Health Headlines – August 8, 2016

CMS Releases FY 2017 Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System Final Rule – On August 2, 2016, CMS released a final rule (Final Rule) with updates to the Hospital Inpatient Prospective Payment System (Hospital IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) affecting discharges occurring on or after October 1, 2016.  CMS estimates that that total Medicare spending on inpatient hospital services, including capital, will increase by about $746 million in Fiscal Year (FY) 2017.

Proposed Changes to IPPS Rates

CMS adopted an overall 0.95 percent increase in operating rate payments to acute care hospitals for FY 2017.  The 0.95 percent increase is a net of the following positive and negative adjustments:  a positive hospital market basket update of 2.7 percent; negative adjustments of 0.3 percent for multi-factor productivity; 0.75 percent as required by the Affordable Care Act (ACA); and 1.5 percent to compensate for prior  documentation and coding overpayments as required by the American Taxpayer Relief Act of 2012.  Finally, the payment update also includes a proposed increase of 0.8 percent to offset cuts implemented in FYs 2014 – 2016 related to the 2-midnight policy as discussed below. 

The 0.95 percent net increase in payment rates applies to hospitals that satisfy CMS requirements for the Hospital Inpatient Quality Reporting (IQR) Program and meaningful use for electronic health records.  Those hospitals that do not participate fully in those programs will see a one-fourth reduction to the market basket update related to the Hospital IQR Program, and a three-fourths reduction to the market basket update if the hospital does not participate in the EHR meaningful use program. 

In addition to the rate updates described above, CMS adopted a number of adjustments related to uncompensated care payments and a number of patient safety and quality performance programs, as described below. 

IPPS Adjustments Related to the 2-Midnight Rule

As proposed, CMS finalized a policy to permanently end the 0.2 percent reduction the agency implemented in FY 2014 to offset the alleged increase in IPPS expenditures that CMS predicted would be brought about by the 2-midnight rule.  CMS carried forward this reduction in FYs 2015 and 2016, and the Secretary’s policy has been the subject of on-going federal litigation.  In September 2015, the Federal District Court for the District of Columbia, relying upon King & Spalding’s comments in response to the FY 2014 IPPS proposed rule, held that CMS failed to disclose significant assumptions to the public when describing the 0.2 percent rate cut in violation of the Administrative Procedure Act.  The court ordered CMS to provide an additional round of notice and comment rulemaking, and in this Final Rule, CMS stated that “[f]or many of the reasons commenters presented to us in prior rulemaking, we no longer are confident that the effect of the 2-midnight policy on the number of discharges under the IPPS may be measured in this context” and therefore permanently retired the 0.2 percent rate cut for FY 2017 and onward. 

In addition, CMS finalized a temporary increase to FY 2017 inpatient rates of 0.6 percent to “address the effect” of the 0.2 percent reduction to the rates in effect for FYs 2014 – 2016.  In the Final Rule, CMS emphasized its belief that this would be the most “transparent, expedient, and administratively feasible approach,” but did adopt a cost report settlement exceptions process for hospitals that closed or converted to a non-IPPS hospital for FY 2017.  Lastly, CMS announced that it will not contest that hospitals with currently pending litigation on this issue would be entitled to interest.

Medicare DSH and Uncompensated Care Payments

CMS finalized its proposal to distribute roughly $6.0 billion in uncompensated care payments in FY 2017, a decrease of $400 million from the FY 2016 amount.  Based on the policies enacted under the ACA, disproportionate share hospitals (DSHs) will continue to receive an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments prior to the ACA, with adjustments for decreases in the rate of uninsured individuals and other factors.

In order to distribute the pool of payments among qualifying hospitals, CMS will continue to use a formula based on “insured low income days,” which include inpatient days for patients eligible for Medicaid and inpatient days for patients entitled to Medicare and Supplemental Security Income (SSI), with two changes to this methodology.   First, CMS has moved from using one-year of data to three years to limit yearly fluctuations in uncompensated care payments.  In addition, CMS will apply a proxy to estimate Medicare SSI inpatient days for Puerto Rico hospitals, where residents are not eligible for SSI benefits.

In light of public comment, CMS did not finalize its proposal to incorporate uncompensated care cost data from Worksheet S-10 of the Medicare cost report into the methodology for distributing uncompensated care funds.  CMS intends to engage in future rulemaking in an effort to begin incorporating Worksheet S-10 data into the computation of Factor 3 no later than FY 2021. 

Hospital-Acquired Conditions (HAC) Reduction Program

CMS finalized five changes to the existing HAC Reduction Program by:

• Establishing new data submission requirements for newly opened hospitals;
  
  
• Clarifying the term “complete data” for Domain 1 scoring to require that hospitals have three or more eligible discharges for at least one component indicator and 12 months or more of data to receive a Domain 1 score;
  
  
• Establishing performance periods for the FY 2018 and FY 2019 HAC Reduction Program;
  
  
• Adopting the refined PSI 90:  Patient Safety for Selected Indicators Composite Measure, which reflects not only the volume of each patient safety or adverse event, but also the relative harm associated with those events; and
  
  
• Using a new continuous scoring methodology for the FY 2018 HAC Reduction Program based on how hospitals perform relative to the national average rather than the previously used decile-based performance system.

Hospital Readmission Reduction Program (HRRP)

The HRRP requires a reduction to a hospital’s base operating DRG payment to account for excess readmissions associated with selected applicable conditions.  Consistent with the Hospital IPPS Proposed Rule, for FY 2017 and future years, the HRRP reduction will be based on a hospital’s risk-adjusted readmission rate during a three-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), and, effective for FY 2017, coronary artery bypass graft (CABG).  CMS changed to reporting timelines intended to align HRRP reporting with other quality reporting programs and allow prompt posting of data to the Hospital Compare website.  Specifically, CMS updated the public reporting policy so that excess readmission rates will be posted to the Hospital Compare website as soon as feasible following the hospitals’ preview period. 

Notification for Observation Services

Consistent with the Proposed Hospital IPPS Rule, CMS instituted a standardized written notice, known as the Medicare Outpatient Observation Notice (MOON) to implement the 2015 Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, which requires acute care and critical access hospitals to provide notification to Medicare patients receiving observation outpatient care for more than 24 hours, effective August 6, 2016.  The MOON will inform patients and their families of the reason the individual is an outpatient receiving observation services and the implications of observation services on cost sharing and post-hospitalization eligibility for Medicare coverage of skilled nursing facility (SNF) services. 

Under the Final Rule, CMS clarifies that hospitals may deliver the MOON to individuals receiving observation services as an outpatient before such individuals have received more than 24 hours of observation services.  CMS cautions, however, that hospitals should not routinely provide the MOON to patients at the initiation of outpatient observation services.  The notice must be provided no later than 36 hours after observation services are initiated or, if sooner, upon release.  Hospitals and critical access hospitals are also required to provide oral explanations of the MOON to Medicare beneficiaries, ideally in conjunction with delivery of the written notice, and receive signature verification that the beneficiary or their representative has received and understood the notice.  The 30-day public comment period on the MOON notice begins on August 22, 2016, upon publication of the Hospital IPPS Final Rule in the Federal Register. 

Hospitals must implement use of the MOON no later than 90 calendar days from the approval date of the MOON under the Paperwork Reduction Act.  The implementation period will be announced sometime after the effective date of the final rule on the CMS Beneficiary Notices Initiative website located here. 

Hospital Value Based Purchasing (VBP) Program

The Hospital VBP Program was established by the ACA and adjusts payments to hospitals for inpatient services based on their performance on an announced set of measures.  CMS finalized a rule expanding the number of hospital units to which two National Healthcare Safety Network measures apply beginning with the FY 2019 program year and finalized expansion of the cohort used to calculate the 30-day pneumonia mortality measure beginning with the FY 2021 program year.  CMS also finalized the addition of two condition-specific payment measures (one for acute myocardial infarction and one for heart failure) beginning with the FY 2021 program year and a 30-day mortality measure following CABG surgery beginning with the FY 2022 program year.   Finally, CMS finalized changes to the criteria for determining whether a hospital will be excluded from the Hospital VBP Program if it is cited for deficiencies that pose immediate jeopardy to the health and safety of patients. 

Quality Reporting Programs

Hospital Inpatient Quality Reporting (IQR) Program 

CMS left the previously adopted 65 measures for FY 2018 payment determinations (based on the FY 2016 reporting period).  See full list on pages 1499-1503 of the Final Rule available here.  As proposed, CMS removed 15 IQR measures for FY 2019 payment determinations and onward.  See page 1498 for the list of removed measures.  Fourteen of the measures were removed entirely and one measure, VTE-6 Incidence of Potentially Preventable Venous Thromboembolism, is removed from the electronic form only.  Thirteen of the removed IQR measures were electronic clinical quality measures (eCQMs) and two measures were structural relating to participating in database registries.  Measures were removed because the burden of reporting outweighed the benefits, it was “no longer feasible to implement the measures specifications” and/or the measures were “topped-out,” meaning that hospitals were generally all performing at a high level and CMS could no longer make meaningful distinctions.

Effective with the FY 2018 payment determinations, CMS also finalized its proposal to refine two previously adopted measures.  First, CMS expanded the measure cohorts to include additional diagnoses for PH Payment:  Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for Pneumonia.  Second, CMS also changed the PSI 90:  Patient Safety and Adverse Events Composite to add and remove certain indicators and base weighting of the component indicators on not just volume of events, but also harms associated with the events.

Next, as proposed, CMS added four new IQR measures for FY 2019 payment determinations and onward:  1) Aortic Aneurysm Procedure Clinical Episode-Based Payment (AA Payment) Measure; 2) Cholecystectomy and Common Duct Exploration Clinical Episode-Based Payment (Chole and CDE Payment) Measure; and 3) Spinal Fusion Clinical Episode-Based Payment (SFusion Payment) Measure; and 4) Excess Days in Acute Care after Hospitalization for Pneumonia.  The first 3 items are clinical episode-based payment measures and the fourth an outcome measure.

Additionally, CMS responded to comments that the increase in reporting for eCQMs (requiring reporting on all available eCQMs) was too significant in terms of timing, readiness and burden.  Therefore, although CMS proposed that hospitals must select and submit 15 eCQMs, as finalized, hospitals must only submit eight for four quarters of data, on an annual basis.  This is nonetheless an increase from the current rule, which required hospitals to submit only one quarter of data (either Q3 or Q4) for four eCQMs during the CY 2016 cost reporting period/FY 2018 payment determination.

Lastly, CMS expanded the IQR Extraordinary Circumstances Extensions or Exemptions (ECE) Policy, such that requests can be made 90 rather than 30 days following an extraordinary circumstance for non-eCQM measures and eCQM requests are now to be made April 1 following the end of the reporting year.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

Under the Final Rule, CMS updated one PCHQR measure (Oncology:  Radiation Dose Limits to Normal Tissues) and adds one new PCHQR measure (Admissions and Emergency Department Visits for Patients Receiving Outpatient Chemotherapy) as proposed.  See full list of measures on pages 1788-89.  CMS also finalized criteria to remove and retain measures as proposed.

Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

CMS retained 15 and updated one of the previously adopted IPFQR measures (Screening for Metabolic Disorders).  CMS added, as proposed, two new measures for the FY 2019 payment determination:  Thirty-Day All-Cause Readmission Following Psychiatric Hospitalization in an IPF, and SUB-3:  Alcohol & Other Drug Use Disorder Treatment Provided or Offered at Discharge.  See full list of measures on pages 2014-15.  CMS hopes to “publicly display [quality] data as early as possible,” potentially as early as December 2016 on the Hospital Compare
website.

LTCH Quality Reporting Program (LTCH QRP)

In the Final Rule, CMS adopted four new measures as proposed to meet the requirements of the IMPACT Act of 2014.  One measure, Drug Regimen Review Conducted with Follow-Up for Identified Issues, is assessment-based and applicable for the FY 2020 payment determination.  The other three new measures ( Discharge to Community – Post Acute Care (PAC) LTCH QRP, Medicare Spending Per Beneficiary (MSPB) – PAC LTCH QRP, and Potentially Preventable 30 Day Post-Discharge Readmission Measure for LTCHs) are claims-based an applicable to the FY 2018 payment determination.  See full list of measures on pages 1931-33.  CMS will also begin publicly reporting LTCH quality data beginning in fall 2016 on Hospital Compare (or other CMS website), with the number of published measures to increase over time.

LTCH PPS Changes

Starting in FY 2016, the Pathway for SGR Reform Act made the LTCH PPS a dual payment rate system.  By law, all LTCH discharges are paid according to the site neutral payment rate unless they meet the criteria for exclusion, in which case they are paid the standard LTCH PPS rate.  The site neutral rate is the lesser of the estimated cost or the IPPS comparable amount and is phased in over FYs 2016-2017 (meaning hospitals that do not meet the exclusion criteria are paid 50 percent based on the site neutral rate and 50 percent the LTCH PPS rate).

In the Final Rule, the Secretary rebased the LTCH-specific market basket to 2013, an update from the current 2009 market basket.  The LTCH PPS rate is increased by 1.75 percent, incorporating a 2.8 percent market basket update (0.1 higher than proposed), a -0.3 percent productivity adjustment and another -0.75 percent required under the ACA.  Hospitals that fail to submit LTCH quality data will see rates decrease by an additional 2.0 percent (meaning the LTCH PPS rate for those hospitals is -0.25 percent).  The LTCH PPS standard Federal payment rate for FY 2017 was finalized at $42,476.41 (slightly higher than proposed).  Ultimately, CMS estimated that total LTCH PPS payments for LTCH PPS standard Federal payment rate cases in FY 2017 will increase approximately 0.7 percent (or approximately $24 million), but that aggregate payments for LTCH PPS (including standard cases and site neutral payment rate cases) will decrease by 7.1 percent (or approximately $363 million).

The Final Rule also retired existing regulations at 42 C.F.R. §§ 412.534 and 412.536 (applying to different types of LTCHs) and replaced them with a single consolidated “25-percent threshold policy” at § 412.538.  Under the 25-percent threshold policy, LTCHs receive a per discharge negative payment adjustment for discharges made from a single referring hospital generally in excess of 25 percent (50 percent for rural hospitals and between 25 and 50 percent where a single hospital dominates the Metropolitan Statistical Area) during a given cost reporting period.  Any discharges in excess of the threshold are paid the lesser of the LTCH PPS (or site neutral) amount or IPPS equivalent amount.

Although previously delayed by statutory moratorium, absent congressional action, the 25-percent threshold policy will go into effect starting FY 2017 and apply to LTCHs whether paid the standard PPS rate or site neutral payment rate.  In keeping with current policy, certain grandfathered hospitals-within-hospitals are excluded from the policy, as are discharges which had been high-cost outlier cases at the referring hospital.  As proposed, CMS finalized a policy that Medicare Advantage discharges would not be counted in the calculation.  The Final Rule also implements CMS’s proposal to compute the threshold using CMS Certification Numbers (CCNs) from claims submissions.  This is a change from prior proposals, which would have evaluated discharges based on location.  Because a CCN might include multiple hospital locations, a LTCH might hit the 25 percent mark more quickly.

As noted above, this article highlights some of the key provisions of the Final Rule.  The full text of the Final Rule is available here and will be published in the Federal Register on August 22.

Reporters, Elizabeth Swayne, Washington, D.C., +1 202 383 8932, eswayne@kslaw.com, and  Kristin Roshelli, Houston, +1 713 751 3263, kroshelli@kslaw.com.

Office of Civil Rights Posts HIPAA Phase II Audit Guidance and Advocate Health Care Settlement Information - The Office of  Civil Rights (OCR) recently uploaded two items of interest: information regarding the largest penalty to date against a single entity, Advocate Health Care Network (Advocate), and HIPAA Phase II Desk Audit guidance materials.

Advocate Health Care Pays $5.55 Million Settlement and Adopts Corrective Action Plan

Advocate has agreed to pay $5.55 million in penalties and adopt a two-year corrective action plan to settle multiple potential violations of HIPAA  According to OCR, this is the largest penalty against a single entity to date.  The resolution and corrective action plan are available here.

OCR’s investigation of Advocate began in 2013 after the company reported three separate breaches involving its subsidiary, Advocate Medical Group (AMG). The combined breaches affected the ePHI of approximately 4 million individuals and were caused by:

• The theft of four desktop computers from an AMG administrative office building;
  
  
• Unauthorized third-party access of AMG’s billing service provider’s (Blackhawk Consulting Group) network; and
  
  
• The theft of an unencrypted laptop containing the ePHI from an AMG workforce member's vehicle.

According to OCR, the breach investigation revealed that Advocate failed to:

• Conduct an accurate and thorough assessment of the potential risks and vulnerabilities to all of its ePHI as part of its HIPAA compliance program;
  
  
• Implement policies and procedures and facility access controls to limit physical access to the electronic information systems housed within a large data support center;
  
  
• Enter a business associate agreement with Blackhawk leading to the impermissible disclosure of PHI from AMG to Blackhawk; and
  
  
• Reasonably safeguard an unencrypted laptop when left in an unlocked vehicle overnight.

2016 Phase II HIPAA Desk Audit Guidance

OCR recently posted guidance documents for the 2016 Phase II HIPAA Desk Audits (Desk Audits), namely:

• Selected Desk Audit protocol elements with the document requests for each element (Document Request List) and related Q&As (collectively, the Protocol available here);
  
  
• Slides from the July 13, 2016 informational webinar for audited entities (Webinar Slides); and
  
  
• Comprehensive question and answer listing (Q&A List).

The  Document Request List offers insight into the kinds of documentation OCR expects in response to the Desk Audit (and audits generally) and what level of documentation is generally considered  necessary for HIPAA compliance. The level of documentation OCR expects may take some covered entities and business associates by surprise. For example:

• For Security Rule risk management processes, OCR requests:
  
  
  • Policies and procedures regarding the entity's risk analysis and risk management processes;
    
    
  • Documentation demonstrating the efforts used to manage risks from the previous calendar year; and
    
    
  • Documentation demonstrating the security measures implemented to reduce risks as a result of the current risk analysis or assessment.

• For Privacy Rule compliance, OCR requests:
  
  
  • All documentation for the first five access requests of the year and evidence of fulfillment; and
    
    
  • All documentation for the last five access requests for which the entity extended the time for response to the request; and any template request and response letters and policies and procedures related to access requests.

The Webinar Slides are from OCR’s July informational webinar for audited entities regarding the Desk Audit process, and are available here.  According to the Webinar Slides, OCR anticipates business associate desk audits will commence in the fall (likely late September).  The slides further instruct that these audits may include covered entities and business associates that were subject to the desk audits, as well as newly selected entities that were not part of the desk audit process. Most business associates will be selected from the pool identified by covered entities in their responses to the Desk Audits. 

The Webinar Slides indicate that once the Desk Audits are complete, OCR will start the on-site audits in early 2017.  Notification for the on-site audits is expected in late fall. These audits will involve a comprehensive set of HIPAA compliance controls. For this reason, covered entities and business associates should prepare for the upcoming on-site audits using the full 2016 Audit Protocol.

The Q&A List contains questions and answers directly related to the Desk Audit process itself and provides general explanations of what OCR considers appropriate documentation to support requests.  The Q&A List is available here.  For example, OCR explains that it wants to see pictures (with the text visible) of required Notices of Privacy Practices hanging on the walls at covered entities’ facilities in addition to paper copies.  As another example, OCR indicates it expects current Security Rule risk analyses to be uploaded, and is not concerned about the information becoming public under the FOIA due to the exemption protecting trade secrets and financial information.

While OCR states the Phase II Audits are a compliance tool, and are not intended to be an enforcement tool, multiple recent high-dollar settlements and Resolution Agreements (which now include both covered entities and business associates) indicate OCR is trending toward a higher rate of HIPAA enforcement and higher penalties.

Reporter, Lara Compton, Los Angeles, +1 (213) 443-4369, lcompton@kslaw.com.

ALSO IN THE NEWS

GAO Alleges that Medicare Is Overpaying Hospitals For Uncompensated Care – A recent report from the Government Accountability Office (GAO) found that Medicare’s uncompensated care payments to hospitals are not well aligned with hospital uncompensated care costs.  GAO recommends that CMS improve alignment of Medicare uncompensated care payments with hospital uncompensated care costs, as well as account for Medicaid payments to hospitals when making Medicare uncompensated care payments. The full report is available here.

CMS Launches Rural Health Demonstration – On August 4, 2016, CMS announced a three-year Frontier Community Health Integration Project (FCHIP) Demonstration. Ten Critical Access Hospitals (CAHs) throughout Montana, Nevada, and North Dakota will test new models of health care delivery in sparsely populated rural counties with the goals of improving health outcomes and reducing Medicare expenditures.  A CMS fact sheet is available here.

CMS Selects 14 Regions for New Comprehensive Primary Care Plus Model – On August 1, 2016, CMS released 14 regions to be part of a new primary care medical home model. CMS explains that the new model aims to strengthen primary care through regionally-based multi-payer payment reform and transformation of care delivery. Additional information is available here.

Second Chance to Watch the King & Spalding Roundtable Online on Provider-Based Stats Changes and OPPS/MPFS Proposed Rules – On July 21, 2016, King & Spalding hosted a Life Sciences & Healthcare Roundtable on the major provisions of CMS’s CY 2017 Outpatient PPS and Physician Fee Schedule Proposed Rules. The OPPS Proposed Rule includes CMS’s attempt to implement Section 603 of the Bipartisan Budget Act of 2015, which directs CMS to pay for most items and services furnished in new off-campus provider-based departments at the applicable non-facility payment rate. Because of the strong demand for the original Roundtable, we are now providing access to an on-demand Webcast. There are no restrictions on who may register, and there is no charge. This Webcast will be available until August 15. More information is available here.

Watch Sessions of the King & Spalding Health Law and Policy Forum Online! – King & Spalding is pleased to share sessions from its Health Law and Policy Forum by video through August 15, 2016. Currently, we are offering the keynote address by the distinguished associate editor of The Washington Post, Bob Woodward, as well as sessions on hospital consolidation, hot topics and trends in healthcare antitrust enforcement and opportunities and obstacles in healthcare delivery innovations. Find out more and register here.