Press Releases

MEDICARE PROPOSES PAYMENT CHANGES FOR LONG-TERM CARE HOSPITALS FOR RATE YEAR 2006

The Centers for Medicare & Medicaid Services (CMS) today issued a proposed rule that would increase the Medicare payment rates for long-term care hospitals (LTCHs) by 3.1 percent for discharges on or after July 1, 2005, through June 30, 2006.   Medicare projects that aggregate payments to these hospitals under the LTCH Prospective Payment System (PPS) would increase to $2.96 billion during the 2006 LTCH rate year. 

“We are continuing a smooth transition to a prospective payment methodology for services provided by long-term care hospitals to pay them most appropriately for treating the most severely ill Medicare beneficiaries,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “As we have seen with the other prospective payment systems, we have been able to ensure that beneficiaries will continue to get the care they need while providing incentives to the hospitals for delivering care efficiently.”

Long-term care hospitals, in general, are defined as hospitals that have an average Medicare inpatient length of stay greater than 25 days. These hospitals typically 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 PPS, which now sets payments for over 330 long-term care hospitals, was designed to assure appropriate payment for services to the medically complex patients treated in these facilities, while providing incentives to hospitals to provide more efficient care to Medicare beneficiaries. Payments under the LTCH PPS are updated annually.

The LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, to replace the previous cost-based payment methodology.  The new system was based on the hospital inpatient prospective payment system (IPPS), but modified to reflect the relatively higher costs experienced by LTCHs in treating the most severely ill beneficiaries.  CMS had offered hospitals a five-year transition period, during which they would be paid based on a blend of the reasonable cost-based payment and the Federal Rate.  Because the base standard Federal Rate was determined as if all LTCHs are paid based on 100 percent of the Federal rate, in order to maintain budget neutrality during the 5-year transition period, CMS reduces all LTCH payments to account for the additional costs of the transition period methodology.  At this time, 96 percent of LTCHs have elected to be paid at 100 percent of the Federal Rate, which is proposed to be $37,975.53 for the 2006 rate year.  Therefore, the proposed budget neutrality adjustment is 0.998.

The proposed rule would revise the labor market area definitions to be based upon the Core-Based Statistical Areas (CBSAs) designated by the Office of Management and Budget using the 2000 Census Data.  This is consistent with the realignment of the labor market areas that were adopted in the FY 2005 hospital IPPS, published in August 2004.

In unusually costly cases, Medicare will pay a hospital an amount in addition to the payment under the LTCH PPS for the LTC Diagnosis Related Group (DRG).  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 proposed rule would set the outlier fixed-loss amount for rate year 2006 at $11,544, down from $17,864 in rate year 2005.  This means that more cases would potentially qualify for outlier payments.

The proposed rule would also extend for one year the surgical DRG exception to the three-day or less interrupted stay policy, which allows an acute care hospital providing care to an LTCH patient that is grouped to a surgical DRG under the acute care hospital inpatient prospective payment system (IPPS) to receive a separate payment under the IPPS.   The three-day or less interrupted stay policy provides that Medicare will only pay for one LTC-DRG in situations in which a patient is discharged to an acute care hospital, inpatient rehabilitation facility (IRF), skilled nursing facility (SNF) or to the patient’s home and is readmitted to the long-term care hospital within three days.

Further, payment for any covered inpatient or outpatient services provided by an acute care hospital or IRF, or any covered services provided by a SNF to the LTCH patient during the interruption, is the responsibility of the LTCH.   This policy is in accord with legal requirements that an LTCH must provide such services either directly or “under arrangements” with the facility that actually provides the service, and no additional payment by Medicare would be made.  If the interruption exceeds 3 days but is within the applicable fixed day period, Medicare payments to the LTCH are governed by the greater than 3 day interrupted stay policy.  Under this policy, the entire LTCH hospitalization, both before and after the interruption, is seen as one episode of care, generating one LTC-DRG payment; however, the intervening provider receives a separate payment under the applicable prospective payment system.

The proposed rule discusses CMS efforts to address recommendations affecting LTCHs in the June 2004 Medicare Payment Advisory Commission (MedPAC) Report to Congress.  Specifically, MedPAC recommended that CMS more clearly define the role of LTCHs in the inpatient continuum of care by establishing facility and patient criteria and that Medicare’s Quality Improvement Organizations play a larger role in reviewing LTCH admissions for medical necessity and for compliance with any facility and patient criteria.  The proposed rule describes a recent contract awarded to Research Triangle Institute, International to research the feasibility of implementing the Commission’s recommendations, as well as CMS’s ongoing monitoring of LTCHs under the new PPS.

CMS is not revising the LTC-DRGs and relative weights at this time. Because the LTC-DRGs and their relative weights are related to the inpatient hospital DRGs, those changes will be made at the same time as the hospital IPPS update on October 1, 2005.

The proposed rule will be published in the February 3, 2005 Federal Register.  Comments will be accepted until March 29, and a final rule will be published later this spring.  This rule proposes that the payment rates and policies be effective for discharges on or after July 1, 2005, through June 30, 2006.