AHA Calls For 25% Rule End for Fair LTCH Medicare Reimbursement

June 14, 2017 - The American Hospital Association (AHA) pressed CMS Administrator Seema Verma to reconsider proposed Medicare reimbursement provisions for long-term care hospitals (LTCHs). Specifically, the industry group called for a permanent end to the 25-Percent Rule and the duplicative budget neutrality adjustment for site-neutral cases.

In the letter, the AHA renewed its advocacy efforts to eliminate the 25-Percent Rule on LTCHs. The rule from 2006 reduces LTCH Medicare reimbursement to an equivalent amount under the inpatient prospective payment system for patients transferred from an acute care hospital that has referred more than one-quarter of its patients to the LTCH.

However, the Medicare reimbursement policy has faced multiple delays. Most recently, the 21st Century Cures Act provided relief from the rule until Sept. 30, 2017.

The proposed 2018 LTCH Medicare reimbursement rule would also extend the delay for another year.

While the AHA commended CMS for the regulatory pause, the group urged the federal agency to rescind the 25-Percent Rule altogether.

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“Specifically, we are firmly opposed to the 25-Percent Rule because it would materially reduce payments for care provided to patients who meet the statutory criteria for a full LTCH PPS [prospective payment system] rate,” wrote Tom Nickels, AHA Executive Vice President. “Further, given the scale of LTCH cuts under site-neutral payment, implementing the 25-Percent Rule payment penalties would unjustifiably exacerbate the instability and strain on the field, which would threaten access for the high-acuity, long-stay patients that require LTCH-level care.”

CMS implemented site-neutral payments for certain LTCH services in 2015. Instead of reimbursing LTCH providers at the higher long-term acute care prospective payment system rate, some services would be paid for at the lesser of the per diem Medicare rates for patients with the same diagnosis under the inpatient prospective payment system or the estimated care costs.

The AHA reported that site-neutral payment reductions reached 14.8 percent in 2016 and would increase to 22 percent by 2018.

By implementing the 25-Percent Rule, LTCHs would face substantial financial setbacks due to penalties stemming from the site-neutral and 25-Percent rules.

A 2016 Standard & Poor’s Global report already estimated that 435 long-term care facilities would close over the next few years as a result of the lower Medicare reimbursement under the site-neutral rule alone.

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The organization also described the Medicare reimbursement policy as obsolete and arbitrary. The policy landscape for LTCHs is substantially different than it was in 2003 when the rule was developed.

For example, CMS developed the 25-Percent Rule because LTCHs did not follow payment criteria that defined which patients would qualify for LTCH prospective payment system rates. However, the Bipartisan Budget Act of 2013 implemented such rules.

In addition, the introduction of alternative payment models, such as bundled payments, has incentivized hospitals to reduce expensive long-term care utilization, resulting in Medicare spending reductions.

The Medicare reimbursement policy is also non-clinical and emphasizes referral source rather than patient clinical needs, making the rule arbitrary.

Additionally, the AHA found Medicare reimbursement issues with the duplicative budget neutrality adjustments to site-neutral cases.

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Since 2016, CMS has applied a 5.1 percent payment reduction to site-neutral cases to prevent an increase in LTCH prospective payment system payments. The reduction is referred to as a budget neutrality adjustment.

However, the site-neutral-specific adjustment causes LTCHs to receive two 5.1 percent budget neutrality adjustments. The first is applied when CMS establishes the inpatient prospective payment system rates.

“[A]s we have stated in the past, CMS’s decision to apply two BNAs [budget neutrality adjustments] is yielding a material, unwarranted payment reduction to LTCH site-neutral cases,” Nickels wrote. “We strongly urge the agency to withdraw the duplicative BNA.”

The AHA reported that the duplicative budget neutrality adjustment puts significant financial strain on LTCHs. Using 2015 MedPAR data, the group projected the second adjustment to reduce site-neutral payments between $30 and $50 million per year.

The group also argued that CMS applies the adjustments inconsistently between LTCH rates and site-neutral cases. For example, LTCH Medicare reimbursement for short-stay outliers is reimbursed the inpatient prospective payment system comparable amount or cost (like how site-neutral cases are paid) and just one adjustment is applied.

In contrast, CMS applies two adjustments when determining site-neutral payment rates.

CMS also did not develop site-neutral payment baselines against which the federal agency could assess the increase in LTCH prospective payment system reimbursements, the AHA contended. CMS used the increase in Medicare reimbursement as a rationale for creating the site-neutral budget neutrality adjustment.

Yet stakeholders cannot measure how the second adjustment changes total LTCH Medicare reimbursements without a baseline.

In the letter to CMS, the group also called on the federal agency to eliminate the proposed appliance of a one-time permanent budget neutrality factor to the LTCH prospective payment system and assess patient care access for high-resource site-neutral cases.

The group also addressed the proposed LTCH Quality Reporting Program (QRP).

“The AHA appreciates that the proposed measures are intended to address significant patient health outcomes; however, all three measures need significant improvement before they would be suitable for use in the LTCH QRP,” Nickels stated.

“Furthermore, CMS’s proposal to report standardized patient assessment data is too much, too soon, and we believe the data elements require further testing prior to implementation,” he added. “Therefore, we urge CMS to delay its proposal to report standardized patient assessment data for at least one year.”