Here Come the Quality Police

No hospital wants to land in the bottom 25% of CMS’ (Centers for Medicare and Medicaid Services) quality rankings. But for more than 750 hospitals, it will be unavoidable. Twenty-five percent of all hospitals receiving Medicare reimbursements will be penalized by CMS starting FY2015. In total, more than 3, 000 U.S. hospitals receive inpatient payments from Medicare each year. CMS has started to measure these hospitals according to eight metrics and those who land in the bottom quartile will be penalized financially. There’s no way around it. CMS grades on a curve.

Effects of Sequester on CMS’s Payments

On April 26 the Centers for Medicare and Medicaid Services released the 2014 Medicare Inpatient Prospective Payment System (IPPS) rule. The federal government’s fiscal year starts in October, so these new prospective payments would—if they survive in the their proposed form—take effect in the final quarter for 2013 and for the first nine months of 2014.

In its press release, CMS announced that proposed payments overall for fiscal 2014 would increase by 0.8% from current levels but…because of the government sequester earlier this year, the base line dropped 2.0% meaning that the proposed new levels are still 1.2% below payment rates on December 1, 2012.

Because of the sequester, facilities receiving Medicare funds face a negative 0.8% “recoupment adjustment” and CMS alerted its healthcare provider network that it will make similar reductions in FY2015, 2016 and 2017. In total, CMS is trying to cut costs by $11 billion in order to meet the mandate in the American Taxpayer Relief Act of 2012—aka: The Sequester.

Orthopedics Did OK

Three aspects of the FY2014 proposed payments stand out, we think:

1. Orthopedics was treated well—at least as compared to other specialties
2. CMS is putting hospitals on a grading curve and penalizing them for comparatively poor quality of care
3. The definition of “inpatient” is narrowing so that more and more patients will be treated as “outpatient” even if they are spending a couple or three nights at the healthcare facility.

Lower extremity joint replacement (including hip and knee) with major complications reimbursement increases 1.4% and without major complications increase 3.3%. Upper extremity joint replacement—shoulders, elbows, clavicle—with complications or major complications up 5.7% and without complications or major complications increase 7.5%. Finally hip or knee revision procedures with major complications increase 6.1% and without complications or major complications up 7.0%.

As the following table illustrates, this year’s proposed increases are decent unless you are a spine implant supplier.

Table: Selected CMS Orthopedic Reimbursement Payments 2012-2014

Source: CMS and Orthopedic Network News / Stan Mendenhall

Change is constant at CMS—which causes no end to anxiety throughout orthopedics. The majority of patients receiving a large joint implant in any given year are over the age of 65 and eligible for Medicare reimbursement. The percentage of large joint reimbursement paid by Medicare has declined pretty steadily since 1970—when it peaked at 70%—to 60% in 2001 and, no doubt, less than that now. Over this same period of time physician payments for performing a large joint replacement have fallen significantly. Since 1990, according to a recent study, the average Medicare physician reimbursement for large joint surgery declined about 40%.

Two Nights Is ”Outpatient?”

CMS is proposing to make a significant change to the criteria for inpatient admission designation. As we know, outpatient reimbursement is very different from inpatient reimbursement. Under the proposed new rule, to be “inpatient” would require “more than 1 Medicare utilization day”—which is defined as crossing two midnights in the hospital receiving medically necessary services.

There are a couple of interesting cross currents happening with this proposed new ruling. Medicare, it appears, thinks that this change to two midnights will shift care to the inpatient side and, as a result, made a slight downward payment adjustment to account for it in the inpatient rates.

BUT…since under Part B, hospitals can self-deny inpatient cases and rebill under Part B, this new ruling will probably mean that every stay less than two midnights will always be billed outpatient.

And when does the starting point for inpatient stay begin? CMS is saying in the proposed new rule, “The starting point for this time-based instruction would be when the beneficiary is moved from any outpatient area to a bed in the hospital in which the additional hospital service will be provided.”

That, in fact, is usually when the physician orders observation services because observation is usually done using a hospital bed—not, for example, propped up against the wall in the hallway or in the outpatient area. If CMS interprets this rule in the manner that “observation” equals inpatient care, then it is clear. But if CMS interprets “observation” as an extension of outpatient care…then we could be talking more than two midnights.

Either way, the trend to reduced length of stays seems to be pushing more and more reimbursement to an outpatient basis—at least so far as CMS is concerned.

Don’t You Hate Curve Grading?

Now come the grades. Under the Affordable Care Act (ACA), CMS is required to reduce payments to hospitals that fall into the bottom 25% of eight specific quality measures also known as Hospital Acquired Conditions (HACs). Grading on a curve, in other words. So, no matter how much any hospital improves their rate of HACs, if they land in the bottom 25%, they are penalized. Beginning in 2015, facilities in the bottom quartile will receive 99% of what they would otherwise be paid. And CMS is planning to divide these HACs into two categories.

The first category of HACs is:

1. Rates of pressure ulcers
2. Number (not rate) of foreign surgical objects left inside patients
3. Rate of iatrogenic pneumothorax (when air or gas is left in the pleural cavity due to mechanical ventiliation, tacheostomy, tube placement or other intervention)
4. Rate of postoperative physiologic and metabolic derangement (when patients experience problems with blood sugar control or kidney failure after having an operation)
5. Rate of postoperative pulmonary embolism or deep vein thrombosis
6. Rate of accidental puncture or laceration

The second category of HACs include rates of central line associated bloodstream infections and catheter associate urinary tract infections.

CMS is proposing to calculate an overall score for each hospital where each category of HACs would make up 50% of each hospital’s score. To be fair, CMS will consider in its scoring the patient’s age, gender and/or comorbidities so that hospitals which serve sicker patients are not unfairly penalized.

There was a bit of good news in that CMS did not create or modify the HACs. So, it is eight hospital-acquired conditions. Just eight.

And, of course, there was a bit of confusion too. No codes for the last two HACs. That’s right, two of the HACs cannot be coded. Those HACs are catheter-associated urinary tract infections and vascular catheter associated infection.

Other than hospital-acquired conditions, CMS also penalizes hospitals for certain readmission rates. Readmissions for heart attack, heart failure and pneumonia are all subject to penalties. Now CMS is looking at adding elective total hip or total knee arthroplasty to the readmissions penalty calculations for FY2015.

Opening the Data Room

As part of the ACA, CMS is opening its data room to the general public. The most recent example of this was Medicare’s release of its Provider Charge Data. Representing almost 7 million discharges, or 60% of the Medicare total IPPS discharges, this is a significant new database. The data is only charging data—not reimbursement data—so it’s only part of the story. We know from our PearlDiver database that Medicare typically reimburses about 20-25% of the amount charged.

Here is the link if you have an interest in these databases.

In the most current data base, Medicare released the 100 most frequently billed discharges which are paid under Medicare. Spinal fusions, except cervical without major complications had a charging range of $20, 000 on the low end and $300, 000 on the high end. Major joint replacement of the lower extremity ranged from $25, 000 on the low end to $250, 000 on the high end.

It’s hard to say how such data might be used. But Medicare is, we expect, hoping that consumers will use this information to find lower cost healthcare.