Press Releases

CMS ANNOUNCES POLICY AND PAYMENT CHANGES FOR LONG-TERM CARE HOSPITALS FOR RATE YEAR 2008

CMS ANNOUNCES POLICY AND PAYMENT CHANGES FOR LONG-TERM CARE HOSPITALS FOR RATE YEAR 2008
RULE ALSO FINALIZES GRADUATE MEDICAL EDUCATION PAYMENT POLICY

The Centers for Medicare & Medicaid Services (CMS) today issued a final rule designed to assure appropriate payment for services by long-term care hospitals (LTCHs) to treat severely ill or medically complex patients, while providing incentives for more efficient care for Medicare beneficiaries.  Under this final rule, Medicare total payments to LTCHs are expected to exceed $4 billion for rate year (RY) 2008.

            “The final rule assures appropriate payment for services furnished to severely ill patients and patients with medically complex conditions while providing incentives to long-term care hospitals to furnish more efficient care to Medicare beneficiaries,” said CMS Acting Administrator Leslie V. Norwalk, Esq. 

            The Medicare statute generally defines long-term care hospitals as hospitals that have an average Medicare inpatient length of stay of greater than 25 days.  These hospitals usually provide extended medical and rehabilitative care for patients who are clinically complex and may suffer from multiple acute or chronic conditions.  Services typically include comprehensive rehabilitation, respiratory therapy, head trauma treatment and pain management.  The LTCH prospective payment system (PPS), which sets payments for approximately 400 long-term care hospitals, was implemented in FY 2003, is updated annually, and is effective for discharges on or after July 1 of each year.  

            CMS is updating the LTCH PPS Federal rate by 0.71 percent to $38,356.45 for RY 2008.  This update reflects the Rehabilitation, Psychiatric, and Long-Term Care (RPL) market basket of 3.2 percent and an adjustment of 2.49 percent to account for coding practices. CMS analysis of the latest available LTCH claims data indicates that a significant portion of the estimated 3.49 percent increase in observed case mix between FY 2004 and FY 2005 is due to changes in coding practices and documentation rather than to the treatment of more resource intensive patients.  Therefore the standard Federal rate for RY 2008 has been adjusted by (1) the most recent estimate of the market basket for RY 2008 (3.2 percent) and (2) -2.49 percent, the difference between the observed case mix increase in FY 2005 (3.49 percent) and the real case mix increase (1 percent) due to increases in patient severity.  The payment per discharge to LTCHs is significantly higher than the Federal rate for acute care hospitals paid under the Inpatient Prospective Payment System (IPPS), which for FY 2007 is generally about $5,300 per discharge. 

            Medicare pays LTCHs an additional amount for unusually high cost cases under the high-cost outlier policy. To be eligible for this payment, the hospital’s estimated costs in treating the case must exceed the LTC-DRG payment by an outlier fixed-loss amount. The final rule sets the outlier fixed-loss amount for rate year 2008 at $22,954 up from $14,887 in rate year 2007.  This revision to the threshold is necessary to limit estimated aggregate outlier payments to 8 percent of total estimated payments under the LTCH PPS.

            Because the LTC-DRGs are the same DRGs used under the inpatient hospital PPS, although weighted to reflect the greater complexity of their cases, CMS is not revising the LTC-DRGs and relative weights at this time.  Any changes will be made concurrently to the hospital IPPS update, on October 1, 2007.  We recently proposed significant refinements to the DRGs used under both the IPPS and LTCH PPS to better recognize severity of illness among patients.  If adopted, the proposed refinements would be effective October 1, 2007.  The LTC-DRGs, relative weights and average length of stays for FY 2007, were presented in the FY 2007 IPPS final rule. 

            In light of concerns raised by commenters on past rules and an analysis of recent LTCH case-mix data, CMS is adopting a budget neutrality requirement for the annual update to the LTC-DRG classifications and relative weights to ensure that the LTC-DRG reclassification and recalibration processes do not, by themselves, either increase or decrease estimated aggregate payments to LTCHs.

The final rule extends the “25 percent rule” which currently applies to LTCHs and satellite facilities of LTCHs that are co-located with a host hospital (generally an acute care hospital).  The rule implements a payment adjustment for LTCHs and satellites of LTCHs (including grandfathered facilities) that applies to discharges of Medicare patients admitted from a referring hospital that is not co-located with it.  The rule also provides an adjustment for grandfathered LTCHs and satellites of LTCHs that applies to discharges of Medicare patients admitted from the hospital with which it is co-located.  Implementation of the 25 percent or applicable threshold will occur over a three year transition period, based on feedback from commenters, as set forth in greater detail in the regulations.  In the first year of the transition, for cost reporting periods beginning on or after July 1, 2007 and before July 1, 2008, the threshold is no less than the lesser of 75 percent or the percentage of Medicare discharges that had been admitted to the LTCH or LTCH satellite facility during its RY 2005 cost reporting period from that referring hospital.  During the transition, CMS will continue to explore implementing a recommendation from the Medicare Payment Advisory Commission (MedPAC) to develop facility and patient level criteria for LTCHs.

            CMS is revising the current payment adjustment formula as it applies to short-stay outlier (SSO) discharges with a length of stay (LOS) that is less than or equal to an “IPPS-comparable threshold.”  Beginning with discharges on or after July 1, 2007, Medicare will pay for these discharges with an LTCH PPS amount not to exceed the “comparable IPPS per diem amount” for that particular DRG. 

This approach will result in appropriate Medicare program payments for those cases that are admitted and treated at LTCHs, but that have a LOS similar to cases more typically treated in acute care hospitals paid under the IPPS.  For short-stay outlier cases where the length of stay exceeds the “IPPS threshold,” payment would be made under the existing short-stay outlier policy.

            In addition to the LTCH PPS changes, CMS is including in the final rule a revision to Medicare’s policies for graduate medical education payments to a teaching hospital when its residents are being trained in a nonhospital site.  Under current rules, if residents are training in a nonhospital setting, a teaching hospital may count those residents in calculating their graduate medical education payments if, in part, the teaching hospital pays “all or substantially all of the costs for the training program in the nonhospital setting.”  The final rule amends this, effective July 1, 2007, to only require that the teaching hospital pay at least 90 percent of the total costs of training residents in the nonhospital setting (including residents’ salaries, fringe benefits, travel and lodging expenses when appropriate, plus the portion of the cost of teaching physicians’ salaries attributable to direct graduate medical education).  To reduce the administrative burden of documenting those costs, CMS is allowing hospitals to use specified proxies to determine those costs.

Note: For more information, see the CMS web site at:

www.cms.hhs.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp