PROPOSED CHANGES TO THE INPATIENT ACUTE HOSPITAL PPS:

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1 Mr. Andrew M. Slavitt Acting Administrator, Centers for Medicare & Medicaid Services Department of Health and Human Services Hubert H. Humphrey Building 200 Independence Avenue SW, Room 445-G Washington, D.C Re: CMS-1632-P; Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System Policy Changes and Fiscal Year 2016 Rates; Revisions of Quality Reporting Requirements for Specific Providers, Including Changes Related to the Electronic Health Record Incentive Program; Proposed Rule (Federal Register, Vol. 80, No. 83, April 30, 2015) On behalf of our more than 200 member hospitals and nearly 50 health systems, the Illinois Hospital Association (IHA) is taking this opportunity to formally comment on the proposed rule establishing new policies and payment rates for acute and long-term care acute hospital inpatient services for federal fiscal year (FFY) IHA commends the Centers for Medicare & Medicaid Services (CMS) for its thorough analysis in the development of this rule. However, IHA has strong concerns with several provisions, and presents the following comments for your consideration: PROPOSED CHANGES TO THE INPATIENT ACUTE HOSPITAL PPS: Medicare Disproportionate Share Hospital (DSH) Program: IHA presents the following comments pertaining to individual components of the revised DSH methodology: o Consistent with its methodology used in FFY2014 and FFY2015, CMS again proposes to set the pool of dollars for the Uncompensated Care component of the Medicare DSH calculation based on the latest 2016 estimate of uninsured individuals as determined by the Office of Management and Budget (OMB) in January OMB s estimate of the percentage of insured individuals in 2016 is 89%, concluding that the estimate of the percentage of uninsured individuals is 11%. While IHA does not disagree with CMS methodology per se, we are concerned that the following two factors have not been thoroughly considered in the 11% estimate: The potential impact on the percentage of insured patients that would result from an adverse ruling in the pending King vs. Burwell Supreme Court case; and

2 Page 2 The impact on the estimated percentage of insured patients taking into account those states that have not expanded Medicaid coverage. Therefore, at a minimum, IHA recommends that CMS maintain the percentage of uninsured that it had applied in the prior year s 2015 calculation (13%) until more accurate projections can be made in light of the two situations above. Medicare Cost Report Worksheet S-10: In the past, CMS has considered using Worksheet S-10 of the Medicare cost report as the source for charity care, bad debt and other data to measure uncompensated care. However, consistent with previous years rulemaking, the agency states that this worksheet is still comparatively new and has only been used for payment purposes in restricted ways, such as to provide a source of charity care charges in computing electronic health record incentives. In addition, stakeholders have asserted that hospitals have not had enough time to learn how to present accurate and consistent data in this form, and that the definitions and instructions issued thus far by CMS are confusing and contradictory. Because of these concerns about the S-10 data, in the FFY2016 proposed rule, the agency again decided that its use was not appropriate at this time. CMS expects reporting on the S-10 to improve over time and may propose to use the data in the future. IHA agrees that the S-10 uncompensated care data is not appropriate for use at this time and states the following reasons for doing so: o Definition of Uncompensated Care: A broad definition of uncompensated care costs will be important in accurately measuring a hospital s unreimbursed costs, and it will ensure the most appropriate basis for distributing DSH payments based on uncompensated care payments in the future. Currently, Worksheet S-10 contains two major categories of cost. The first, summarized on line 19, is defined as the unreimbursed costs of Medicaid, State Children s Health Insurance Program, and other state and local government indigent care programs. The second, summarized on line 30, is defined as the uncompensated care costs of charity care and bad debt. Because these categories appear in separate sections of Worksheet S-10, IHA believes that it is imperative that CMS combine them when considering any policy on uncompensated care costs. o Inclusion of Direct Graduate Medical Education (GME) Costs in Cost-to-Charge Ratio: Because the source of the cost-to-charge ratio (CCR) calculation on Worksheet S-10 is Worksheet C, the costs do not include the cost of direct GME; however, the column 8 charges include overhead charges that do account for direct GME. To correct this inconsistency, IHA recommends that the formula for calculating the CCR be modified to include direct GME costs.

3 Page 3 Direct GME costs are allowable costs, but historically have been excluded on Worksheet C of the Medicare cost report because the Medicare program calculates a separate an add-on payment for its share of those costs. However, they are a significant part of the overhead of teaching hospitals; hospital charges by definition are established to help cover direct GME costs, and payment rates are negotiated to reflect the higher costs of teaching facilities. Including direct GME costs on Worksheet S-10 would more accurately match charges with costs. o Reporting of Charity Care. IHA members have expressed significant concerns regarding the reporting requirement that charity care amounts claimed relate to services rendered in the cost-reporting year. This reporting requirement will force hospitals to spend significant additional time documenting charity write-offs. IHA believes that hospitals will not have identified and resolved all of the charity accounts related to services provided in the current cost-reporting year by the time the cost report is filed, which is no later than five months after the close of the hospital s fiscal year. Charity write-offs in a hospital s accounting year include amounts related to services provided in both prior years and the current year. This is generally due to the realities and complexities of working with patients, including changes in specific patient circumstances and time involved in obtaining the necessary documentation from patients. Some hospitals even record a provision for charity care, consistent with the concept of the provision for bad debts. Therefore, IHA recommends that CMS clarify the instructions for Worksheet S-10 to allow hospitals to report the amounts written off and expected to be written off during the cost reporting year, subject to final documentation at the time of audit. o Charity Care For Insured Patients: The instructions for completion of Worksheet S-10 limit the definition of charity care to deductible and/or coinsurance amounts only, disregarding the total charges for services. Consequently, for patients with high-deductible plans, the hospital could only include as charity care the amount that the insurance plan has determined to be the patient s responsibility, the allowable amount. That amount is multiplied by the hospital s specific cost-tocharge ratio (CCR) to determine the cost. This effectively understates the cost of the charity. (For example, assume a $1,000 charge for patient services, a CCR of.25 and the patient s responsibility is $400. Per current S-10 instructions, the cost of care would equal $100 ($400 times.25) versus $250 ($1,000 times.25), which is the amount that conforms to industry standards and official financial statements.

4 Page 4 o Requirements for Specialty Hospitals: Specialty hospitals [those that are neither Section 1886(d) hospitals nor CAHs] are not required to complete S-10, but CMS has imputed values for S-10 for those hospitals in its database; this is problematic. One issue we have encountered in Illinois is CMS insertion of a Medicare Bad Debt amount on line 27. That, coupled with a reported 0 Total Bad Debt amount on line 26, results in a negative amount on line 28, because, per the instructions, line 27 is subtracted from line 26. This negative result cannot be possible. o In addition, CMS has not made available the audit and review requirements for Medicare Administrative Contractors (MACs). To avoid the application of different audit processes by different contractors, IHA requests that CMS: Make public the instructions for MACs relative to auditing the amounts reported on Worksheet S-10 and to ensure that these instructions are applied consistently among contractors across all regions; and Allow hospitals to estimate the amount to be written off and provide final documentation at the time of audit. Current Worksheet S-10 instructions require hospitals to submit additional documentation of charity care write-offs after the cost report is submitted to comply with the current requirement of reporting only amounts written off related to services during the cost-reporting period. As discussed above, charity write-offs related to the prior year will occur after the cost report has been submitted. IHA urges CMS to revise and improve both the Worksheet S-10 and its instructions as discussed above and, once all stakeholders have had an opportunity to submit comments, provide education to those stakeholders and the MACs to ensure a seamless implementation of Worksheet S-10 into the cost reporting process. Hospital Wage Index for Acute Care Hospitals: o In order to reduce the financial impact of immediately implementing the 2010 Census data, last year, CMS implemented a two-year transition period. For FFY2016, CMS proposes that hospitals wage index values be based entirely on the 2010 OMB delineations. IHA appreciates that CMS established a transition period to help mitigate any negative financial ramifications, but would suggest that CMS add an additional year, expanding the transition from two to three years. A blending of 25% / 75% could be implemented; 25% of the FFY2016 wage index value would be based on the previous CBSA delineations, while 75% would be based on the new Office of Management and Budget delineations published last year. Our concern

5 Page 5 is that the current two-year transition period (with full implementation of the new CBSA delineations in FFY2016) is not enough time for hospitals that are more negatively impacted than others to operationally adjust to that change. o For those hospitals that have been approved for reclassifications to other CBSAs in the past, and would experience negative financial impacts due to the 2010 Census data, CMS, consistent with its prior rulemaking, proposes that those hospitals must file a request to withdraw its reclassification status no later than 45 days after publication of the proposed rule. This policy has always been problematic because the Wage Index Public Use File used to develop the values published in the proposed rule is subject to correction if errors were made by the Medicare Administrative Contractor (MAC) when transmitting providers wage index and occupational mix data to CMS. Hospitals could withdraw their reclassification status based on information in the proposed rule, and with the publication of the final rule wage index values, discover that their original reclassified status was more desirable. This Catch 22 situation is compounded even more in FFY2016 because of the effect of the 2010 Census data. Hospitals cannot make an informed decision concerning their reclassification status based on values in a proposed rule that are likely to change. Therefore, IHA strongly recommends that in order to avoid these paradoxical situations in the future, CMS revise its current policy to permit hospitals to withdraw their reclassification status within 45 days of publication of the final rule. Hospital-Acquired Condition (HAC) Reduction Program: The FFY2016 proposed rule includes provisions applicable to the HAC Reduction program, including references to the methodology for determining those hospitals that will be subject to the 1% penalty. IHA continues to have concerns about some of the approaches in that methodology, and the Technical Expert Panel (created by CMS last year to examine this methodology) has not, as of this writing, put forth any substantive recommendations for change. Our concerns are: o CMS proposes to adjust the weighting of Domains 1 & 2 from the current 35% / 65% weighting to 15% / 85%, primarily because CMS believes that the database supporting PSI 90 (Domain 1) is less reliable than that supporting Domain 2 (CLABSI and CAUTI). In previous letters to CMS, IHA expressed its concern with the reliability of the PSI-90 data, and while the assignment of the lower Domain 1 weighting is an improvement, still recommends that CMS eliminate the weighting for PSI-90 altogether. This request to eliminate that domain is especially urgent given that certain smaller hospitals having insufficient measurement data for Domain 2, now have their entire HAC Composite Score based on the flawed, PSI-90 measure.

6 Page 6 o By law, 25% of all hospitals across the country will always face HAC penalties regardless of improved performance. Even if an individual hospital significantly improves its performance from one year to the next, it may still be subject to a penalty. Similarly, even if the hospital field as a whole achieves strong performance, one quarter of all hospitals will still be subject to payment reductions. IHA recommends that CMS revise its HAC Composite Score methodology to incorporate an improvement measure, similar in design to that currently used in the Hospital Value-Based Purchasing (VBP) program. o CMS has said that it agrees that some of the measures do not truly capture hospital performance, especially for hospitals that care for patients with complex health needs. According to an analysis commissioned by CMS, many of the individual components of the composite Patient Safety Indicator (PSI 90) measure do not reliably capture hospital performance (as inferred in a point raised above). Because of the inadequate risk adjustment in the PSI 90 measure, hospitals may score worse simply because of their complex patient mix, inaccurately portraying hospital performance. o There is an overweighting of one domain that occurs because of the lack of reportable data in the other domain, resulting in highlyexaggerated scores; i.e., one domain will be assigned a 100% weighting if a certain volume of occurrences is not reported. Consequently, some hospitals will be listed as Y (subject to a penalty) on Table 17 of the rule, when in reality, the hospitals more current and more correct internal data indicates otherwise. o In applying the payment penalty under the HAC program, CMS has chosen to include all hospitals payments. This is inconsistent with the Readmissions Reduction Payment Program, in which payment penalties for those hospitals having excessive readmissions are calculated based on Medicare operating payments; i.e., exclusive of adjustment payments such as DSH, IME or capital. IHA is deeply committed to assisting its member hospitals in reducing preventable patient harm and supporting programs that effectively promote patient safety and quality improvement, while also acknowledging the excellent patient care they provide. However, IHA objects to the current HAC scoring process, primarily because it mistakenly presents certain hospitals as poor performers, and does not recognize any improvements they may make over time. The creation of a specific, CMS HAC Technical Expert Panel (TEP) this past year was an encouraging step, but does not appear at this time to have resulted in major

7 Page 7 methodological changes. IHA welcomes the opportunity to work with CMS, as well as other stakeholders from the provider and consumer communities to identify better measures for the program, to improve the fairness of the scoring methodology and improve the accuracy of the data that is ultimately available to the public. Hospital Readmissions Reduction Program (HRRP): IHA presents the following two comments pertaining to CMS implementation of the HRRP: o As of this writing, Sen. Joe Manchin (D-WV) had introduced the Hospital Readmissions Program Accuracy and Accountability Act of 2014, IHA-supported legislation that requires CMS to make changes to its Hospital Readmissions Reduction Program to ensure that hospitals caring for vulnerable patients are not unfairly penalized. Specifically, the bill would require CMS to adjust hospital performance by using census tract data to account for socioeconomic factors, such as income and education level. Census data are readily available to CMS and are an appropriate proxy to ensure that hospital performance is compared fairly while maintaining an incentive for all hospitals to reduce unnecessary readmissions. This bill is a key focus of IHA s legislative advocacy agenda; IHA strongly recommends that CMS amend the HRRP to adjust patient readmissions that are influenced by demographic factors. Together, with other circumstances resulting in readmissions that are beyond the hospital s control (e.g., non-complaint patients, planned readmissions), IHA strongly recommends that CMS revisit its policy for determining penalties under this program. o CMS has proposed that for FFY2017, an expansion of the pneumonia readmission measure be implemented that will include two additional groups of patients: those with a principal discharge diagnosis of aspiration pneumonia and those with a principal diagnosis of sepsis or respiratory failure, with a secondary diagnosis of pneumonia. The agency indicates that inclusion would result in a more accurate measure of those patients receiving treatment for pneumonia. IHA is concerned that this significant change to the pneumonia readmission measure has not (as of this writing) been endorsed by the National Quality Forum (NQF), which allows multiple industry stakeholders to assess whether evidence supports this change. Therefore, we recommend that CMS defer its proposal of this change to at least FFY2018. Medicare Payment for Short Inpatient Stays: In its proposed FFY2016 Medicare IPPS rule, CMS did not include any recommendations regarding the implementation of a short-stay, medically necessary payment policy. The agency has stated that it will include a discussion of the issue in its upcoming Calendar Year (CY) 2016 Medicare Outpatient Prospective Payment System

8 Page 8 (OPPS) proposed rule, due to be released in mid-to-late July. In the meantime, IHA supports the following short-stay payment policy principles that have been developed by the American Hospital Association (AHA): o A short-stay payment policy (SSP) should provide for an appropriate and adequate reimbursement for medically necessary inpatient services that span less than two midnights; payment should be higher than the Outpatient Prospective Payment System (OPPS) rate for the service, but should not exceed the applicable full inpatient MS-DRG rate. o The SSP policy would not apply to those procedures on CMS inpatient only list, regardless of the length of stay. o The SSP policy should be budget neutral, adding back any savings to the base inpatient MS-DRG standardized rates. o Under the SSP policy, hospitals would be eligible for all adjustment payments (e.g., indirect medical education, disproportionate share) on a pro-rata basis. IHA offers the following recommendation to CMS as it designs its short-stay policy: o The short-stay policy could be modeled after other CMS payment policies for short-stay patients. Following are three such policies that could serve as the basis for discussions: Medicare s current payment policy for transfers to postacute care providers, in which hospitals that transfer short-stay patients to post-acute care facilities receive less than the full inpatient MS-DRG payment; Medicare s current payment policy for the Inpatient Rehabilitation Facility PPS (IRF-PPS) which currently includes Case Mix Grouping (CMG) # 5001-Short-Stay Cases. That particular CMG has a published length of stay of three days or fewer, with a relative weight of A thorough analysis of how an SSP-specific weight value is derived would be essential. Medicare s Home Health PPS which includes a Low Utilization Payment Adjustment (LUPA), paid on a per-visit basis for patient episodes having a low number of visits (4 or less). Each of the above payment systems applies a reduced payment for below-average utilizations; however, any short-stay payment policy that is ultimately adopted must provide for an increase in the payment to properly take into account the higher costs incurred for services provided to patients during the first several hours of admission.

9 Page 9 o IHA also would like to stress that as CMS contemplates the development of this payment policy, it must also consider the financial impact on Medicare beneficiaries. A policy that would result in greater out-of-pocket costs for beneficiaries should not be implemented. This situation could arise if that policy incorporates a variation of the Outpatient Prospective Payment System (OPPS). When developing a short-stay inpatient payment policy, CMS should take into account that a beneficiary s out-of-pocket costs (including the payment of deductible and coinsurance) could be less in the inpatient setting than the copayment required when those same services are provided in an outpatient setting. Suggested Exceptions to the Two-Midnight Rule: Although CMS includes only a short reference to the Two-Midnight Rule in this proposed FFY2016 IPPS rule, IHA is submitting the following comments on it. The Two-Midnight Rule was developed because CMS was concerned with the growing number of Medicare beneficiaries who received observation services for more than 48 hours. During the past two years, CMS has intermittently published guidance to assist providers with the implementation of that policy. However, the rule continues to cause confusion and frustration among hospitals. An inpatient admission decision is a complex medical judgment that should take into consideration many factors, such as the patient s medical history and medical needs, the types of facilities available to inpatients and outpatients, the hospital s bylaws and admission policies, the relative appropriateness of treatment in each setting, patient risk of an adverse event and other factors. However, our hospitals say that the medical judgment of treating physicians is all too often second guessed by Recovery Audit Contractors (RACs), which attempt to evaluate a beneficiary s admission after the fact by looking at the entire medical record as opposed to the limited information available to the physician at the time of the admission. Last year, IHA recommended that CMS delay implementation of that rule for one year while some of the rule s most problematic provisions could be addressed. A delay would also allow hospital staff to adapt internal operations in order to comply. However, there has been minimal movement in either of these areas. Despite frequent issuances of guidance by CMS, the rule continues to result in frustration and misunderstanding by our member hospitals. While some of the initial provisions of the Two-Midnight Rule have been postponed until September 30, 2015, IHA recommends that CMS completely suspend application of this rule until at least Oct. 1, In the interim, CMS should convene a panel of industry experts to advise it on ways to improve the policy; if CMS were to do this, IHA would offer its assistance. Finally, the FFY2016 IPPS proposed rule continues to carry forward the 0.2% payment reduction applied to the standardized IPPS base rate in FFY2014.

10 Page 10 IHA opposed this reduction last year, and continues to oppose its continued application in FFY2016 because the imposition of the 0.2% reduction proposal penalizes hospitals for a problem of CMS own making; i.e., the purpose of that reduction is to fund payments for those short-stay claims that are now in compliance with the Two-Midnight Rule, but would have been otherwise denied by the Medicare Recovery Audit Contractor (RAC). With the implementation of this reduction, hospitals are literally self-funding their own legitimate claims. IHA strongly recommends that the 0.2% reduction that was applied to the standardized rates in FFY2014 and FFY2015 be reversed and that CMS also re-calculate the FFY2016 standardized rates exclusive of the 0.2% cut. These corrected rates, along with the methodology for returning withheld monies to hospitals, should be calculated and published in the final FFY2016 IPPS final rule. Bundled Payment for Care Initiative: In this proposed rule, CMS indicates that it will evaluate its current Bundled Pay for Care Initiative (BPCI) to determine the program s impact on Medicare costs and quality of care. While the rule contains no proposed changes to the four models currently available in the program, CMS is soliciting comments regarding potential expansion of the program. IHA would like to submit the following recommendations: o Locating specific BPCI data within the CMS website is challenging. While there are menu options that allow for sorting by State, Model #, Phase, etc. the website information should be updated more frequently. It appears that it is now updated only a few times during the year. Sorting the data so that it can be printed in a more useable way is also difficult. o Hospital members have suggested that the database prepared by CMS and distributed to interested applicants is very cumbersome and difficult to assess and manage, thus discouraging potentially interested providers from applying. Can this information become more streamlined in the future? o As far as expansion of the initiative, based on the latest CMS information, there appear to be no participants in either Models 1 or 4 in Illinois. Is this consistent with the experiences of other states? Is the current limited number of episodes (48) for Model 1 discouraging more participation? Has CMS gathered information from a sample of providers not participating in the initiative to gauge their reasons for not doing so? o IHA recognizes that this initiative was only recently implemented, and there may not be at this early time, sufficient results available to draw accurate conclusions about the program and its effect. But

11 Page 11 it would be beneficial if CMS were to share updated information on the program on a more frequent basis (e.g., quarterly). PROPOSED CHANGES TO THE LONG-TERM CARE HOSPITAL (LTCH) PPS: Implementation of a Site-Neutral Payment Policy in 2016: In this proposed rule, CMS is implementing a Medicare site-neutral payment component to the LTCH-PPS in FFY2016, as legislated by the Bipartisan Budget Act of For certain cases specifically, CMS proposes a site-neutral payment rate that is the lower of the inpatient PPS per-diem rate (including outlier payments) or the cost of the case. The site-neutral payment rates (which are paid for those LTCH cases that do not meet the criteria for the standard LTCH-PPS rate) would be based on a blending of 50% of the standard LTCH rate and 50% of the site-neutral rate for two years (cost reporting periods beginning on Oct. 1, 2015 and ending Sept. 30, 2017). Outlier payments for site-neutral cases would be calculated based on 80% of the difference between the cost of the case and the IPPS threshold. CMS proposes that the site-neutral, outlier threshold equal the site neutral payment rate, plus the proposed IPPS fixed loss threshold of $24,485. The cost of the case would be calculated by multiplying the LTCH s specific cost-to-charge ratio (CCR) by the claim-specific, Medicare covered charges. IHA offers the following comments relative to this proposed siteneutral policy. o In this rule, CMS proposes to implement the policy based on a two-year transition. Because of the significant impact this policy will have on payments to Long-Term Care Hospitals, IHA strongly recommends that CMS extend this transition to four years. CMS acknowledges that the implementation of this policy in 2016 results in an estimated overall reduction of Medicare payments to Long-Term Care Hospitals by approximately 14.3%. For many of these facilities, a reduction approaching this amount would be devastating to their operations, and could cause the discontinuance of long-term acute hospital services in their communities. IHA recognizes that current law requires that such a policy be instituted, beginning in FFY2016. However, we strongly recommend that CMS extend the transition period to four years, versus the proposed two. o As an example, per the proposed rule, it appears that payment for severe wound cases would be made under the new site-neutral policy. These patients, who are admitted with Stage 3 or 4 wounds, are often obese, are on dialysis, and many have several other chronic conditions. The implementation of the site-neutral policy would significantly reduce the funding treatment of these cases, and in the worst case scenario, would result in a cessation of wound care services altogether in some service areas. With services to this specific group of patients

12 Page 12 in mind, again, at the very least, the two-year transition that is proposed should be extended to at least four years. Fixed Cost Outlier Threshold: CMS proposes an increase to the fixed-loss, standard-rate outlier threshold of approximately 24.8% when compared to the threshold amount in FFY2015. The rationale is that this amount is required to maintain Medicare outlier payments at 8%. IHA is concerned that this increase will result in significant financial losses for hospitals that treat a comparatively high volume of outlier cases. Adoption of a Readmissions Measure in the FFY2017 VBP Program, Less a Recognition for Socioeconomic Factors: CMS proposes to adopt a readmissions measure to be implemented in FFY2018, including some improvements over the current hospital program. IHA supports the provisions of the rule that excludes certain procedures and diagnoses where the readmission is actually a planned event. However, a key focus of IHA s legislative advocacy agenda is on socioeconomic factors that are beyond a LTCH s control. Therefore, we strongly recommend that CMS take these factors under consideration as it develops its readmissions reduction policy for Long-Term Care Hospitals. The Illinois Hospital Association, as always, welcomes the opportunity to work with your agency in the continued development and refinement of the Medicare program. Sincerely, Maryjane A. Wurth President & CEO