Despite strong opposition from hospitals, lawmakers and business groups, the Centers for Medicare & Medicaid Services’ (CMS) inpatient prospective payment system final rule for fiscal year (FY) 2008 imposes substantial cuts in Medicare payments for hospital services. The rule takes effect Oct. 1.
Released last week, the rule contains a prospective behavioral offset cut of $1.2 billion in fiscal year 2008 and $20 billion over the next five years. The proposed rule, issued in April, called for a 2.4% behavioral offset in both FYs 2008 and 2009 that would have cut Medicare payments by $24 billion over five years.
Including other cuts in capital payments to hospitals, the final rule cuts hospitals Medicare payments by more than $22 billion over five years.
CMS implemented the behavioral offset to eliminate what the agency claims will be the effect of hospital coding or classification changes that do not reflect real changes in case-mix as the field moves to a new Medicare-severity diagnosis-related group (MS-DRG) system over the next two years. CMS created 745 new MS-DRGs to replace the current 538.
“Today, CMS struck an unnecessary and demoralizing blow against hospitals’ ability to care for patients across America,” said AHA President and CEO Rich Umbdenstock. “This move flies in the face of congressional intent and makes hospitals’ mission of caring for patients even more challenging. With no supporting data or evidence and facing an overwhelming mountain of opposition, CMS has gone well beyond its charge by implementing these backdoor budget cuts to payments for hospital services.”
CMS’ plan to prospectively reduce payments to hospitals has drawn a heated response from Capitol Hill. Just last month, the House overwhelmingly voted 412-12 on a measure to delay for one year the implementation of the MS-DRGs and prevent a prospective behavioral offset. The provision was part of the FY 2008 Labor-HHS-Education appropriations bill, H.R. 3043, that cleared the House.
That clear signal of House opposition to the proposal followed separate letters to CMS by 269 House members and 63 senators calling on the agency to withdraw the cuts from its final rule.
In an Aug. 2 “Action Alert” to its members, the AHA called on hospital leaders to contact their lawmakers and urge them to pass legislation when they return to Capitol Hill in September that would “prevent these irresponsible and inappropriate cuts [by] building on the House appropriations amendment.”
While the behavioral offset accounts for the bulk of the cuts in the final rule, the regulation also reduces capital payments for hospitals by nearly $2 billion over five years. CMS dropped its proposal to freeze capital payments to urban hospitals and will provide a full market-basket update (0.9%) for both urban and rural hospital capital payments in FY 2008. But it moved ahead with its plan to eliminate special payments to large urban hospitals and added a new provision to phase out the indirect medical education adjustment to capital payments in FYs 2009 and 2010.
The AHA noted that these cuts in particular will hurt the nation’s teaching hospitals, which rely on capital payments to invest in new, high-technology equipment that can help improve patient quality and make critical updates to facilities and information systems.
In proposing billions of dollars in hospital payment cuts, CMS also got an earful from business leaders. The U.S. Chamber of Commerce in late June joined the chorus of opposition to the proposed rule. A host of other business groups from across country followed the U.S. Chamber’s lead, including, most recently, the Louisiana Association of Business and Industry, Nashville Area Chamber of Commerce, Long Island Association, and Denver Metro Chamber of Commerce.
“The net effect of the proposed ‘behavioral offset,’ as well as the additional cuts to urban hospitals, is to restrict beneficiary access, including the nation’s poorest populations, to needed hospital services,” said the Nashville business group in its July 26 letter to Health and Human Services Secretary Mike Leavitt.
Overall, the final rule will provide a market basket update of 3.3% to inpatient hospitals that submit data on 27 quality measures in FY 2008. Hospitals that fail to submit the data will receive a 1.3% update.
In addition, CMS will require that all hospitals and critical access hospitals inform patients before they receive an inpatient or outpatient service if a doctor is not available 24 hours a day, seven days a week, and how it will meet emergency services needs when a doctor is unavailable. The final rule also requires physician-owned hospitals to disclose to patients that they are physician-owned and to make a list of physician investors available to patients at the beginning of the hospital stay or outpatient visit.
