Secretary Recommends to Congress that Current Wage Index be Replaced with a “Commuting Based Wage Index” – On April 11, 2012, Kathleen Sebelius (Secretary) published a highly-anticipated Report to Congress entitled “Plan to Reform the Medicare Hospital Wage Index” (Plan). The Plan fulfills the Affordable Care Act’s mandate that the Secretary submit a plan that comprehensively reforms the wage index that is currently used to determine hospitals’ Medicare prospective payments. The Secretary hired Accumen, LLC to explore various options for reforming the wage index, and the Plan reflects Accumen’s advice regarding the best way to reform the wage index. In the Plan, the Secretary proposes to replace the current wage index methodology, which reimburses hospitals based on the hospital’s location in a particular geographic metropolitan statistical area (MSA), with the Commuting Based Wage Index (CBWI), which takes into account hospital hiring patterns and commuting data to establish a wage index value that is specific to each individual hospital. More specifically, the CBWI is derived from commuting flows, which are used to identify the areas from which a hospital hires its workers, and to determine the proportion of workers hired from each area.
The first step in computing the CBWI is the establishment of a benchmark area wage level that is calculated using commuting information and existing wage data (such as that included in the Medicare cost report). Next, a benchmark wage is calculated for a particular hospital using the weighted average of the benchmark area wage level and the hospital’s actual hiring proportions. The hospital’s benchmark wage level is the numerator of the CBWI, and the denominator is the national average wage level. The resulting hospital-specific CBWI reflects wage levels in the areas from which the hospital hires and accounts for variation in the proportion of workers hired from each area.
According to Accumen, the CBWI would: be more accurate than the current wage index methodology, reduce large wage index differences between neighboring hospitals in adjacent MSAs, permit hospital wage indices to vary within a given MSA, account for differences in the degree to which workers commute in and out of a hospital’s wage area, and eliminate the need for many of the geographic reclassifications and adjustments that currently exist. The Plan cites a 2007 MedPAC report which states that over one-third of IPPS hospitals currently receive a wage index based on one of the exceptions or adjustment provisions, rather than their actual geographic locations.
A switch to the CBWI methodology is not without its challenges; the Secretary acknowledged that a move to the CBWI raises the following issues: (1) how to best obtain accurate and up-to-date commuting data (e.g., it will be necessary to know the Census Tract or ZIP Code of each hospital worker); (2) the potential for labor market distortions based on an intentional alteration of hiring patterns by hospitals in an attempt to manipulate the hospital’s individualized CBWI; (3) the need to evaluate the CBWI’s applicability to other Medicare payment systems (e.g., fee-for-service payments); (4) questions as to the continued need for geographic reclassifications and adjustments (e.g., the rural and frontier state floor provisions); and (5) how to transition to the new system. Furthermore, the Secretary acknowledges that if the CBWI is implemented in a budget-neutral manner, payments for some hospitals will increase while payments to others will decrease. Specifically, the Plan predicts that hospitals that currently benefit from some type of reclassification would likely see a reduction in payments. In contrast, hospitals that currently do not benefit from reclassification and those that employ more workers from high-cost areas would likely see an increase in payments as a result of the CBWI methodology.
Accumen conducted an empirical impact analysis comparing the current wage index system to various alternatives and found: (1) among the indices explored, the CBWI has the highest correlation with a hospital’s own reported wages; (2) the CBWI is the only index that allows for both intra-MSA and intra-county variation in wage index values; (3) the CBWI reduces the differences in wage index values for nearby hospitals located in different MSAs; the average difference in CBWI values between hospitals within six miles of each other is only 2 percentage points, while the average difference in current Medicare post-reclassification wage index values between the same hospitals is 5 percentage points; (4) if Medicare implements the CBWI methodology, approximately one in four hospitals will experience a change in wage index values of more than 5 percentage points; and (5) under the CBWI framework, the typical reclassified hospital receives a wage index value that is 1.8 percentage points higher than its pre-classification value, but 2.5 percentage points lower than its post-reclassification value; the typical non-reclassified hospital receives a wage index value that is 0.6 percentage points lower than its pre-reclassification value, but 0.8 percentage points higher than its post-reclassification value.
At this point, the Plan is merely the Secretary’s suggestion to Congress. If the CBWI methodology is implemented, substantial revisions to existing statutory and regulatory schemes will need to be made. The Secretary's Report, along with Accumen’s more detail-oriented report entitled “Revising the Medicare Wage Index to Account for Commuting Patterns” (which contains mathematical equations and examples of how the CBWI will be calculated, as well as discussion regarding hospital concerns and comments with respect to the CBWI) are available here.
Reporter, Krista Barnes, Houston, +1 713 751 3273, kbarnes@kslaw.com.
Tenet Will Pay $42.75 Million to Settle Inpatient Rehabilitation Admissions Investigation – On April 10, 2012, the DOJ announced that Tenet Healthcare Corporation will pay $42.75 million to settle civil allegations that Tenet violated the False Claims Act by improperly billing CMS for services provided at inpatient rehabilitation facilities.
Inpatient rehabilitation facilities provide intensive rehabilitation services for patients requiring a higher level of treatment, therapy and medical supervision than what can be provided at other facilities, such as acute care hospitals or skilled nursing facilities. The Medicare payment rates for services provided at inpatient rehabilitation facilities are generally higher than services provided at other facilities or in other settings.
At issue were inpatient rehabilitation facility admissions at 25 Tenet locations between May 2005 and December 2007. The DOJ alleged that Tenet improperly billed Medicare for treatment of patients at its inpatient rehabilitation facilities when those patients could have been treated at a lower level of care in a different setting.
The investigation and settlement are the result of Tenet’s self-disclosure. During an internal compliance review in 2007, Tenet discovered overpayments related to inpatient rehabilitation services provided at a facility in Georgia and self-disclosed the improper payments in accordance with OIG protocol and the terms of a five-year corporate integrity agreement with OIG in effect at that time.
According to the DOJ, the Tenet settlement is the government’s single largest recovery concerning improper admissions to inpatient rehabilitation facilities.
A link to the DOJ press release is available by clicking here. A link to the Tenet press release is available here.
Reporter, Jesica M. Eames, Atlanta, +1 404 572 2821, jeames@kslaw.com.
CMS Announces 27 Accountable Care Organizations for April 1st Start Date – On April 10, 2012, CMS announced that it had entered into agreements with 27 accountable care organizations (ACOs) to participate in the Medicare Shared Savings Program, effective April 1. According to CMS’s announcement, these ACOs include more than 10,000 physicians, 10 hospitals and 13 physician organizations and will treat more than 375,000 beneficiaries in 18 states. These 27 ACOs join the 32 Pioneer Model ACOs with which CMS announced participation agreements last December. (The Pioneer ACO model provides additional financial incentives and risk levels for delivery systems with experience in care coordination.) Moreover, CMS also announced five ACOs that will participate in the Advance Payment ACO Model, effective April 1. These rural and physician-based ACOs will receive shared savings payments on an earlier timetable than other ACOs in order to offset startup costs. CMS plans to announce a second round of participants for the July 1 start date, and is reviewing more than 150 applications from ACOs seeking to participate in the Shared Savings Program, and more than 50 applications from ACOs seeking to participate in the Advance Payment Model.
The CMS announcement, which includes a list of the approved ACOs, is available here.
Reporter, Christopher Kenny, Washington, DC, +1 202 626 9253, ckenny@kslaw.com.
Funding Opportunity: Initiative to Reduce Avoidable Hospitalizations Among Nursing Facility Residents – The deadline to submit a nonbinding Notice of Intent to Apply to become an “Enhanced Care & Coordination Provider” is April 30, 2012.
CMS has announced an Initiative to Reduce Avoidable Hospitalizations Among Nursing Facility Residents. Under this Initiative, CMS will support eligible, independent, non-nursing facility organizations (referred to as “enhanced care & coordination providers”) that will partner with nursing facilities to implement evidence-based interventions that reduce avoidable hospitalizations, improve resident health outcomes, and lower costs of care.
Awardees will receive cooperative agreement awards expected to range between $5 million and $30 million over a 4-year period and each is expected to partner with a minimum of 15 nursing facilities in its state. Eligible applicants include the following single legal entities:
- Medical care providers, such as individual hospitals or physician practices
- Public or not-for-profit organizations, including universities, Aging and Disability Resource Centers, Behavioral Health Organizations, Centers for Independent Living, or others
- Organizations that provide care coordination, case management, or related services
- Integrated delivery networks, if they extend their networks to include unaffiliated nursing facilities
- Health plans (although this Initiative will not be capitated managed care, and will not apply to beneficiaries enrolled in Medicare Advantage)
Nursing facilities are not eligible to apply to be an “enhanced care & coordination provider.”
This is a collaborative initiative between the Center for Medicare and Medicaid Innovation (CMMI) and the Medicare-Medicaid Coordination Office (MMCO). The application solicitation is available by clicking here. Additional information about the Initiative is available on the CMMI website.
Reporter, Susan Banks, Washington, D.C., +1 202 626 2953, sbanks@kslaw.com.
This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.
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