Press Releases

CMS ANNOUNCES PAYMENT, POLICY CHANGES FOR INPATIENT REHABILITATION FACILITIES IN FISCAL YEAR 2007

CMS ANNOUNCES PAYMENT, POLICY CHANGES FOR INPATIENT REHABILITATION FACILITIES IN FISCAL YEAR 2007
FINAL RULE ON ACCREDITATION OF DME SUPPLIERS ALSO RELEASED

Inpatient rehabilitation facilities (IRFs) are projected to receive approximately $7 billion in payments from the Medicare program in fiscal year (FY) 2007, under a final rule announced today by the Centers for Medicare & Medicaid Services (CMS).   The rule updates payment rates and modifies payment policies for services furnished to Medicare beneficiaries for discharges occurring on or after October 1, 2006 through September 30, 2007.  The rule’s provisions are estimated to increase Medicare payments to approximately 1,240 IRFs in FY 2007 by approximately $50 million. 

“The policies we are announcing today are designed to ensure that Medicare beneficiaries who need intensive rehabilitation services in an inpatient setting have access to appropriate care,” said Mark B. McClellan, M.D., Ph.D. 

The rule provides for an update to IRF payment rates, based on the rehabilitation, psychiatric, and long-term care hospital (RPL) market basket increase of 3.3 percent.  The RPL market basket is designed to capture inflation in the costs of goods and services required to provide the specialized services offered by these facilities, similar to the market basket that applies to general acute care hospitals.

This rule also implements certain provisions in the Deficit Reduction Act of 2005 (DRA) affecting IRFs.  In addition, the rule describes CMS’ ongoing efforts to integrate post acute benefit structures, including IRFs, skilled nursing care, home health care, and long-term care hospitals in a way that will provide for more consistent patient classification, as well as facilitate consistent payment for services furnished to beneficiaries regardless of the setting in which the post acute care is provided.

The IRF Prospective Payment System (PPS) was first implemented at the start of each hospital’s fiscal year that started on or after January 1, 2002.   The objective of the transition to the IRF PPS was to increase the accuracy of the payments made to the facilities for the resources they use to furnish care to Medicare beneficiaries, and to enhance the efficient delivery of quality care.  Since first implementing this prospective payment system, CMS has increased the payment rates each federal fiscal year.

The number of IRFs has increased since the implementation of the IRF PPS, but recently the total number has been holding relatively steady.  However, there are significant state and regional differences in the distribution of IRFs.  The ratio of IRFs to the Medicare population is significantly higher in the West South Central states of Texas, Oklahoma, Louisiana, and Arkansas ─ as well as in Kansas, Indiana, and Alaska ─ than in the rest of the country. 

The rule amends existing regulations regarding the three-year phase-in to a 75 percent compliance threshold (75 Percent Rule)– a requirement that when fully phased-in requires that at least 75 percent of an IRF’s patient population have one of the 13 designated medical conditions for which intensive inpatient rehabilitation services are medically necessary.  The 75 percent rule was initially adopted in 1983 to distinguish those hospitals which would be eligible for exemption from the inpatient prospective payment system (IPPS) and would continue to be reimbursed based on costs.  Since the institution of the IRF PPS, CMS no longer reimburses IRFs on a cost basis.  However, the IRF PPS provides higher payment levels than would be paid for these cases under the IPPS.

As described in the DRA, the final rule delays the imposition of the full 75 percent threshold by one year.  Thus, for providers with cost reporting periods that start on or after July 1, 2006 and before July 1, 2007, the compliance threshold will be 60 percent.  For providers with cost reporting periods starting on or after July 1, 2007 and before July 1, 2008, the compliance threshold will be 65 percent, while the 75 percent threshold will be imposed for providers with cost reporting periods beginning on or after July 1, 2008.  In addition, comorbidities that meet the criteria as specified in the regulations may continue to be used to determine the compliance percentage for cost reporting periods that begin before July 1, 2008.

In addition, the final rule includes a 2.6 percent reduction in the standard payment amount for FY 2007, to offset the effect of changes in coding that do not reflect real changes in patient acuity.  This is less than the 2.9 percent adjustment included in the proposed rule.   As a result, the final rule increases the outlier threshold for high cost outlier cases to $5,534 in 2007, which is less than the $5,609 in the proposed rule.  At this level, CMS projects that estimated outlier payments would equal 3 percent of total estimated payments under the IRF PPS. 

As another component of the final rule, CMS also announced accreditation requirements for assuring the quality of suppliers of durable medical equipment, prosthetics, and supplies (collectively referred to as DMEPOS).  This rule implements requirements for suppliers to be accredited by independent accrediting organizations as meeting new quality standards in order to bill the Medicare program for items such as walkers, wheelchairs, and hospital beds furnished to Medicare beneficiaries.  These new accreditation requirements promote the provision of quality DMEPOS items and services for Medicare beneficiaries. The accreditation process and quality standards for DMEPOS suppliers were required by the Medicare Modernization Act of 2003 (MMA).  The MMA also required Medicare to implement competitive bidding for certain items of DMEPOS.

“The accreditation procedures CMS is announcing today, along with the Competitive Bidding Program we will be implementing shortly, will promote quality and avoid unnecessary costs in providing needed durable medical equipment to our beneficiaries,” said Dr. McClellan.

The final rule addresses certain issues that were raised in the proposed DMEPOS competitive bidding rule, published in the May 1, 2006 Federal Register, laying the groundwork for timely implementation of the Medicare DMEPOS Competitive Bidding Program.  These include, in addition to supplier accreditation, the authority of CMS to enter into contracts with independent entities to implement the competitive bidding program, and plans for competitive bidding education and outreach for both beneficiaries and suppliers.

Although DMEPOS suppliers are already required to meet certain basic standards in order to enroll in the Medicare program, the new rule announced today establishes a more vigorous program of enforcement.  CMS-approved independent accrediting organizations will survey DMEPOS suppliers to measure compliance with new quality standards, which will be issued in the near future.  The new quality standards will reflect core good business practices and product specific services designed to ensure that beneficiaries receive the right equipment, training, and education to meet their needs.

Under the provisions of the final rule, all suppliers that furnish certain items of DMEPOS under Part B must meet quality standards and be accredited.  In interpreting the final rule, CMS has sought to minimize the burden on suppliers.  In particular, the rule directs the accreditation organizations to consider previous accreditation, Medicare certification, and licensure that would indicate that the quality standards are being met.  In addition, CMS will instruct accrediting organizations to focus first on suppliers in the initial phase of the Medicare DMEPOS Competitive Bidding Program. 

Notes:   The final IRF PPS rule will appear in the August 18 Federal Register and will be effective for IRF discharges occurring on or after October 1, 2006 through September 30, 2007.  Additional information about the IRF rule is posted on the CMS web site at: www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSCompetitiveBid/index.html

Additional information about DMEPOS supplier accreditation is posted on the CMS website at www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSCompetitiveBid/index.html