NOTICES
Inpatient Hospital Services and Disproportionate Share and Supplemental Hospital Payments
[42 Pa.B. 6048]
[Saturday, September 22, 2012]The Department of Public Welfare (Department) is providing final notice of implementation of its revised Medical Assistance (MA) payment methodology for inpatient hospital services provided, on a fee-for-service (FFS) basis, in acute care general hospitals. Additionally, the Department is giving final notice of its amended qualifying criteria and payment methodology for inpatient disproportionate share hospital (DSH), outpatient DSH supplemental and direct medical education (DME) payments and allocated funding for Fiscal Year (FY) 2010-2011 for these payments. The Department is also providing final notice of the establishment of additional types of DSH and supplemental payments.
Background
The General Assembly enacted the act of July 9, 2010 (P. L. 336, No. 49) (Act 49). Among other things, Act 49 added Article VIII-G to the Public Welfare Code (62 P. S. §§ 801-G—816-G) authorizing the Department to impose a monetary assessment on the net operating revenue of certain Commonwealth licensed hospitals. Consistent with Act 49, the funds from the hospital assessment are to be used to update the MA FFS payment system for inpatient services, modify some existing DSH and supplemental payments and create several new DSH and supplemental payments for MA hospital providers.
Inpatient Hospital Services
The Department published notice of its intent to implement a revised MA payment methodology for inpatient hospital services provided on a FFS basis in acute care general hospitals at 40 Pa.B. 3620 (June 26, 2010). The Department received no public comments during the 30-day comment period and implemented the changes as described in its notice of intent, with the exceptions of low cost outliers for FY 2010-2011, and observation rates.
For discharges prior to July 1, 2010, under its FFS Program, the Department paid for acute care inpatient hospital services under a prospective Diagnosis-Related Group (DRG) payment system. The Department computed a relative value for each DRG to reflect the relative costliness of that DRG. In addition, the Department established a DRG base payment rate for each hospital. To determine the DRG payment amount for an inpatient stay, the Department multiplied the hospital's DRG base payment rate by the relative value of the DRG into which the patient's stay had been classified. The DRG payment was considered to be payment in full unless the stay qualified as either a day or cost outlier, in which case the Department made an additional payment.
All Patient Related DRG Classification System
The DRG classification system used by the Department for claims prior to July 1, 2010, was developed and maintained by the United States Department of Health and Human Services (HHS). In 2007, HHS adopted a new classification system called Medicare Severity Diagnosis-Related Groups (MS-DRGs). Since the implementation of MS-DRGs, HHS has stopped maintaining and updating the DRG classification system.
The Department anticipated it would be increasingly difficult to maintain the current DRG classification system given that it is no longer supported by HHS. As a result, and in accordance with Act 49 and its intent notice, the Department uses the All Patient Related (APR) DRG system for the classification of inpatient stays for dates of discharge on or after July 1, 2010. The APR DRG system follows the basic DRG logic for classification of patients based on diagnoses, procedures performed, sex, age and discharge status. APR DRG uses four severity-of-illness levels within each DRG to evaluate the interactions of multiple complications, age, procedures and principal diagnosis. The APR DRG system was designed for use with all patient populations and reflects the cross-section of patients seen in an inpatient acute care setting.
Calculation of DRG Base Rates and Relative Values
In addition to implementing APR DRG payment methodology, the Department updated the relative values used in the APR DRG system, and modified the manner in which it determines a hospital's DRG base payment rate.
To determine a hospital's DRG base payment rate, the Department first determined a statewide average of MA FFS cost per discharge, standardized for case mix. In determining this Statewide average, the Department used the most currently available hospital cost and statistical data. After it determined the Statewide average cost, the Department adjusted this average to reflect hospital characteristics that may significantly impact the costs that a hospital incurs in delivering inpatient services. These adjustments took into account regional labor costs, teaching status, capital and MA dependency patient levels.
The Department announced its intent to establish an observation rate for hospital cases for which an inpatient admission is not medically necessary, but medical observation of a patient is required. The Department, however, did not establish observation rates due to the Commonwealth's budget constraints.
Outlier Payments
Prior to July 1, 2010, the Department recognized two categories of outlier cases for which it made payments in addition to DRG payments: day outliers for lengthy inpatient hospital stays; and cost outlier payments for expensive burn and neonatal inpatient stays.
The Department revised its outlier policies by eliminating day outlier payments and by authorizing cost outlier payments for all DRGs when certain conditions are met. These changes provide stop loss coverage for hospitals, making the Department's outlier policies more consistent with those of other health care payers and insurance carriers.
The Department now pays 100% of costs for an inpatient stay that exceeds a predetermined, universal cost outlier threshold for qualified burn, transplant and neonatal inpatient cases after considering the DRG base payment. For all other qualifying cases, the Department pays 80% of costs for an inpatient stay that exceeds a predetermined, universal cost outlier threshold, after considering the DRG base payment.
The Department announced its intent to implement low cost outliers for cases where the DRG payment exceeds the hospital's cost of providing treatment by a predetermined universal low cost outlier threshold.
Disproportionate Share and Supplemental Hospital Payments
The Department published notice of its intent to amend the qualifying criteria and payment methodology for inpatient DSH, outpatient DSH supplemental and DME payments; and to allocate funding for FY 2010-2011 for these payments. Additionally, the Department announced its intent to establish an additional class of DSH payments, two additional classes of supplemental payments for acute care general hospitals and a new supplemental payment for freestanding rehabilitation hospitals at 40 Pa.B. 5536 (September 25, 2010). The Department received no public comments during the 30-day comment period and implemented the changes as described in its notice of intent. Subsequent to CMS approval of its State Plan Amendment, the Department implemented modification to certain DSH and supplemental payments.
Changes to and Funding Allocation for DSH Payments
Inpatient DSH Payments
As described in its intent notice, the Department is providing an additional way for a hospital to qualify for inpatient DSH payments. Specifically, the Department now makes inpatient DSH payments to an MA-enrolled acute care general hospital that meets the eligibility criteria in effect as of July 1, 2010, or the following criteria:
(1) The hospital is located in a county that is ranked above the 96th percentile for all counties in this Commonwealth as determined using data contained in the Department's December 2009 report of Unduplicated Number of Persons Eligible for MA by County based on either of the following:
(i) The percentile rank of the county's percent of population eligible for MA.
(ii) The percentile rank of the county's total number of persons eligible for MA.
(2) The hospital has a ratio of total MA acute inpatient days to total acute inpatient days which exceeds the average ratio of MA acute inpatient days to total hospital acute inpatient days of all hospitals within that county based on data from the FY 2007-2008 MA hospital cost report (MA 336) available to the Department as of July 2010.
In addition to providing another way to qualify for inpatient DSH payments, the Department amended its method of calculating inpatient DSH payments for FYs 2010-2011, 2011-2012 and 2012-2013. Specifically, in calculating this payment:
(1) The Department used the FY 2007-2008 MA hospital cost report data available to the Department as of July 2010.
(2) For FY 2010-2011, a qualifying hospital's inpatient DSH payment amount is the higher of either of the following:
(i) The payment amount calculated under (1).
(ii) The inpatient DSH payment amount the hospital received for FY 2009-2010.
(3) For FY 2011-2012, unless a qualifying hospital meets the conditions specified in (5), the hospital's inpatient DSH payment amount will be the higher of either of the following:
(i) The payment amount calculated under (1).
(ii) The payment amount calculated under (1) plus one half of the difference between the inpatient DSH payment amount the hospital received for FY 2009-2010 and the payment amount calculated under (1), if the FY 2009-2010 payment amount is greater than the amount calculated under (1).
(4) For FY 2012-2013, unless a qualifying hospital meets the conditions specified in (5), the hospital's inpatient DSH payment amount will equal the payment amount calculated under (1).
(5) For FY 2011-2012 and FY 2012-2013, using the FY 2007-2008 MA hospital cost report available to the Department as of July 2010, if a qualifying acute care general hospital has a ratio of MA days to total days (FFS and managed cure organization (MCO) days) that exceeds 40% as calculated by determining its ratio of Title XIX and General Assistance inpatient days to total inpatient days; and has greater than 20,000 MA days total (FFS and MCO days) as calculated by determining its ratio of Title XIX and General Assistance inpatient days to total inpatient days; and has a low income utilization rate that exceeds 40% as reported on its MA hospital cost report computation of low income utilization rate worksheet, the hospital's inpatient DSH payment will be the higher of either of the following:
(i) The payment amount calculated under (1).
(ii) The inpatient DSH payment amount the hospital received for FY 2009-2010.
For FY 2010-2011, the Department allocated $42.372 million in State general funds for inpatient DSH with the aggregate amount of inpatient DSH payments not to exceed $95.149 million in total funds, a portion of which is adjusted to reflect the reconciliation factor described in the State Plan.
New Small and Sole-Community Hospital DSH Payments
In addition to the intent public notice published at 40 Pa.B. 5536, the Department published an intent notice at 41 Pa.B. 3161 (June 18, 2011) and a final notice at 42 Pa.B. 1003 (February 18, 2012) modifying the approved State Plan for the small and sole community hospital DSH payment.
Under the current approved State Plan, the Department established an additional class of DSH payments for qualifying small hospitals and sole community hospitals participating in the MA Program that meet any one of the following criteria:
(1) As of July 1, 2010, the hospital meets the Medicare definition of a sole community hospital in 42 CFR 412.92 (relating to special treatment: sole community hospitals).
(2) As of July 1, 2010, the hospital only:
(i) Received a DSH payment for hospitals that incur significant uncompensated care costs or that experience a high volume of inpatient cases, the cost of which exceeds twice the hospital's average cost per stay for all patients as provided in page 21b of Attachment 4.19A of the State Plan; and/or
(ii) Is scheduled to receive a DSH payment for hospitals that qualify as a trauma center for FY 2008-2009 as provided in page 21c of Attachment 4.19A of the State Plan.
(3) The hospital has 150 set up/staffed hospital beds or less as reported on the hospital's FY 2007-2008 MA hospital cost report available to the Department as of July 2010 and is identified by the Department as experiencing an estimated annual loss of over $1.0 million under the revised hospital payment system effective July 1, 2010.
Hospitals eligible for this DSH payment receive quarterly payments, adjusted to reflect the aggregate amount equal to the payment amount as follows:
(1) Hospitals that meet the criteria in previous (1) will receive a payment of $200,000 annually.
(2) Hospitals that meet the criteria in previous (2) will receive a proportionate amount of the remaining funds allocated to this payment after reducing the allocated amount by payments made under (1) and (3) of this section. A hospital's proportionate amount is determined by dividing the qualifying hospital's calculated DSH OBRA 1993 limit by the total calculated DSH OBRA 1993 limits for all hospitals meeting the criteria for previous (2). For purposes of this calculation, the hospital's DSH OBRA 1993 limit will be calculated using FY 2007-2008 MA cost report data available to the Department as of July 2010 as reduced by all MA payments the Department calculated the hospital to receive as of September 30, 2010.
(3) Hospitals that meet the criteria in previous (3) will receive a payment equal to 40% of the hospital's calculated DSH OBRA 1993 limit (as estimated using the FY 2007-2008 MA cost report data available to the Department as of July 2010) as reduced by all MA payments the Department calculated the hospital to receive as of September 30, 2010.
(4) Hospitals that meet the criteria in both (1) and (2) or in both (1) and (3) of the eligibility criteria will receive the sum of those two payment amounts.
For FY 2010-2011, the Department allocated $58.893 million ($26.125 million in State general funds) for this additional class of DSH payments, adjusted to reflect the reconciliation factor described in the State Plan.
Changes to Hospital Supplemental Payments
Enhanced Payments to Certain DSHs
In its intent notice, the Department described certain changes to its outpatient DSH supplemental payment; the Department did not implement the described changes, but rather established a new type of supplemental payment, known as Enhanced Payments to Certain DSHs. In establishing this supplemental payment, the Department used the changes to the qualifying criteria and payment methodology for outpatient DSH supplemental payment, announced in its September 25, 2010, notice.
The Department makes a supplemental enhanced payment to MA acute care general hospitals that:
(1) Qualify for inpatient DSH payments.
(2) Have a FY 2007-2008 MA hospital cost reports available to the Department as of July 2010.
(3) Have a percentage of MA FFS and managed care outpatient charges to total hospital outpatient charges greater than the Statewide average percentage of charges as determined using data from all FY 2007-2008 MA acute care general hospital cost reports available to the Department as of July 2010.
(4) Do not receive an enhanced payment under page 4 of Attachment 4.19B of the State Plan.
The Department calculates the enhanced payment amounts as follows:
(1) The Department identifies all MA acute care hospitals that meet the conditions specified in previous (1)—(3).
(2) For each identified hospital, the Department determines the ratio of the hospital's MA FFS and managed care outpatient revenue to the total MA outpatient revenue for all identified hospitals.
(3) The Department then multiplies each identified hospital's ratio by the sum of the outpatient FFS supplemental payments for FY 2008-2009 that were made to hospitals which were in operation as of July 1, 2010.
For FY 2010-2011, the Department allocated an annualized amount of $24.661 million ($9.170 million in State general funds) for this enhanced payment, adjusted to reflect the reconciliation factor described in the State Plan.
Outpatient DSH Supplemental Payment
For FY 2010-2011, the Department allocated $23.075 million in State general funds for outpatient supplemental payments to certain DSHs with the aggregate amount of outpatient supplemental payments to certain DSHs not to exceed $65.028 million in total funds.
Modification to DME Payments
Prior to July 1, 2010, the Department only made DME payments to MA acute care general hospitals with DME costs allowable under Medicare cost principles in effect as of June 30, 1985. The Department changed its qualifying criteria for DME payments which allows additional hospitals with DME costs to qualify for these payments. In addition, the Department adopted a new payment methodology for DME payments.
The Department reimburses hospitals having DME costs a percentage of their total MA DME costs. The Department adds the hospital's MA FFS DME costs as reported on the hospital's FY 2007-2008 MA cost report available to the Department as of July 2010 to the hospital's estimated MA managed care DME costs. To estimate the hospital's MA managed care DME costs, the Department calculates the ratio of the hospital's MA FFS acute care days to MA managed care acute care days and applies this ratio to the MA FFS DME costs. The hospital's payment amount is equal to 75% of the hospital's total MA DME costs.
For hospitals that received DME payments in FY 2008-2009, the Department implemented a 3-year phase-in for the new payment methodology.
For FY 2010-2011, hospitals that received DME payments in FY 2008-2009 received the greater of the payment which the hospital would receive under the payment methodology in effect as of June 30, 2009; or the payment which the hospital would receive under the new payment methodology. Eligible hospitals that did not receive DME payments in FY 2008-2009 received DME payments using the new payment methodology.
For FY 2011-2012, all eligible hospitals receive a DME payment based on the new payment methodology. If a hospital received DME payments in FY 2008-2009 and receives a DME payment under the new payment methodology that is lower than the payment amount the hospital would have received under the payment methodology in effect as of June 30, 2009, the hospital's DME payment is increased by an amount equal to half the difference between the payment the hospital would have received under the June 30, 2009, payment methodology and the hospital's new DME payment amount.
For FY 2012-2013, all eligible hospitals receive DME payments determined under the new payment methodology.
For FY 2010-2011, the Department allocated $45.405 million in State general funds for DME payments with the aggregate amount of DME payments not to exceed $125.950 million in total funds.
New MA Stability Payments
To ensure a smooth transition to the new MA FFS payment system, the Department established supplemental payments for all acute care general hospitals enrolled in the MA Program as of July 1, 2010, that have submitted a FY 2007-2008 MA hospital cost report to the Department as of July 2010. These payments are calculated as follows:
The Department determines a per diem amount by dividing all Commonwealth MA FFS days for all eligible hospitals into the amount allocated for these payments. Each qualifying hospital's annual payment amount is equal to this per diem amount, multiplied by the hospital's Commonwealth MA FFS days, using the FY 2007-2008 MA cost report data available to the Department as of July 2010. The Department distributes quarterly payments to qualifying hospitals, adjusted to reflect the total amount allocated for this payment.
For FY 2010-2011, the Department allocated $151.444 million ($59.031 million in State general funds) for these supplemental payments adjusted to reflect the reconciliation factor described in the State Plan.
New MA Dependency Payments
The Department established supplemental payments for acute care general hospitals that are highly dependent upon MA Program payment for their financial stability, and have a reduced ability to offset the costs with revenue from private insurers and other sources.
To qualify for these supplemental payments, an acute care general hospital must provide at least 50,000 FFS and managed care acute care days of inpatient care to Commonwealth MA recipients as identified in the hospital's FY 2007-2008 MA cost report data available to the Department as of July 2010.
The Department determines a qualifying hospital's annual payment amount by multiplying the number of the hospital's Commonwealth MA FFS acute care inpatient days, as identified in the FY 2007-2008 MA cost report data available to the Department as of July 2010, by $230. The Department distributes quarterly payments to qualifying hospitals, adjusted to reflect the total amount allocated for this payment.
For FY 2010-2011, the Department allocated $11.564 million ($4.300 million in State general funds) for these supplemental payments adjusted to reflect the reconciliation factor described in the State Plan.
New MA Rehabilitation Adjustment Payments
After publication of the intent notice at 40 Pa.B. 5536, an intent notice published at 41 Pa.B. 3161 and a final notice published at 42 Pa.B. 1003 modified the payment distribution methodology originally proposed and subsequently approved by CMS.
As announced in its intent notice, the Department established a supplemental payment to freestanding rehabilitation hospitals enrolled in the MA Program as an inpatient rehabilitation hospital provider as of July 1, 2010.
Under its currently approved State Plan, the Department calculates an annual payment amount for qualifying freestanding rehabilitation hospitals equal to 116% of the total inpatient FFS MA amount paid to the hospital as reported in its FY 2007-2008 MA cost report data available to the Department as of July 2010. The Department distributes quarterly payments to qualifying hospitals, adjusted to reflect the total amount allocated payment. The Department may adjust this payment amount to reflect available funding.
For FY 2010-2011, the Department allocated $18.619 million ($6.923 million in State general funds) for these supplemental payments adjusted to reflect the reconciliation factor described in the State Plan.
Fiscal Impact
The FY 2010-2011 impact is $803.049 million ($313.635 million in State general funds). The increase to State fund costs associated with the changes outlined in this notice are offset by the hospital assessment revenue.
GARY D. ALEXANDER,
SecretaryFiscal Note: 14-NOT-790. (1) General Fund:
MA—Inpatient MA—Outpatient (2) Implementing Year 2010-11 is $290,560,000 $23,075,000 (3) 1st Succeeding Year 2011-12 is $0 $0 2nd Succeeding Year 2012-13 is $0 $0 3rd Succeeding Year 2013-14 is $0 $0 4th Succeeding Year 2014-15 is $0 $0 5th Succeeding Year 2015-16 is $0 $0 (4) 2009-10 Program— $371,515,000 $435,939,000 2008-09 Program— $426,822,000 $555,085,000 2007-08 Program— $468,589,000 $593,992,000 (7) MA—Inpatient and MA—Outpatient; (8) recommends adoption. Funds have been included in the budget to cover this increase.
[Pa.B. Doc. No. 12-1873. Filed for public inspection September 21, 2012, 9:00 a.m.]
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