Further clarification on important changes to inpatient and outpatient hospital reimbursement under PPACA

UPDATE: See our more recent post for further information and corrections regarding these changes.

In a recent transmittal (R726OTN), CMS provided further clarification on changes to inpatient prospective payment system (IPPS) hospital reimbursement for FY 2010 and outpatient prospective payment system (OPPS) hospital reimbursement for CY 2010, as a result of the Patient Protection and Affordable Care Act (PPACA).  One of the more challenging aspects of implementing these changes is that they have various retroactive dates.   Going forward, payment is to be made based upon the updated rates, but instructions about how to handle past claims already paid under pre-PPACA requirements have yet to be issued.

In particular, relevant changes to the PPACA required changes to the wage index and respective market basket updates and, as a result, changes to area wage indices, rates, and outlier thresholds for these two provider payment systems.  (For further discussion, see Kimberly Hoy’s post here.)

IPPS Updates

PPACA retroactively extended section 508 reclassifications and special exceptions wage indices through September 30, 2010 (that is, for discharges occurring throughout FY 2010). Effective April 1, 2010, the PPACA requires removing section 508 and special exceptions hospitals’ wage data from the calculation of the reclassified wage index if doing so raises the reclassified wage index. As a result of these changes to the wage index (and changes to the market basket update noted below), many of the originally published FY 2010 IPPS wage indices have changed either for all of FY 2010 (for section 508 and special exceptions hospitals) or for only the second half of FY 2010 (for all other IPPS hospitals).

All section 508 and special exceptions hospitals will be assigned an individual special wage index effective October 1, 2009, which will be the higher of its wage index value from the FY 2010 IPPS final rule, as originally corrected, or its wage index value under the revised FY 2010 wage index values effective April 1, 2010.

As discussed more fully in Kimberly’s previous post, PPACA also imposed a 0.25 percentage point reduction to the IPPS market basket update for FY 2010 that is applied to the operating standardized amounts and hospital-specific rates for Sole Community Hospitals and Medicare Dependant Hospitals.  These revised FY 2010 rates only apply to payments made for discharges occurring on or after April 1, 2010. As a result of this provision, CMS updated the IPPS standardized amounts and outlier threshold to be applied in making payments for discharges during the second half of FY 2010 (for discharges on or after April 1 through discharges on or before September 30, 2010.)

OPPS Updates

PPACA also imposed a 0.25 percentage point reduction to the OPPS market basket update for CY 2010, effective for services furnished on or after January 1, 2010.

Because the PPACA extended wage index reclassifications under section 508 and the wage index for special exception providers through the end of FY 2010 (September 30, 2010), most OPPS hospitals located in a CBSA that includes section 508 or special exception hospitals will be paid based on the revised FY 2010 wage index tables during the last half of CY 2010 (for services provided on or after July 1, 2010 through December 31, 2010).

For section 508 and special exception hospitals, however, CMS appears to take the position that the wage index used to calculate OPPS payment for outpatient services provided beginning January 1, through June 30, 2010 will be the same individual special wage index that applies to such hospitals for the calculation of IPPS payments during FY 2010.   It is not clear to me whether the wage index used to calculate payment for OPPS services to such hospitals from July 1 through September 30, 2010, would be their individual special wage index or would be based upon the revised FY 2010 wage index tables effective for most OPPS hospitals for services provided on or after July 1, 2010.  In any event, the wage index for services provided from October 1 through December 31, 2010, would revert to the applicable revised FY 2010 wage index for their home CBSA.

These revised wage index values and changes to the OPPS market basket update affected the calculation of the CY 2010 OPPS conversion factor.  As a result, CMS has recalculated the revised CY 2010 OPPS conversion factor from $67.406 to $67.362.  This conversion factor reflects the revised full update for those hospitals who met their quality indicator reporting requirements during CY 2009.

As noted above, hospitals are strongly encouraged to review this transmittal for themselves and to stay tuned for instructions about how to handle past claims under pre-PPACA requirements, as well as any further clarifications on these highly complicated and confusing changes.