MedPAC Payment Basics 09 LTCH

8/8/2019 MedPAC Payment Basics 09 LTCH

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payment basicLoNg-term CAre hoSpitALSpAymeNt SyStem

Patients with clinically complex problems,

such as multiple acute or chronic

conditions, may need hospital care or

relatively extended periods o time. Some

are admitted to long-term care hospitals

(LTCHs), which must have an average

Medicare length o stay greater than 25

days. Payments to LTCHs were about $4.5

billion in 2008; Medicare beneciaries

accounted or about 70 percent o these

hospitals’ revenues. In 2007, almost

114,300 Medicare beneciaries had129,200 discharges rom LTCHs, and 398

acilities were Medicare certied.1 LTCHs

are not distributed evenly through the

nation.

Beneciaries transerred to an LTCH rom

an acute care hospital pay no additional

deductible. However, beneciaries

admitted rom the community are

responsible or a deductible—$1,068 in

2009—as the rst admission during a spell

o illness, and or a copayment—$267

per day—or the 61st through 90th days.Beneciaries treated in LTCHs are covered

or 90 days o hospital care per illness,

with a 60-day lietime reserve.2

Since October 2002, Medicare has paid

LTCHs predetermined per discharge

rates based primarily on the patient’s

diagnosis and market area wages. Beore

then, LTCHs were paid or urnishing care

to Medicare beneciaries on the basis o

their average costs per discharge, as long

as they did not exceed a acility-specic

limit that was adjusted annually.

Under the PPS, discharges are assigned to

case-mix groups containing patients with

similar clinical problems that are expected

to require similar amounts o resources.

Each case-mix group has a national

relative weight refecting the expected

costliness o treatment or a patient in

that category compared with that or the

average LTCH patient.

Defning the long-term care hospital

product Medicare buys

Under the LTCH prospective payment

system (PPS), Medicare pays or the

operating and capital costs associated

with hospital inpatient stays in LTCHs.

Medicare sets per discharge payment

rates or dierent case-mix groups

called Medicare severity long-term care

diagnosis related groups (MS–LTC–DRGs)

based on the expected relative costliness

o treatment or patients in the group.

Patients are assigned to these groups

based on their principal diagnosis, up

to eight secondary diagnoses, up to six

procedures perormed, age, sex, and

discharge status. The MS–LTC–DRGs

are the same groups used in the acute

inpatient PPS but have relative weights

specic to LTCH patients, refecting the

average relative costliness o cases in the

group compared with that or the average

LTCH case.3

Setting the payment rates

The PPS payment rates cover all operating

and capital costs that LTCHs would be

expected to incur in urnishing covered

services. The initial payment level (base

rate) or a typical discharge is $39,897 or

scal year 2010.

The base rate is adjusted to account or

dierences in market area wages (Figure

1). The labor-related portion o the

base payment amount—76 percent—is

multiplied by a version o the hospital

wage index and the result is added to the

nonlabor portion.4 For LTCHs in Alaska and

Hawaii, the nonlabor portion is adjusted

by a cost o living adjustment (COLA) and

added to the labor-related portion.5 The

adjusted rate or each market is multiplied

by the relative weights or all MS–LTC–

DRGs to create local PPS payment rates.

Revised:

October 2009

This document does not

refect proposed legislationor regulatory actions.



2 Long-term care hospitals payment system payment bas

Short-stay outliers—LTCHs are paid

adjusted PPS rates or patients who have

short stays. Short-stay outliers (SSOs)

are cases with a length o stay up to and

including fve-sixths o the geometric

average length o stay or the MS–LTC–

DRG. For SSOs, LTCHs are paid the least o:

• 100percentofthecostofthecase,

• 120percentoftheMS–LTC–DRG

specic per diem amount multiplied by

the length o stay or that case,• thefullMS–LTC–DRGpayment,or

• anamountthatisablendofthe

inpatient PPS amount or the MS–DRG

and the 120 percent o the LTCH per

diem payment amount. As the length o

stay or the SSO increases, the portion

o payment attributable to the LTCH per

diem increases.

High-cost outliers—LTCHs are paid

outlier payments or patients who are

extraordinarily costly. High-cost outlier

cases are identied by comparing their

costs to a threshold that is the MS–LTC–

DRG payment or the case plus a xed

loss amount. In 2010 the xed loss amount

is $18,425. Medicare pays 80 percent o

the LTCHs’ costs above the threshold.

High-cost outlier payments are unded by

reducing the base payment amount or all

LTCHs by 8 percent.

Interrupted stays—LTCHs receive one

payment or “interrupted-stay” patients.

An interrupted stay is when an LTCH

patient is discharged to an inpatient acute

care hospital, an inpatient rehabilitation

acility (IRF), or a skilled nursing acility

(SNF), stays or a specied period, then

Figure 1 Long-term care hospital prospective payment system

Note: LTCH (long-term care hospital), MS–LTC–DRG (long-term care diagnosis related group), LOS (length of stay).* MS–LTC–DRGs comprise base DRGs subdivided into one, two, or three severity levels.** Payments generally are reduced for short-stay patients.

LTCH

base

rate

PaymentPaymentHigh-

cost

outlier

(payment

+

outlier

payment)

Short-

stay

outlier**

24%

Non-labor

related

portion

76%

adjusted

by area

wages

+

Adjusted forgeographic factors

Adjusted forcase mix

MS–

LTC–DRG

weight

MS–

LTC–DRG*

Patient characteristics:

Base rate

adjusted

for

geographic

factors

x

Principal diagnosis Age

Secondary diagnoses Sex

Procedures Discharge status

Hospital

wage

index

If LOS

≤5/6 of

geometric

mean LOS

Full

LOS

If patient is

extraordinarily

costly




goes back to the same LTCH. The specied

period o time is 9 days or an acute care

hospital, 27 days or an IRF, and 45 days

or a SNF. Any LTCH discharge readmitted

within three days is also considered an

interrupted stay.

LTCHs that are co-located with otherMedicare providers are subject to the

interrupted-stay policy unless their

readmissions exceed 5 percent o the

LTCH’s total discharges. I this limit is

exceeded, the LTCH receives only one

payment or each interrupted-stay patient

regardless o the amount o time spent

at the intervening acility. (A separate

5-percent threshold applies to cases

transerred to co-located SNFs, IRFs, and

psychiatric acilities.)

The 25 percent rule

The 25 percent rule reduces payments or

LTCHs that exceed established percentage

thresholds or patients admitted rom

certain reerring hospitals during a cost-

reporting period. The rule is intended to

help ensure that LTCHs do not unction

as units o acute care hospitals and that

decisions about admission, treatment, and

discharge in both acute care hospitals and

LTCHs are made or clinical rather than

nancial reasons.

When rst implemented, the 25 percent

rule applied only to LTCH hospitals within

hospitals (HWHs) and satellites, limiting

the proportion o Medicare patients

who could be admitted rom a HWH’s

or satellite’s host hospital during a cost

reporting period. The policy was phased

in over three years, with the threshold

or most HWHs and satellites set at 75

percent or scal year 2006, 50 percent or

scal year 2007, and 25 percent or scalyear 2008. (Less stringent thresholds are

applied to HWHs and satellites in rural

areas or in urban areas where they are the

sole LTCH or where there is a dominant

acute care hospital.) Ater the threshold is

reached, the LTCH is paid the lesser o the

LTCH PPS rate or an amount equivalent

to the acute care hospital PPS rate or

patients discharged rom the host acute

care hospital.6 Patients rom the host

hospital who are outliers under the acute

hospital PPS beore their transer to the

HWH do not count toward the threshold

and continue to be paid at the LTCH

PPS rate even i the threshold has been

reached.

Beginning in July 2007, CMS extended the

25 percent rule to apply to all reestanding

LTCHs, limiting the proportion o patients

who can be admitted to an LTCH rom

any one acute care hospital during a cost

reporting period. The extended policy was

to be phased in over three years, with the

applicable threshold or non-HWHs and

nonsatellites set at 75 percent or rate year

2008.

The Medicare, Medicaid, and SCHIPExtension Act o 2007 (MMSEA)

substantially changed the 25 percent

rule by rolling back the phased-in

implementation o the 25 percent rule

or HWHs and satellites and preventing

application o the rule to reestanding

LTCHs or three years.

Payment updates

There is no mechanism in law or updating

payments to LTCHs. CMS has stated thatit intends to update LTCH PPS payment

rates based on the most recent estimate o

the Rehabilitation, Psychiatric, and Long-

Term Care (RPL) market basket index

(which measures the price increases o

goods and services inpatient rehabilitation

acilities, inpatient psychiatric acilities,

and LTCHs buy to produce patient care).

In recent years, CMS has adjusted the

market basket increase downward to

account or improved coding practices

that result in higher case-mix indexes(and higher payments) without correlative

increases in patient severity o illness. ■

1 Between 2006 and 2007, growth in spending anddischarges was slowed by large increases in thenumber o Medicare Advantage enrollees, who are notincluded in these aggregate totals.

2 Beneciaries are liable or a higher copayment or eachlietime reserve day—$534 per day in 2009.




5 The COLA is intended to refect the higher costs osupplies and other nonlabor resources in Alaskaand Hawaii. It increases the nonlabor portion o thepayment by as much as 25 percent.

6 During the year, the HWH will be paid the LTCH rate.During retrospective settlement at the end o an HWH’scost report year, i the HWH is determined to beoverpaid, CMS will collect the overpayments rom uturepayments.

3 MS–LTC–DRGs with ewer than 25 cases are groupedinto 5 categories based on their average charges;relative weights or these 5 case-mix groups aredetermined based on the average charges or theLTC–DRGs in each o these groups.

4 The wage index used to adjust LTCH paymentsis calculated rom wage data reported by acutecare hospitals without the eects o geographicreclassication.

MedPAC Payment Basics 09 LTCH

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