IHA COMMENTS ON SPECIFIC AGENDA ITEMS TO BE ADDRESSED AT THE JANUARY MEETING:

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1 Francis J. Crosson, MD, Chair Medicare Payment Advisory Commission 425 Eye Street, N.W. Washington, D.C Dear Dr. Crosson: On behalf of our 200 member hospitals and nearly 50 health systems, the Illinois Health and Hospital Association (IHA) greatly appreciates the dedication of the Commission to improving the Medicare payment process. As stated in our previous letters to MedPAC, we also hope that you will continue to look to IHA as a vital resource while deliberations on Medicare payments continue. This letter is divided into three sections: I. IHA comments on specific agenda items to be addressed at the January meeting; II. IHA s Transformation of Rural Health Care activities follow-up to the Commission s discussions on the availability of emergency services in rural communities; and III. Discussion of IHA s continued opposition to the Commission s site-neutral policy. I. IHA COMMENTS ON SPECIFIC AGENDA ITEMS TO BE ADDRESSED AT THE JANUARY MEETING: Consistent with its previous January meeting agendas, IHA understands that the emphasis of this meeting is the MedPAC Commissioners voting on various recommendations for Medicare payment updates for Once approved, those recommendations will be included in MedPAC s Annual Report to Congress, scheduled to be published in March. Therefore, IHA offers the following comments: Recommendation concerning sequestration: The Commission has discussed the effects of the 2% sequestration payment reduction adjustment and made its payment update recommendations independent of the impact of that adjustment However, the Commission has gone on record as saying that the sequester produces rates that are inadequate for hospitals.

2 Page 2 IHA supports MedPAC s conclusion that the sequester results in inadequate rates set for providers. However, because the Commission bases its payment policy recommendations on what it believes to be adequate payments in order for providers to efficiently provide services to Medicare patients, until (or if) the sequester is repealed, IHA strongly recommends that MedPAC increase any of its final recommended percentage changes by 2% because the sequestration adjustment is being fully implemented at this time. Increasing the Commission s rate recommendations by 2% would effectively result in updates that will fairly reimburse efficiently run providers. Assessing payment adequacy and updating payments: MedPAC s recommendations that certain payment increases be made in accordance with current law. During its discussions regarding payment adequacy at its December meeting, MedPAC recommended that Medicare payment updates for the following services be made according to current law: o Hospital inpatient services; o Hospital outpatient services; o Physician and Non-Physician Practitioner services; and o End-Stage Renal Disease services. Two recently-enacted laws currently set the payment increases for Medicare services the Affordable Care Act (ACA) and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The ACA requires that the annual market basket percentage increases be reduced for a pre-determined percentage reduction and a percentage reduction for productivity. MACRA sets the percentage increase (0.5%) for physician services through IHA has in the past taken exception with the underlying policies behind the reductions legislated by the Affordable Care Act, and while it has supported equitable payments for physician services, IHA does not support financing those equitable payments through reductions in other provider service payments. However, IHA does support the Commission s recommendation to set payments for those services in accordance with the current law in Assessing payment adequacy and updating payments: MedPAC s recommendations that no payment increases be made for certain services. During its discussions regarding payment adequacy at its

3 Page 3 December meeting, MedPAC recommended that a 0% payment update be applied in 2017 for the following services: o Ambulatory surgery services; o Inpatient rehabilitation services; o Inpatient long-term care services; o Home Health services; and o Hospice services. During those December discussions, the Commission concluded that the imposition of a 0% increase is justified because those services have historically experienced high Medicare profit margins. IHA has always maintained that development of Medicare payment policy should not be influenced by financial margins, positive or negative, but should be dictated by sound patient care needs and protocols that recognize the important role of post-acute providers in reducing readmissions and improving health outcomes. The arguments put forth by the Commissioners are grounded primarily in dollars and statistics and do not represent good public health policy. Determining a rate of increase based solely on previous profit margins and volume shifts ignores the fact that a higher payment rate of increase would ensure that these providers can continue to provide the types of services that Medicare beneficiaries need and have come to expect. At a minimum, IHA recommends that the Commission apply the Medicare payment principles as stipulated in current law to those services for which it has recommended a 0% update in Assessing payment adequacy and updating payments: skilled nursing facility (SNF) services: MedPAC has put forth two recommendations with respect to skilled nursing services. The first is a recommendation to rebase payments based on current data and the second is a recommendation to reform the entire Medicare SNF Prospective Payment System. MedPAC s rationale for both recommendations is rooted in its belief that payments for those service providers are too high. In particular, the Commission points out that the therapy component of the payments is excessive. IHA recommends that the Commission vet this recommendation thoroughly with proper data analysis and comments from the field. Our IHA members who provide hospital-based, skilled nursing programs treat more severe classifications of patients than do free-

4 Page 4 standing facilities and consequently, incur higher costs. Our Illinois hospital-based programs, in the aggregate, experience significant losses relating to the treatment of Medicare patients. We must respectfully disagree with the Commission s position that payments for Medicare services provided to skilled nursing patients are excessive. However, with regards to MedPAC s recommendation to reform the Medicare SNF-PPS system, we would recommend that serious thought be given to establishing a dual-facility payment system, which would recognize the demographic, health and cost differences between hospital-based and free-standing facilities. MedPAC s recommendation regarding payments to hospitals participating in the 340B Drug Program. MedPAC has recommended that Congress reduce payments to hospitals qualifying for participation in the 340B Drug Program by 10% of the Average Sales Price. IHA strongly objects to this proposal, primarily because of the potential damaging impact it would have on access to drugs by eligible beneficiaries in those affected communities. On Aug. 28, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule, revising changes in the regulations governing the 340B program. IHA expressed its concerns with that proposed rule in its comment letter, and presents that letter here for the Commission s consideration. MedPAC s recommendation to use the Medicare Cost Report Worksheet S-10 in the calculation of Medicare Disproportionate Share payments. As part of its December meeting discussions, MedPAC has recommended that the Uncompensated Care component of the Medicare Disproportionate Share payment calculation be based on the Worksheet S-10 data that is filed as part of the Medicare cost reporting process. The incorporation of Worksheet S-10 would be accomplished over a three-year transition. Worksheet S-10 was developed several years ago to provide information on hospitals charity care activities and costs. However, CMS has delayed the use of this worksheet because of confusion over the definition of terms and inconsistency with bad debt and charity care financial reporting principles. In its most recently issued FFY2016 Medicare IPPS final rule, CMS again acknowledges its preference to

5 Page 5 postpone implementation until the issues with the Worksheet can be resolved. IHA agrees with CMS approach and requests that MedPAC withdraw its recommendation as to the use of Worksheet S-10, until the accuracy of the data reported can be verified and vetted by industry stakeholders. Mandated Report Developing a Unified Payment System for Post- Acute Care: The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT) requires that MedPAC develop a uniform prospective payment system for post-acute settings, and present a report to Congress by June 30, 2016 on its recommendation and anticipated impacts. Currently, there are four individual post-acute payment systems in place under Medicare: Inpatient Rehabilitation, Inpatient Skilled Nursing, Inpatient Long-Term Care, and Home Health. Pending further details about the model and how such a system would be implemented, IHA expresses no opinion on this issue at this time. II. AVAILABILITY OF EMERGENCY SERVICES IN RURAL AREAS: During discussions held at its October 2015 meeting, the Commission indicated that it recognizes that inpatient services at many small, rural hospitals have declined significantly, resulting in financial strains for those hospitals. IHA would like to point out that some of the CMS rules and requirements have contributed to physicians referring patients away from rural and critical access hospitals. This could be partially resolved by eliminating unnecessary Direct Physician Supervision of therapy services (such as chemotherapy and blood transfusions) that have safely been provided in rural hospitals. In addition, the 96-hour attestation requirement strongly encourages individual physicians to refer away patients or not accept patients who may require a length of stay that could exceed 96 hours. IHA is pleased that the Commission will be discussing the needs of rural hospitals in today s changing environment of healthcare delivery. Assisting our rural hospital members in their transformation of the delivery of healthcare services in their communities is a high priority of our association as we continue on the path of transforming healthcare delivery throughout Illinois. On Oct. 26, IHA submitted a letter to the Commission detailing specifically the goals of our transformation efforts, the work done so far to achieve those goals and our strategies for accomplishing those goals in the future. We hope that you will seriously consider our approaches as documented in this letter. In turn, we would welcome the

6 Page 6 opportunity to work with the Commission as it further develops its work in this area. III. IHA CONTINUES TO OPPOSE SITE-NEUTRAL POLICIES: We reiterate our objection to the Commission s four components of the site-neutral payment policy which proposes: That Medicare payment for outpatient evaluation and management (E&M) office visits provided in hospital outpatient departments (HOPDs) be reduced to the level of payment made for those same visits to a private physician s office; That Medicare payment for 66 specified ambulatory payment classifications (APCs) be made based on the Medicare Physicians Fee Schedule (PFS) amount; That Medicare payment for 12 Ambulatory Surgery APCs be made at the Medicare rate currently paid to free-standing ASCs; and That Medicare payment for certain inpatient rehabilitation services be made at the rate currently paid to skilled nursing facilities for those same services. Our most recent estimates of the impact of all of the site-neutral payment adjustments is that, in the first year, Medicare payments to Illinois hospitals and rehabilitation facilities would be reduced by approximately $197.8 million. Over a 10-year period, the reduction compounds to almost $2.2 billion. Additionally, we have estimated that the five-year ( ) impact of Medicare reductions to Illinois hospitals and health systems already implemented, including the Affordable Care Act and sequestration, is approximately $1.9 billion. Our member hospitals simply cannot withstand further reductions. IHA believes that this site-neutral payment policy does not acknowledge the intrinsically higher costs of providing care in a hospital setting, whether that care is provided in a hospital outpatient department or in a hospitalbased, ambulatory surgery center. One of the most significant factors contributing to these higher costs is a hospital s stand-by capacity costs, i.e., labor and equipment costs incurred because hospitals must be available to provide a full range of healthcare services to patients, 24 hours a day, seven days a week. It would also appear that we are overlooking the reason why a physician has sent a patient to the hospital in the first place for a service that could be performed in the physician s office. It would be because the patient is too high risk for the service to be

7 Page 7 performed in a physician s office or ambulatory surgery center. Thus, the physician is protecting both the patient and the practice by referring that patient to the hospital s higher level of care and capability. Over the past year and a half, the hospital response to the Ebola crisis was at the forefront of protecting our national health. In Illinois, four hospitals were designated as Ebola Treatment Centers, investing major resources in staff training and acquisition of equipment necessary to treat patients diagnosed with the disease. The costs incurred and staff capabilities needed to treat these patients are substantial; these patients could not be treated in physicians offices. Also, the costs for staffing, equipment and resources could not be incurred by private physician offices, whose limited patient services are offered for restricted hours and days. To contend that payments to hospitals for outpatient services should be equal to payments made to private physicians completely ignores the need for additional costs, specialized training, resources and equipment required in order for hospitals to meet the threat of Ebola and other potential emergency health crises. It is important to point out that hospitals are economic engines for their local communities, serving as catalysts for job growth and community vibrancy. The potential impact of the loss of healthcare services and jobs, not only in those hospitals, but also in the communities in which they serve will result in a diminishing availability of much-needed healthcare services for Illinois most vulnerable citizens, requiring the elderly and the handicapped to travel unnecessarily further for their care and services. In November 2014, an American Hospital Association (AHA) study concluded that certain cancer patients were sicker and required more extensive levels of care that are provided in hospitals than would be provided in a physician s private office. Again, as IHA has contended in previous correspondence, the special needs of these patients require that payments made to those hospitals be fair in order to continue to provide necessary services. This would not be possible if reductions to the level of physician office payments were implemented. Similarly, another study released by AHA in February 2015 found that there are key health-related differences between patients treated in hospital outpatient departments (HOPDs) and physician offices. Among those differences are:

8 Page 8 o Patients treated in HOPDs tend to have more severe chronic conditions and Medicare patients, in particular, have higher prior utilization of hospitals and emergency departments; o Patients of higher complexity may require a greater level of care than patients of lower complexity; and o To the extent that these differences result in variations in the cost of care, site-neutral payments may have adverse effects on patient access to care. The last point emphasizes IHA s continuing concern with the implementation of the site-neutral payment policy. Illinois hospitals would experience substantial reductions in payments as a result of the siteneutral policy. Many of our hospitals already are experiencing negative Medicare margins for outpatient services. The reduction in outpatient Medicare revenue to hospitals, specifically, will threaten access to essential hospital based-services that likely would not otherwise be available in the community, such as care for low-income patients and services for patients with multiple conditions. Furthermore, hospital outpatient departments serve a higher percentage of disabled and minority patients. We are especially concerned about the disproportionate impact that this recommendation would have on major teaching hospitals and public hospitals. IHA remains on record as opposing these outpatient site-neutral policies. The implementation of a post-acute, site-neutral policy would focus on the same types of services commonly provided in both inpatient rehabilitation facilities (IRFs) and skilled nursing facilities. Those specific services include stroke care, major joint replacements and hip and femur procedures. Another form of a site-neutral payment adjustment, effectively lowering payments to IRFs to the rates paid to SNFs, is being discussed by the Commission. IHA strongly opposes the implementation of this policy change. Our concern is that this policy revision is prompted more by financial incentives than by current practice. Rehabilitation facilities provide a higher range of ancillary services and serve patients with more severe medical conditions than skilled nursing facilities. Because of the unique needs of their patients, IRFs incur higher operating costs, including the costs of providing those ancillary services, costs of employing more highly skilled personnel and use of more updated and sophisticated medical equipment. In addition, fixed overhead costs, such as equipment

9 Page 9 depreciation, space occupancy costs (i.e., heat, light and air conditioning) and housekeeping continue to be incurred, regardless of changes in patient volume or acuity. Reducing payments to IRFs jeopardizes the ability of those facilities to recoup those costs. If payments to IRFs were reduced to the level of that paid to skilled nursing facilities, it is possible that rehabilitation facilities would be forced to reduce or eliminate services. Before such a policy change is adopted, MedPAC should make publicly available any data it reviews and analyzes so that it may be properly vetted by the field. Dr. Crosson, IHA appreciates the difficult task before MedPAC to recommend changes to Medicare payment policies in an environment with constant pressures to reduce healthcare spending. We hope that as MedPAC continues to discuss policy improvements designed to better transform the Medicare payment system through incentives for clinical integration strategies and quality care across the continuum of services, we can continue our dialogue with you. Sincerely, A.J. Wilhelmi President & CEO Cc Jon B. Christianson, PhD, Vice-Chair Scott Armstrong, MBA, FACHE Katherine Baicker, PhD Kathy Buto, MPA Alice Coombs, MD Willis D. Gradison, Jr., MBA, DCS William J. Hall, MD, MACP Jack Hoadley, PhD Herb Kuhn Mary Naylor, PhD, RN, FAAN David Nerenz, PhD Rita Redberg, MD, MSc Craig Samitt, MD, MBA Warner Thomas, MBA Susan Thompson, MS, RN Cori Uccello, FSA, MAAA, MPP