Performance Improvement

The Centers for Medicare & Medicaid Services (CMS) released a proposed rule to update the long-term care hospital (LTCH) prospective payment system (PPS) for federal fiscal year 2018. Here are some of the highlights.

LTCH PPS Payment Rates

LTCH PPS payment rates are proposed to increase 1.65 percent for those submitting quality reporting data and 0.65 percent for those not. The increase stems from the market basket update of 2.8 percent, offset by a 0.4 percent reduction for multifactor productivity and a 0.75 percent reduction required by the Patient Protection and Affordable Care Act (ACA). A proposed 1 percent reduction will be applied for failing to submit quality reporting data.

Short-Stay Outlier (SSO) Adjustment Policy

The proposed rule would change the SSO payment methodology. LTCHs currently have an incentive to hold patients until their length of stay (LOS) is beyond the SSO threshold of five-sixths of the geometric average LOS. The proposed SSO payment methodology would use a blended rate of the inpatient prospective payment system (IPPS) per diem and the LTC diagnosis-related group (DRG) per diem. As the LOS for an SSO case increases, the percentage of the per diem payment amounts based on the full Medicare Severity (MS)-LTC-DRG standard federal payment rate would increase, and the percentage of the payment based on the IPPS comparable amount would decrease.

The change in SSO payment methodology is expected to increase the overall SSO payments by 30 percent or approximately $145 million. To maintain overall payment budget neutrality, a one-time permanent factor of 0.9672 will be applied to the federal payment rate.

Temporary Site Neutral Payment Rate Exceptions for Severe Wounds

In the proposed rule, grandfathered hospitals-within-hospitals will no longer have to be in a rural area or treated as rural to receive the exception. In addition, the definition of a “severe wound” will only include five of the eight categories (stage 3 wound, stage 4 wound, unstageable wound, nonhealing surgical wound and fistula). Lastly, the discharge must meet the definition of severe wound and be grouped with MS-LTC-DRG 602, 603, 539 or 540. In the past, the discharges only needed to meet the previous definition of severe wound. This exception applies to discharges in cost reporting periods beginning in FY 2018.

Moratorium & Regulatory Delay of the 25 Percent Threshold Policy

The proposed rule would once again delay implementation of the 25 percent threshold policy for one year. The policy would apply a per discharge payment adjustment for Medicare patient discharges from any single referring hospital that were in excess of 25 percent of total discharges. With the implementation of the site neutral payment rate, CMS will examine the data to further evaluate the necessity of the 25 percent threshold.

Moratorium on Increasing Beds in Existing LTCH or LTCH Satellite Locations Lifted

In the proposed rule, all existing LTCHs and LTCH satellite locations meeting certain criteria are no longer subject to a moratorium to increase the number of beds. The original moratorium was effective April 1, 2014, through September 30, 2017. Within the proposed rules an LTCH meeting one of the exceptions in 412.23(6)(ii) will be able to increase its bed size.

Contact your BKD advisor if you have questions.

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