No surprises in PPS year 10 proposed regulations - Health Care Financing Administration's regulations on Medicare prospective payment systems

Healthcare Financial Management, July, 1992

The Health Care Financing Administration's (HCFA'S) lengthy proposed regulations governing year 10 of Medicare's prospective payment system (PPS) were published in the June 4 issue of the Federal Register. The regulations include proposed changes to capital PPS and to Medicare Geographic Classification Review Board (MGCRB) redesignation guidelines. The changes would become effective for Medicare discharges occurring on or after Oct. 1, 1992.

Operating PPS. The proposed FY93 update for inpatient diagnosis-related group (DRG) rates is based on a market basket of 4.3 percent. After adjustments, the rural update would be 3.75 percent and the urban rate would be 2.75 percent. As required by law, the rates have been adjusted to remove the FY92 outlier offset and to ensure budget neutrality for geographic reclassifications, outlier payments, and the effects of other payment adjustments.

The standardized rates proposed for FY92 are:

              Labor-related   Nonlabor-related
Large urban      2594.12          1068.75
Other urban      2553.05          1051.84
Rural            2626.19          846.11

In the proposed rule, HCFA announced its intention to stop issuing mid-year changes to the wage index. HCFA noted that mid-year changes had raised problems for many hospitals seeking geographic reclassification, because often the MGCRB had more up-to-date information than the hospital had when the application was made. The proposed regulation contains protocols under which all hospitals must present changes to their wage data by Oct. 1, 1992. After that date, a hospital wanting to change its wage data would do so through the fiscal intermediary, in accordance with the normal revision and reopening procedures of the Medicare cost report.

The proposed FY93 day outlier threshold is the geometric mean length of stay for each DRG plus the lesser of 23 days or three standard deviations. The cost outlier threshold is the greater of 2.0 times the prospective payment rate or $34,500.

Medicare Geographic Classification Review Board. HCFA proposed a relatively major change to the MGCRB requirements governing reclassifications for purposes of the wage index. The proposed rule would require a hospital to demonstrate that its average hourly wage is at least 108 percent of the average hourly wage of hospitals in its original labor market area, and at least 84 percent of the average hourly wage of the hospitals in the area to which it seeks reclassification. The criteria for using the occupational mix method would remain at 90 percent of the average hourly wage of the area to which redesignation is sought.

Many of the changes proposed to MGCRB procedures are clarifications of what HCFA intended in its original regulations governing the reclassification process.

Capital PPS. The proposed Federal rate for FY93, other than for Puerto Rico, is $416.36. The rate for Puerto Rico would be $320.27. This constitutes an update of 3.76 percent, which is 2.21 percent lower than what HCFA had projected in its capital acquisition model for FY93. The proposed net adjustment factor for hospital-specific rates would be 1.21 percent. The proposed rule also discusses the framework HCFA intends to use to adjust rates after FY95.

The proposed regulation clarifies a number of definitions and responds to situations that have already arisen since capital PPS began last October.

HCFA REVISES ESTIMATES FOR EKG

ADD-ONS

HCFA has begun to correct several inaccuracies contained in the Medicare physician fee schedule which went into effect in January (see November 1991 "Updata"). Many of those problems are contained in the relative value units that form the basis of the fee schedule. As part of this effort, HCFA has met with representatives of Medicare carriers and physician specialty groups to discuss the inaccuracies.

Among the inaccuracies HCFA is grappling with are the special add-on amounts to all visit codes, which compensate for the OBRA'90 prohibition against separate Medicare payment for routine EKG interpretations. HCFA provided the special add-on to allow some payment for interpretations, and to make it more readily possible to reinstate separate payments. HCFA has revealed, however, that the add-on amounts are insufficient to cover full reinstatement of separate payments. A coalition of healthcare organizations, including HFMA, continues to promote repeal of the OBRA'90 prohibition.

Due to the underestimation, it is predicted that the current add-on amounts would fall $170 million short of the $300 million needed if separate EKG interpretations are restored in FY93. At a recent meeting with the coalition, HCFA staff noted that the add-ons were underestimated from the start. Whether Congress repeals the prohibition or not, it is very likely that HCFA will reduce all the relative value units by less than one-half of one percent in order to increase the add-on amounts. HCFA expects to publish all refinements to the fee schedule as a proposed rule next September. The changes would become effective in January 1993.