LTCH Pay Change to Cover Less than Half of Costs: Analysis

A key part of the phased-in cut will reduce aggregate LTCH payments by approximately $28 million each year, according to an American Hospital Association analysis.

April 2—An ongoing Medicare payment change will cover less than half of the costs of care for long-term care hospital (LTCH) patients who are subject to it, according to a new analysis.

The Bipartisan Budget Act of 2013 required that certain cases receive a site-neutral payment rate, which the Centers for Medicare & Medicaid Services (CMS) has been phasing in since 2015. As a result, LTCHs have been receiving the higher long-term acute care prospective payment system (PPS) rates for discharges that had an immediately preceding acute care hospital stay that included at least three days in an intensive care unit (ICU), and for those that received an LTCH principal diagnosis indicating the receipt of mechanical ventilation services for at least 96 hours.

Payments for other discharges are the lesser of the per diem Medicare rates for the same diagnosis under the inpatient PPS or the estimated care costs.

The new lower rate has affected about half of LTCH patients since CMS began phasing it in. It will go into full effect for all LTCHs by FY21, according to the Medicare Payment Advisory Commission (MedPAC).

However, during phase-in the rate has covered only 79 percent of care costs for LTCHs—and full implementation will cover only 49 percent of those costs, according to a recent analysis by the American Hospital Association (AHA).

Factors in the Underpayment

A key driver of the higher cost of treating site-neutral cases is that they have a higher average level of clinical acuity, according to AHA.

“Our analyses show that these substantial underpayments are occurring because, contrary to CMS’s projections, the acuity level and cost of care for LTCH site-neutral cases far exceed those of comparable inpatient PPS cases,” Tom Nickels, executive vice president for AHA, wrote in a letter to CMS.

AHA found that 54 percent of site-neutral cases had one to four “complications and comorbidities/major complications and comorbidities,” while 42 percent had five or more such conditions. In comparison, among the much larger number of LTCH patients who had fewer than three days in the intensive care unit in a hospital, 62 percent had one to four complications but only 12 percent had five or more.

LTCH site-neutral cases also had an average length of stay of 25.1 days, which was closer to the LTCH cases that were paid a standard rate than to the 4-day average length of stay for comparable inpatient PPS cases.

Additionally, LTCH site-neutral cases had Medicare payment-to-cost ratios of 0.47, compared with 0.99 for inpatient PPS cases with fewer than three ICU days.

Average costs per case were $32,941 for site-neutral cases and $11,190 for inpatient PPS cases with fewer than three ICU days.

Change Sought

The severity of the cut, according to AHA, stemmed from the application of two budget-neutrality adjustments by CMS for site-neutral cases—one during the establishment of the inpatient PPS rates and a second while setting the LTCH payment.

Nickels cited the findings to repeat AHA’s call for the FY19 LTCH PPS proposed rule to remove the second budget-neutrality adjustment for LTCH site-neutral cases.

MedPAC also has been critical of the adjustment, noting that the mechanism CMS used to implement the 2013 law does not equalize payments across provider types and could result in lower pay than LTCHs would have received under a similar IPPS discharge.

The second adjustment was “duplicative and exaggerates the disparity in payment rates across provider settings,” MedPAC wrote CMS in a 2016 letter.

CMS wrote in the FY18 LTCH PPS final rule that it will continue to monitor the differential between LTCH site-neutral and inpatient PPS cases.

However, AHA estimated—based on its analysis of FY16 Medicare Provider and Analysis Review (MedPAR) files—that the second budget-neutrality adjustment inappropriately reduces aggregate payments by approximately $28 million each year, which it calls “a substantial amount.”

The lower Medicare payments to LTCHs due to the site-neutral rule w expected to result in the closure of many of the 435 LTCHs nationwide, according to a 2016 Standard & Poor’s Global report.

25 Percent Rule

AHA also used the analysis to repeat its call for CMS to eliminate the “25 percent rule” on LTCHs. The 2006 rule cuts LTCH Medicare payment to an equivalent amount under the inpatient PPS for patients transferred from an acute care hospital that has referred more than one-quarter of its patients to the LTCH.

CMS paused full implementation of the 25 percent rule for FY18 to study the impact of site-neutral payment absent the rule—specifically, whether the LTCH site-neutral payment approach renders the 25 percent rule unnecessary.

AHA opposed the 25 percent rule “because it materially reduces payments for care provided to patients who meet the statutory criteria for a full LTCH PPS rate,” Nickels wrote.

In combination with the site-neutral cuts, the 25 percent rule “would unjustifiably exacerbate the instability and strain on the field, which would threaten access for the high-acuity, long-stay patients that require LTCH-level care,” he wrote.

In 2016, Medicare spent $5.1 billion on care provided in LTCHs, according to MedPAC’s latest report to Congress. About 111,000 Medicare fee-for-service beneficiaries had roughly 126,000 stays in 407 LTCHs, accounting for about two-thirds of LTCH discharges.

“Financial performance in 2016 varied across LTCHs, reflecting differences in cost control and responses to payment incentives,” MedPAC wrote.

MedPAC projected that LTCHs’ aggregate Medicare margin for discharges that qualify for the full LTCH payment rate will be 4.7 percent in 2018.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare