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In June 2016, AmSurg Corp. and Envision Healthcare Holdings, Inc. (Envision) announced they have signed a definitive merger agreement pursuant to which the companies will combine in an all-stock transaction. Upon completion of the merger, which is expected to be tax-free to the shareholders of both organizations, the combined company will be named Envision Healthcare Corporation and co-headquartered in Nashville, Tennessee and Greenwood Village, Colorado. The company's common stock is expected to trade on the New York Stock Exchange under the ticker symbol: EVHC. Bass, Berry & Sims served as lead counsel on the transaction, led by Jim Jenkins. Read more.

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Inside the FCA blogInside the FCA blog features ongoing updates related to the False Claims Act (FCA), including insight on the latest legal decisions, regulatory developments and FCA settlements. The blog provides timely updates for corporate boards, directors, compliance managers, general counsel and other parties interested in the organizational impact and legal developments stemming from issues potentially giving rise to FCA liability.

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FY2015 Inpatient Prospective Payment System (IPPS) Scorecard: Wins, Losses, and Ties For Hospital Revenues


September 2, 2014

In the Federal Register for August 22, 2014, the Centers for Medicare & Medicaid Services (CMS) published its final inpatient prospective payment system (IPPS) rule for fiscal year (FY) 2015. In addition to the annual Medicare payment updates, the final rule continues CMS's carrot and stick approach (but more stick) to incentivize hospitals to improve quality of care. This scorecard will provide an at-a-glance look at some of the significant wins, losses, and ties for hospital revenues under the final rule (although given that the final rule occupies a whopping 597 pages in the Federal Register, this scorecard cannot cover every topic).

IPPS Payment Rate Update – WIN (with provisos)
Overall, CMS has increased payment rates to general acute care hospitals by 1.4%. This increase reflects the net effect of inflation adjustments, productivity improvements, and statutory modifications mandated by the Affordable Care Act (ACA) and the American Taxpayer Relief Act of 2012. Note, however, that hospitals that do not comply with the Hospital Inpatient Quality Reporting (IQR) Program and/or are not meaningful users of electronic health records (EHR) will not receive this full rate increase. Also, despite the rate increase, CMS projects that total IPPS payments to hospitals in FY2015 will decrease by $756 million relative to FY2014 due to other payment changes such as the reduction in estimated DSH payments, the implementation of the Hospital-Acquired Condition Reduction Program, as discussed below, and the expiration of the expansion of low-volume hospital payments (to occur on April 1, 2015). Nevertheless, hospitals that are relatively unaffected by these other payment changes and that comply with the IQR and EHR requirements should benefit from the rate increase.

Hospital-Acquired Condition (HAC) Reduction Program – LOSS
The ACA established a hospital-acquired condition (HAC) Reduction Program, which creates financial incentives for hospitals to improve patient safety. Beginning in FY2015, the HAC Reduction Program reduces Medicare IPPS payments by 1% to certain hospitals ranking in the worst-performing quartile (25%) for the rate of HACs. All HAC scores are risk-adjusted and are comprised of a variety of measures in each of two domains. One domain, called the Patient Safety Indicator 90 measure, was developed by the Agency for Healthcare Research and Quality and is based on administrative claims (as opposed to clinical data abstracted from medical records). The second domain, which was developed by the Centers for Disease Control and Prevention (CDC), is based on two healthcare-associated infection measures: central line-associated blood stream infections and catheter-associated urinary tract infections. For FY2016, an additional CDC-developed healthcare-associated infection measure, Surgical Site Infections, will be added.

Hospital Value-Based Purchasing – A MIXED BAG
The Hospital Value-Based Purchasing (VBP) Program, created by the ACA, established a program under which value-based incentive payments are made each fiscal year to hospitals that meet the performance standards articulated for that year. For FY2015, hospitals will "contribute" $1.4 billion to the value-based purchasing pool, the equivalent of 1.5% of base operating DRG payments. In other words, payments to all hospitals are reduced by $1.4 billion, and only those hospitals that perform satisfactorily with respect to the VBP measure sets can regain some of this money.

The final rule adds new program requirements for the FY2017 measure set, including two new Safety measures (hospital-onset methicillin-resistant Staphylococcus aureas bacteremia and Clostridium difficile infection) and one Clinical Care-Process measure (early elective deliveries). In addition, the updates re-adopt the existing version of the central line-associated blood stream infections measure and remove six clinical process measures that have topped out. The majority of the program measures assess health outcomes, patient experience, and cost. For FY2017, CMS has adopted new quality domains and new domain weighting.

Hospital Readmissions Reduction Program – LOSS
The Hospital Readmissions Reduction Program, applicable for discharges on or after October 1, 2012, reduces payments to hospitals with higher than expected 30-day readmission rates by an amount that increases 1% each year until a statutory maximum is reached. For FY2015, the penalty will increase to the statutory maximum of 3%. Also, beginning in 2015, two new readmissions measures, (Chronic Obstructive Pulmonary Disease and Total Hip Arthroplasty and Total Knee Arthroplasty) are added to the three previously existing measures, which are heart attack, heart failure, and pneumonia. To take into account planned readmissions for all five conditions and to refine the hip/knee arthroplasty measure, CMS has revised its methodology for calculating the readmission rate penalties. Finally, for FY2017, CMS has announced it will add a new readmission measure – coronary artery bypass graft surgical procedures.

Hospital Inpatient Quality Reporting (IQR) Program and the Medicare Electronic Health Record (EHR) Incentive Program – LOSS (but with a process improvement)
Under the Hospital Inpatient Quality Reporting (IQR) Program, hospitals that do not provide certain quality reports have previously been penalized with a two percentage point reduction in their payment percentage increase. For any hospitals not participating in the IQR program during FY2015, the reduction will now be one quarter of the hospital's annual payment increase it would otherwise receive. The final rule outlines 57 reporting measures for FY2016 and 63 for FY2017. The measures include chart-abstracted measures such as heart attack and surgical care improvement, claims-based measures such as mortality and readmission, healthcare-associated infection measures, survey-based measures, and structural measures that evaluate a hospital's capacity for improving quality of care. The final rule adds 11 new measures (mainly voluntary electronic clinical quality measures) and removes 19. Ten of the 19 measures that have been removed are being maintained as voluntary electronic clinical quality reporting measures. Importantly, cost and outcomes measures are being adopted for the FY2017 payment determination.

CMS is in the process of finalizing its proposal to align the reporting and submission timelines of the Medicare EHR Incentive Program and the Hospital IQR Program for electronic reporting. While CMS is finalizing the proposal to align the reporting and submission timelines for these two programs on the calendar year for clinical quality measures (CQM) that are electronically reported for 2015, CMS is not finalizing at this time the requirement for quarterly submission of CQM data. Instead, hospitals can voluntarily submit one calendar quarter of data for Q1, Q2, or Q3 of 2015 by November 30, 2015 for partial fulfillment of the requirements for both programs.

Disproportionate Share Hospitals (DSH) – LOSS (but with a silver lining)
Under the Disproportionate Share Hospital (DSH) program, CMS provides partial funding to hospitals that treat indigent patients. In accordance with the ACA, beginning in FY2014, hospitals receive 25% of what they would have received under the prior statutory formula, and the remaining 75% of program funding is distributed to hospitals based on their relative share of the total amount of uncompensated care. In the FY2015 final rule, CMS will distribute $7.65 billion in uncompensated care payments, down from $8.56 billion in the proposed rule. On the brighter side, CMS is adopting a process to identify hospitals that have merged, so that data from all hospitals involved in the merger, as opposed to just the surviving hospital, can be included when CMS determines the DSH payment.

Outliers – LOSS (but not as bad as it could have been)
In the final IPPS rule, CMS calculates a final outlier fixed-loss cost threshold for FY2015 equal to the prospective payment rate for the MS–DRG, plus any indirect medical education payments, any empirically justified Medicare DSH payments, any estimated uncompensated care payment, and any add-on payments for new technology, plus $24,758. This fixed-loss cost threshold is higher than the FY2014 final outlier fixed-loss cost threshold of $21,748, thus making it harder for hospitals to achieve outlier payments, yet it is lower than the proposed FY2015 rule's threshold of $25,799. CMS states that it believes that the increase in the charge inflation factor (compared to the FY2014 charge inflation factor) has contributed to a higher outlier fixed-loss threshold for FY2015. As charges increase, CMS says, so do outlier payments.

Wage Index – Updated Labor Market Areas – A MIXED BAG
Medicare is required to adjust inpatient hospital payments to take into account differences in the cost of labor in different parts of the United States. This adjustment is known as the wage index. CMS is revising the labor market areas used for the wage index, based on new statistical data derived from the 2010 census. These changes will have a negative payment impact for certain hospitals, so in order to mitigate that impact, CMS is adopting a one-year phase-in for certain hospitals. Therefore, during FY2015, all hospitals that would have experienced a decrease in their wage index exclusively due to the revised labor market areas, will be able to use a 50/50 blend of the former wage index and the new wage index. The new wage index will take full effect in FY2016. Also, there will be a three-year transition for the relatively few hospitals currently in an urban county that will become rural under the new guidelines.

Two-Midnight Rule – TIE
Under the final FY2014 IPPS rule, CMS established a 2-midnight benchmark for determining the appropriateness of an inpatient hospital admission versus treatment on an outpatient basis. CMS provided that surgical procedures, diagnostic tests, and other treatments are generally appropriate for inpatient hospital admission and payment under Medicare Part A when the physician (1) expects the beneficiary to require a medically necessary hospital stay that crosses at least 2 midnights and (2) admits the beneficiary to the hospital based upon that expectation.

Although neither the proposed version nor final version of the FY2015 IPPS rule includes any regulatory changes relating to the 2-midnight benchmark, CMS has indicated that it has received a number of public comments regarding the current regulation. CMS has stated that, during the summer and fall of 2014, CMS plans to evaluate the results of the "probe & educate" process (a process by which MACs are reviewing a prepayment, provider-specific probe sample of inpatient Part A claims for appropriateness of inpatient admission under the revised 2-midnight benchmark and providing provider-specific education, as necessary, to correct improper payments) and to issue additional subregulatory guidance to CMS's claim review contractors, if necessary, to ensure consistency in application of the 2-midnight policy. CMS has indicated to stakeholders that it will consider all suggestions as it develops this subregulatory guidance.

Hospital Price Transparency – TIE
In an effort to improve pricing transparency, as mandated by the ACA, the Public Health Service Act required that each hospital make public a list of its standard charges for items and services. In the proposed 2015 IPPS rule, CMS reminded hospitals of their obligation to comply with the statutory requirements, and in the final rule, CMS reiterates that its guidelines for implementing the Public Health Service Act are that hospitals either make public a list of their standard charges (whether that be the chargemaster itself or in another form of their choice) or their policies for allowing the public to view a list of those charges in response to an inquiry.

For more information about the content of this alert, please contact one of the authors.

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