Proposed Medicare payment changes for hospitals would lower reimbursements slightly

Apr 22 2010

The Wall Street Journal: "Hospital stocks moved higher Tuesday after the agency that runs Medicare proposed new inpatient services rates for the next fiscal year that were somewhat better than many had expected. Monday evening the Centers for Medicare & Medicaid Services said it would like to cut Medicare operating payments to acute care hospitals for inpatient services occurring in the next fiscal year by $142 million, or 0.1%. These figures don't include the impact of the new health-care reform law, which analysts said would cut the rate by another 0.25%" (Cummings, 4/20).

MedPage Today: "Hospitals are not happy about the potential reduction" in payments. In addition to the 0.1 percent cut in payments to the 3,500 acute care hospitals, CMS "announced Monday it would update its rates for acute care hospitals by 2.4% for inflation, but then reduce payments by 2.9% to recoup one-half of the increase in FY 2008 and 2009 payments that did not reflect the severity of patients' illnesses. Back then, hospitals were paid the same for treating a healthier patient as they were for treating a severely ill patient with the same diagnosis. In FY 2008, CMS replaced its Diagnostic Related Grouping (DRG) system with the new Medicare Severity DRGs (MS-DRGs), which reflects the severity of a patient's illness in addition to the diagnosis. ... The proposed cut in reimbursements is meant to reflect the overpayments that resulted under the old system, according to a release from CMS. But the American Hospital Association (AHA) took issue with the 'coding offset.'" In addition, CMS also "proposed a payment update for the nation's 420 long-term care facilities, at which patients typically stay for longer than 25 days" (Walker, 4/20). 

The Wall Street Journal, in a separate story: "New proposed Medicare payment rates for inpatient hospital treatment would generally increase reimbursement related to important medical devices, which suggests the system won't ramp up pressure on device prices in the near term. The proposal late Monday from the Centers for Medicare & Medicaid Services, coupled with a strong first-quarter report the next morning for Johnson & Johnson's (JNJ) huge medical-devices business, boosted stocks across the medical-devices space on Tuesday. The Medicare payment news was particularly welcome for a sector where investors and analysts have worried that changes to the health-care system will put a squeeze on product prices. Such pressure may still build over the long haul, but the proposed Medicare rates for the fiscal year starting in October could ease worries about a more immediate impact." Medicare's hospitals payments are not directly connected to device prices, "[b]ut they can have an indirect influence because the amount hospitals receive in reimbursement for procedures affects what they can afford to pay for devices used in those procedures"  (Kamp, 4/20). 

Modern Healthcare: Meanwhile, "[h]ospital lobbyists speaking at the Greater New York Hospital Association annual meeting said they will use healthcare reform's three-year implementation period to push for fixes to what they believe will be problems in the reimbursement system under reform. Disproportionate-share hospital reimbursement and Medicare physician payment are 'areas that will need tweaking as we move along toward implementation,' said Blair Childs, senior vice president of public affairs for Premier, a healthcare group-purchasing and quality-improvement organization. Childs and others who spoke during a panel on reform implementation said that the new law will make some significant improvements to provider reimbursement through insurance-coverage expansion and mandates. But they also said impending cuts to DSH funding, reductions to Medicare reimbursement rates and an imminent increase in the number of seniors hitting the Medicare roster could diminish those improvements if lawmakers and healthcare providers don't work now to address potential problems" (Rhea, 4/20).

Crain's New York Business: "One provision of the federal reform legislation that is sure to come back and bite New York hospitals is a new policy under which Medicare will stop paying for excessive readmissions starting in 2013. The issue came up several times at yesterday's GNYHA annual meeting. ... The problem is that, at 30 days, the window defining excessive readmissions is too wide. The policy also does not exclude most unrelated readmissions. And it fails to adjust the risk of readmission for socioeconomic status, an omission that could hurt hospitals in New York City that care for many indigent patients" (4/21).