Medicare Prospective Payment System for Inpatient Psychiatric Hospitals and Units
December 15, 2004
The Centers for Medicare and Medicaid (CMS) finalized its inpatient prospective payment system (IPS) for Medicare payment of hospital services provided in inpatient psychiatric hospitals and psychiatric units of acute care and critical access hospitals (IPFs), effective for cost reporting periods beginning on or after January 1, 2005. In response to public comments on the proposed rule published on November 28, 2003, and within the constraints of “budget neutrality,” CMS made some modifications to IPS that improves payment to IPFs. The IPS final rule, published in the November 15, 2004 Federal Register (69 Fed. Reg. 66922, et seq.), provides a per diem prospective payment, replacing the TEFRA limited reasonable cost-based payment, pursuant to which psychiatric hospitals and units are currently paid by Medicare. (The final rule is posted at the CMS website at http://www.cms.hhs.gov/providers/ipfpps/cms-1213-f.pdf.) CMS explained the process of developing a prospective payment system (PPS) for inpatient psychiatric facilities and noted the difficulties in developing this payment system because diagnosis in psychiatry is complicated and the criteria for diagnosis and treatment is less well-defined than in general medicine and surgery.
Like other Medicare PPS systems (e.g., inpatient and outpatient hospitals, skilled nursing facility (SNF) prospective payment), the IPS phase-in is over a three year period, blending the Federal per diem payment amount and the facility-specific TEFRA payment rate at 25 percent Federal rate / 75 percent facility-specific TEFRA rate in the first year; 50 percent facility Federal rate / 50 percent facility-specific TEFRA rate in the second year; and 75 percent Federal rate / 25 percent facility-specific TEFRA rate in the third year, with 100 percent Federal IPS rate in the fourth year. IPS utilizes patient acute care hospital wage data without regard to any approved geographic reclassification, with the FY 2005 hospital wage index based upon 1993 Metropolitan Statistical Areas (MSA) definitions, as opposed to the new FY 2005 MSA definitions. When IPS has been fully implemented, CMS will assess the implications of the new MSA definitions on IPFs. According to CMS’ regulatory impact analysis, IPS will affect 1,806 providers, including freestanding psychiatric hospitals and units in general acute care hospitals. A stop loss provision during the transition period is designed to protect IPFs from significant losses as they transition into the new PPS. Stop loss payments will be at least 70 percent of the amount the IPF would have received under TEFRA rates. Since the IPF statute does not require that IPFs be given the option to elect to be paid at 100 percent of IPF PPS Federal payment amount immediately, there is no provision for existing IPFs to move to 100 percent Federal rate before the end of the three year transition. New IPFs will, however, be placed on a 100 percent Federal rate immediately since they have no TEFRA rate. In the final rule, CMS defines a “new” provider as those IPFs that, under current or previous ownership or both, have their first cost reporting period as an IPF beginning on or after January 1, 2005, to coincide with the effective date of the final IPF PPS. Psychiatric units of critical access hospitals will be paid under IPS.
Although CMS will not have computer system changes in place that are necessary to accommodate claims processing under IPF PPS until April 4, 2005, CMS is implementing IPS effective January 1, 2005, to avoid further delays (October 1, 2002 was the original target date). Because of these computer system limitations, claims submitted after January 1, 2005, but before April 4, 2005, will be paid as if the TEFRA rate was still in effect. IPFs with cost reporting periods beginning on or after January 1, 2005, but before April 1, 2005, will experience payment reconciliation by their fiscal intermediaries of any differences between the TEFRA and IPS payment rates. Other providers will not be affected by these reconciliations.
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Federal per diem budget neutral base rate of $575.95 to be paid all IPFs, based on the sum of the national average routine operating, ancillary, and capital costs of each day of psychiatric care in an IPF. The labor portion of the Federal per diem base rate is $417.73; the non-labor portion of the Federal per diem base rate is $158.22. (see Example of Payment Calculation in 69 Fed. Reg., page 66942.)
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Patient-level adjustments for specified diagnosis-related groups (DRGs) and selected comorbidity categories
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CMS will utilize per diem adjustment factors to account for the higher ancillary and administrative costs incurred in the early days of a psychiatric stay. (The adjustment factor moves from 1.19 in a facility without a 24/7 full-service emergency department (ED) in day 1, to .95 after day 21. The adjustment factor for a facility with a 24/7 full-service ED is 1.31 in day 1.)
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Outlier payment targeted to high cost cases. The outlier threshold amount was adjusted from $4,200 to $5,700 in the final rule.
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Facility-level adjustments for IPFs that are, or are part of, teaching institutions, paralleling the indirect medical education payments made under acute inpatient hospital PPS as add-on adjustments to the amount per case.
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Interrupted stay policy for the purpose of applying the variable per diem adjustment and the outlier policy. Since the IPS has a tiered payment structure with higher payment in the initial days of an IPF stay, the rule provides that if a patient was discharged from an IPF and is readmitted to the same or another IPF before midnight on the third consecutive day (revised from five days in the proposed rule) following the discharge from the original IPF stay, the case is considered to be continuous for applying the variable per diem adjustments and determining whether the case qualifies for outlier payments.
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There are no adjustments for patients admitted through a hospital ED because of CMS’ concern with creating a perverse incentive whereby psychiatric units in acute care hospitals with EDs could have an incentive to ensure that all psychiatric patients are admitted through the ED. However, there is a facility-level adjustment for psychiatric hospitals or psychiatric units of acute hospitals with qualifying full-service EDs.
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Since CMS found that on a per case basis, patients who receive electroconvulsive therapy (ECT) are approximately twice as expensive as non-ECT cases ($16,287 vs. $7,684), mainly due to length of stay, IPF provides an adjustment for each ECT treatment furnished during the IPF stay. The ECT payment adjustment is $247.96 per treatment.
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CMS provides a payment adjustment for IPFs located in rural areas of 17 percent more of the base IPS rate (instead of the 16 percent in the proposed rule) because rural IPFs are more costly to operate since they incur certain fixed costs.
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IPS will require IPFs to report patient diagnoses using ICD-9-CM code set.
Undoubtedly, as in the case of the implementation of other CMS prospective payment systems for Medicare providers, IPS will require fine-tuning and regulatory clarification in order to complete the transition to IPS. The finalization of the IPS system does, however, mark another milestone in the transition of all Medicare providers, regardless of provider category into a system that results in predictable amounts of Medicare payments that are determined in advance for each specific category of service, aiding CMS in better predicting future Medicare expenditures.
