The ABCs of PPS and LTACHs

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August/September 2002

By Cherilyn G. Murer, JD, CRA

On Friday, March 22, 2002, the Centers for Medicare & Medicaid Services (CMS) published the proposed rule outlining a prospective payment system (PPS) for long-term acute care hospitals (LTACH). The 60-day comment period for the proposed rule ended on May 21, 2002, and CMS expects the proposed rule to become final and effective for cost reporting periods beginning on or after October 1, 2002. The new rules cover existing and future LTACHs and reinforce the significant benefit of this postacute venue as a “through source” of patient care along a seamless continuum.

The proposed rule contains 13 major components:

A 25-day average length of stay will be calculated using only Medicare patient days, rather than all patient days.
The system is based on the inpatient PPS diagnosis related group (DRG) system, but the DRGs are reweighted to account for increased resource utilization in LTACHs.
LTACH DRGs are referred to as LTC-DRG.
The prospective federal payment rate for FY 2003 is proposed at $26,238.92, which includes a budget neutrality adjustment.
There is a 5-year transition provided on an elective basis. A hospital may elect the full federal payment rate in any year. Once made, an election may not be withdrawn.
Tax Equity and Fiscal Responsibility Federal Reform Act (TEFRA) payments during the phase-in period will include restoration of full allowance to 100% of allowable capital cost reinstating the 15% reduced by the Balanced Budget Act of 1997.
CMS included special rules for “very short-stay discharges,” defined as those patients with a length of stay of 7 days or less.
CMS also included special rules for “short-stay outliers,” defined as those patients whose length of stay is between 8 days and two thirds of the published length of stay for each LTC-DRG.
A special payment for high-cost outliers is included.
There are also special rules for interrupted stays.
In the final rule, CMS is considering eliminating the bed-limit requirements for old LTACHs with satellites if the facility is paid completely under the federal rate, and is seeking comments on the appropriateness of maintaining current hospital-within-hospital requirements.
New medical review requirements and physician acknowledgement concerning LTC-DRG assignments are established.
No area wage adjustments or disproportionate share payments were proposed, although CMS requested comments on these issues. This is a positive for all regions under 1.0.

CMS is proposing a PPS consisting of 501 LTC-DRGs. The 501 LTC-DRGs are composed of 497 used in the current acute hospital PPS, and two very short stay discharge LTC-DRGs and two error LTC-DRGs. All LTC-DRGs, and related average length of stays, are reported in the Federal Register.

Except for special cases, payments are made on a per discharge basis. LTC-DRG payments include all operating and capital-related costs. Certain costs will continue to be paid on a Medicare reasonable cost basis, in addition to the LTC-DRG payments.

Table 1.

CMS projects that 58% of LTACHs will elect to be paid immediately at the full federal payment rate. The remaining hospitals are expected to elect a 5-year phase-in, implemented as seen in Table 1.

Very short stay discharges are defined as patients who are discharged (including death) within 7 days or less of inpatient services. These cases will be paid a per diem amount, determined by dividing the applicable federal payment rate by 7 days.

Short stay outliers are defined as those patients with a length of stay between 8 days and two thirds of the arithmetic average length of stay (ALOS) for each LTC-DRG. These cases will be paid the least of: 150% of the LTC-DRG specific per diem payment, 150% of the cost of the case, or the full LTC-DRG payment.

Additional payments will be made for outlier cases. High cost outliers are defined as cases that have unusually high costs exceeding the LTC-DRG payment, plus a fixed cost amount. In FY 2003, this amount is proposed to be $29,852. CMS proposes to pay an outlier case 80% of the difference between the estimated cost of the case and the sum of the adjusted federal PPS rate for the LTC-DRG plus $29,852.

Table 2.

INTERRUPTED STAY

One of the most difficult concepts to implement is the interrupted stay, which is defined as those cases where an LTACH patient is discharged to an inpatient acute care hospital, an inpatient rehabilitation facility, or a skilled nursing facility (SNF) for treatment or services not available at the LTACH for a period that is defined as follows:

For patients transferred to acute care hospitals: a period that is within one standard deviation from the arithmetic ALOS for the DRG assigned at the acute care hospital.

For patients transferred to an inpatient rehabilitation hospital (IRF): a period that is within one standard deviation from the arithmetic ALOS for the case-mix group (CMG) and comorbidity tier assigned for the IRF stay.

For patients transferred to a SNF: a period that is within 45 days. One standard deviation from the arithmetic ALOS is a number published in the Federal Register for each acute care DRG and each rehab CMG.

If the patient remains in the transferred entity for the defined time or fewer days, the stay at the LTACH is an interrupted stay. If the patient remains in the transferred entity for more than the defined time, the LTACH stays are independent and the LTACH will receive two payments. CMS has proposed standardizing the length of stay, defining an interrupted stay for transfers to acute at 9 days, and transfers to IRFs at 27 days. It wants comments on how to define the interrupted stay in the final rule.

CMS will have to review the standards created regarding interrupted stays, especially for those patients transferred to SNFs. The practical implementation of such a standard is unworkable given the long length of time (45 days) that determines whether the subsequent stay at the LTACH is included with the first stay as an interruption or whether it is a separate stay allowing for a separate payment.

This rule is very similar to the current 5% rule known to existing LTACHs. It outlines special rules for transfers between the LTACH and distinct-part SNFs, acute care hospitals, IRFs, or psychiatric hospitals when the LTACH and the other provider are colocated.

If an LTACH readmits more than 5% of its Medicare patients who are discharged to an on-site SNF, IRF, acute hospital, or psychiatric facility, only one LTC-DRG payment would be made to the LTCH for each discharge and readmittance during the LTACH’s cost-reporting period. For purposes of these rules, there is no distinction made between a hospital-within-a-hospital or a satellite. The rules apply to any LTCH that is colocated with another facility.

Because of the new proposed rules regarding patient transfers, patient transfers with colocated facilities, and interrupted stay rules, CMS requested comments on the possibility of changing the ownership and control requirements for hospitals within hospitals. CMS also solicited comments on the current regulations that limit the number of beds old LTACHs with satellites may have.

The proposed payment rates for LTACHs are favorable, and long-term care providers should be encouraged by the fact that CMS has chosen a patient classification system that takes into account the increased resource utilization incurred by LTACHs.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. She may be reached at (815) 727-3355 or via the Web: www.murer.com.

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August/September 2002