Corporate Compliance

Note from the instructor: Summary of potential adjustments to Inpatient Prospective Payment System (IPPS) payment for inpatient hospital discharges during FY 2015, Part II

Medicare Insider, November 4, 2014

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This week’s note from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.  

In this week’s note we will continue our discussion on potential adjustments to the IPPS payment for inpatient hospital discharges during FY 2015. As noted in the October 14 issue of the Medicare Insider, most inpatient short-term acute-care hospitals are reimbursed for inpatient stays based upon the IPPS.  Under the IPPS, hospitals generally receive a single payment for all services provided to a particular patient during that inpatient stay. That single payment is based upon the diagnosis-related group (DRG) to which the stay is assigned. 
In recent years, CMS has implemented a number of programs designed to encourage cost and administrative efficiency, while preserving the quality of inpatient hospital services. In Part I, we discussed two potential reductions to a hospital’s operating payment for FY 2015. These reductions apply when the hospital failed to meet relevant reporting requirements under the Inpatient Quality Reporting program and/or failed to qualify as a meaningful user of electronic health records under the Electronic Health Record Incentive program. This week we will focus on certain adjustments to a hospital’s base operating DRG payment. These adjustments are the result of CMS’ implementation of three additional quality initiatives:
·         The Hospital Readmission Reduction Program (HRRP);
·         The Hospital Value-based Purchasing Program (HVBPP); and
·         The Hospital-acquired Condition Reduction Program (HACRP).
Potential adjustments to the base operating portion of the DRG payment
For hospitals subject to adjustments under these initiatives, the adjustments are made to what CMS refers to as the “base operating portion of the DRG payment.” This refers to the wage-index and/or COLA-adjusted applicable standardized amount for the specific hospital, plus any applicable new technology add-on payment. In addition, if the discharge is subject to the transfer rules, the base operating amount used is based on the acute or post-acute transfer amount.
For purposes of the HRRP and HVBPP, the base operating amount does not include any disproportionate share hospital (DSH), indirect medical education (IME), or low volume (LV) hospital adjustments or any applicable inpatient operating outlier payment. In addition, for purposes of the HRRP adjustment, the base operating amount does not include any otherwise applicable HVBPP adjustment and vice versa.
For purposes of the HACRP, the base operating amount does include any applicable DSH, IME, and/or LV hospital adjustments, as well as any applicable HRRP and/or HVBPP adjustments.
HRRP adjustments for inpatient discharges during FY 2015
For discharges during FY 2015, the HRRP requires a reduction to most hospitals’ base operating DRG payments to account for excess readmissions for the following five conditions—acute myocardial infarction (AMI), heart failure (HF), pneumonia (PN), chronic obstructive pulmonary disorder (COPD) and total hip or total knee arthroplasty (THA/TKA). For the current FY, an applicable hospital’s HRRP adjustment factor is the higher of a hospital-specific ratio (HSR) or a floor adjustment factor of 0.97, resulting in a maximum reduction in base operating DRG payments of 3%. This maximum reduction of 3% will continue in subsequent years.   
For purposes of the HRRP, a “readmission” is a readmission occurring when a patient is discharged from an applicable hospital (initial index hospitalization) and then admitted to the same or another acute care hospital within 30 days from the date of discharge from the initial hospital. Applicable hospitals include most IPPS hospitals (except those located in Puerto Rico) with a minimum of 25 cases in each measure during the applicable readmission period. For FY 2015, the HRRP adjustment is calculated based on readmissions that occurred between 7/1/10 and 6/30/13. 
HVBPP adjustments for inpatient discharges during FY 2015


Under the HVBPP, for each FY (beginning with FY 2013), value-based incentive payments are made to hospitals that meet or exceed certain performance standards for that FY, resulting in an upward adjustment to the hospital’s base operating payment. The incentive payments for each FY are funded by a prescribed percentage reduction (the “applicable percent”) to the total base operating payments of all hospitals subject to the HVBPP, resulting in a downward adjustment to every participating hospital’s base operating payment. 
Those hospitals subject to the HVBPP include most IPPS hospitals, except the following:
  • Hospitals subject to the reduced update for failure to meet Inpatient Quality Reporting program requirements;
  • Hospitals for which the Department of Health and Human Services (DHHS) has cited deficiencies posing immediate jeopardy to health/safety of patients; and
  • Hospitals that fail to meet minimum number of cases/measures for that FY.
Given the possibility of both an upward and a downward adjustment, a specific hospital’s total HVBPP adjustment may result in either an increase or a decrease to the hospital’s base operating payment for each case during the FY. The HVBPP adjustment is made by applying the hospital’s FY “value-based incentive payment adjustment factor” to each inpatient discharge. CMS publishes both proxy and final adjustment factors in Tables 16A and 16B, respectively, of the IPPS Final Rule for each FY.
For each FY, a hospital’s value-based incentive payment, if any, is based on the hospital’s Total Performance Score, as determined by its “Achievement” or “Improvement” score (whichever is higher) during the Performance Period. The “Achievement Score” is based on the hospital’s performance compared to all other hospitals. The “Improvement Score” is based on the hospital’s performance compared to its performance during the “Baseline Period.”
For discharges during FY 2015, CMS has implemented the following changes to the HVBPP:
  • CMS is withholding 1.5% of anticipated DRG operating payments to create the funding pool for incentive payments
  • There are four quality domains
    • The Clinical Process of Care domain, weighted at 20%
    • The Patient Experience of Care domain, weighted at 30%
    • The Outcomes domain, weighted at 30%
    • The Efficiency domain, weighted at 20%
  • The Performance Period for each domain is as follows:
    • For the Clinical Process of Care and Patient Experience of Care domains--CY 2013
    • For the Outcomes domain
      • Three 30-day mortality measures—10/1/12-6/30/13
      • Agency for Healthcare Research and Quality patient safety indicator 90 (AHRQ PSI-90)—10/15/12-6/30/13
      • Central line-associated bloodstream infection (CLABSI)—2/1/13-12/31/13
    • For the Efficiency domain--5/1/13-12/31/13
HACRP adjustments for inpatient discharges during FY 2015
The HACRP is designed to reduce the number of HACs, including HAIs, arising during inpatient hospital stays. Effective for discharges on or after 10/1/14, payment to “applicable hospitals” is equal to 99% of what would otherwise apply to such discharges. As noted earlier, this reduction adjustment is made to the “base operating portion of the applicable hospital’s DRG payment,” which includes all applicable DSH, IME, LV, HRRP and HVBPP adjustments For purposes of the HACRP, “applicable hospitals” include IPPS hospitals, sole community hospitals (SCH)s, and Indian Health Service (IHS) hospitals.
Adjustments are only made to applicable hospitals with the worst HAC rates. For FY 2015, these are hospitals that rank in the top quartile of all subsection (d) hospitals for HACs acquired during the “applicable period.” DHHS will determine the HACs to be counted and the “applicable period” during which measurement will be taken to determine a hospital’s “Total HAC Score” for a specific FY.
  • For FY 2015, CMS has finalized measures in the following two domains:
    • Domain 1, composed of a single composite measure, AHRQ PSI-90, which is a claims-based measure, weighted at 35%; and
    • Domain 2, composed of two CDC National Healthcare Safety Network (NHSN) measures, weighted at 65%
      • Central line-associated bloodstream infection (CLABSI); and
      • Catheter-associated urinary tract infection (CAUTI), which are chart-abstracted measures
  • The 24-month applicable periods are
    • 7/1/11-6/30/13 for the AHRQ measures
    • 1/1/12-12/31/13 for the two NHSN measures
Source authorities
More information on the issues discussed above can be found in the following principal source authorities:
FY 2015 IPPS Final Rule, 79 Fed. Reg. 49854–50449 
FY 2014 IPPS Final Rule, 78 Fed. Reg. 50496–51040 
FY 2013 IPPS Final Rule, 77 Fed. Reg. 53258–53750 
Fact sheets: CMS to Improve Quality of Care during Hospital Inpatient
Fact sheets: Fiscal Year 2015 Policy and Payment Changes for Inpatient
Stays in Acute-Care Hospitals and Long-Term Care Hospitals


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