The CMS update cycle: short, short-sighted and short-changing the industry

Health Management Technology, Feb, 2005 by Robert J. Leary

The healthcare industry faces tremendous pressure to stay current with the Centers for Medicare & Medicaid Services' (CMS) regulatory changes. In fact, my company estimates that the average acute care hospital with 300 or more beds spends about $300,000 a year to manage its regulatory content. Even then, updates are generally late and incomplete.

The update process used by CMS for its inpatient prospective payment system (PPS) has given vendors and providers a fair amount of preparation time for the annual Oct. 1 effective date. Diagnosis-related groups (DRGs) Follow a standard federal regulatory process. A proposed rule is published in April, giving the industry an opportunity to review proposed policies and provide feedback to CMS. Then, a final rule is published around August, giving the industry 60 days to interpret regulations, update, test, and distribute and install software at client sites. It is a monumental task, but CMS time frames make it manageable.

However, the same cannot be said of the APC (ambulatory payment classification)-based outpatient prospective payment system (OPPS), the most complex payment system that CMS administers. OPPS is updated on a quarterly basis. CMS nominally uses the standard regulatory update process, with proposed and final rules published in the Federal Register well in advance of the effective date, as the basis for its January OPPS update.

But other updates are made without any use of the Federal Register or timely notification. Instead, CMS announces policy changes and clarifications in program transmittals posted to its Web site. It uses this same mechanism to reveal changes to APCs and its outpatient code editor. Even OPPS regulations are not a definitive source of information; much of the January update is released through program transmittals and other informal mechanisms.

A quick review of the 36 OPPS-related program transmittals for fiscal year 2004 illustrates the problem. Of these, 16 addressed changes that were actually associated with quarterly updates. The other 20 involved changes or clarifications that took place on a seemingly haphazard schedule throughout the year. Also, transmittals are late. The last transmittal dealing with changes to be effective Jan. 1, 2004, was issued on Dec. 22, 2003. The last transmittal for April 1 came out on March 30, two days before the effective date.

Forced Choices for Hospitals

A significant problem with using program transmittals to drive regulatory processes is that they deny CMS the benefit of public input into its rule-making. CMS makes policy, but it is providers and health plans that understand how policy affects patient care, healthcare delivery and administrative operations. Their input is essential for a thorough evaluation of CMS proposals and their consequences.

Combining published regulations, program transmittals and local medical review policies, which change monthly, OPPS requires the industry to absorb more than 50 different updates throughout the year to maintain regulatory compliance. These updates typically must be deployed rapidly and consistently across several departmental systems, in addition to the patient accounting system, before a hospital can be comfortable that it has achieved regulatory compliance.

During this process, hospitals are faced with a choice: hold claims until updates are available and installed, or submit claims that may contain errors and deal with resubmissions after the fact. Holding claims creates major cash flow problems. Billing noncompliant claims creates workflow problems and compliance risks. If the error rate due to late regulatory updates is as small as 1 percent, the cost of denials and resubmissions alone can run to millions of dollars a year. The impact on healthcare IT vendors is huge, and the impact on hospitals is extraordinary. All of it increases the cost of healthcare.

Taking a Needed Second Look

CMS needs to recognize the operational difficulties it creates for providers and the vendors upon whom they depend. Failure to provide timely, accurate information about regulatory updates increases the costs of healthcare generally and the Medicare program more specifically, and interferes with the delivery of services to Medicare beneficiaries.

CMS adopted its system of quarterly updates to ensure that beneficiaries would have access to new drugs, devices and other technologies as they enter the market. Because it believed the standard rule-making process was too cumbersome to implement quarterly changes, CMS implemented the current system of less formal regulatory updates, with congressional blessing. This alternative does not work.

Perhaps most disturbing is the fact that CMS has indicated that it plans to abandon standard rule-making for inpatient PPS as well. Under the Medicare Modernization Act of 2003, Congress has called for a second set of annual updates to be effective in April. In the fiscal year 2005 final rule, CMS indicated that the April 1 update will not be published in the Federal Register, and instead, DRG changes and code additions, deletions and revisions will be published in program transmittals and posted to the CMS Web site.