMS would use the most recent estimate of the market basket for calculating the update factor to the LTCH PPS standard Federal rate in the final LTCH PPS rule.  Therefore, the update factor and the resulting standard Federal rate may change in the final rule.

RTI Contract:

The CMS RY 2009 proposed rule discusses the research contract that CMS awarded to Research Triangle International (RTI) for the purposes of evaluating the possible establishment of patient and facility-level criteria for LTCHs.  The proposed rule also reviews the Technical Expert Panels (TEPs) that were held in January and November of 2007.