RSSAuthor Archive for Debbie Mackaman

Debbie Mackaman

Debbie is an instructor for HCPro’s Medicare Boot Camp®—Hospital Version. She has over 18 years of experience in the healthcare industry, including both inpatient and outpatient Prospective Payment Systems (IPPS, OPPS) and Critical Access Hospital (CAH) coding and reimbursement issues. She most recently held the position of the Compliance Officer and Director of Health Information Services for a healthcare system.

She consults with hospitals, physicians and other healthcare providers on a wide range of coding and billing issues. She assists in the development of compliance programs, with a focus on high risk areas including RAC topics, documentation improvement, coding and billing audits, and chargemaster maintenance.

She is an active participant with state and national organizations and task forces on coding and payment policies, privacy and continuing education. She is accredited as a Registered Health Information Administrator (RHIA) and a Certified Healthcare Compliance Officer (CHCO). She is a member of the American Health Information Management Association (AHIMA) and is the past president of the Montana Health Information Management Association (MHIMA).

NCCI updates

An updated version of the National Correct Coding Initiative (NCCI) manual was recently posted to the CMS NCCI website which included changes identified in red text and will be effective with dates of service January 1, 2013. In addition to two new modifiers, CMS will also be implementing a third edit for add-on codes and has provided some perplexing language regarding reporting unbundled codes.

Reporting services

One of the interesting changes noted in red in chapter one is the following statement:

“Providers reporting services under Medicare’s outpatient hospital prospective payment system (OPPS) must report all services performed including those that are not separately payable. This requirement applies to services not payable due to NCCI edits. Providers should be careful to avoid inappropriately appending NCCI-associated modifiers to codes to improperly bypass an NCCI edit.”

This is rather confusing and could be interpreted in a few different ways. If the NCCI manual instruction states to report the “bundled” code in addition to the separately payable code, providers will hit an NCCI edit and that specific line will be rejected. The question is why CMS would want this information – it would most likely not be appropriate to use the charges attached to the bundled code for rate setting because providers should not be reporting an unbundled procedure code anyway. In the past, CMS has instructed providers to report the costs of care (i.e. charges) by not reporting the CPT code – in instances where a CPT code was not required with a specific revenue code. However, the statement above does not specifically state that. Providers will want to ask for clarification from their MACs and consider asking this question on the next CMS Hospital Open Door Forum call.


According to the NCCI manual, a modifier should not be appended to a HCPCS/CPT code solely to bypass an NCCI edit if the clinical circumstances do not justify its use. There are two modifiers that will be added to the anatomical modifiers that may be used under appropriate clinical circumstances to bypass an NCCI edit:

  • LM – Left main coronary artery;
  • RI – Ramus intermedius coronary artery.

A variety of staff should be aware of the addition of these two modifiers – coders, department managers, auditors, billers, chargemaster coordinators to name a few – so that when appropriate, an NCCI edit can be bypassed and the hospital appropriately reimbursed for the second procedure.

Add-on codes

Some codes in the CPT Manual are identified as “add-on” codes which describe a service that can only be reported in addition to a primary procedure. The CPT Manual instructions specify the primary procedure code for most add-on codes; however, for others, the primary procedure is not specified.

Add-on codes allow reporting of significant supplemental services commonly performed in addition to the primary procedure. They should not be confused with incidental services that are necessary to accomplish the primary procedure (e.g., lysis of adhesions in the course of an open cholecystectomy) or complications that occur during the procedure that are inherent in an invasive procedure (e.g. control of bleeding during an invasive procedure is considered part of the procedure), both which are not separately reportable with an add-on code.

In general, NCCI procedure to procedure edits do not include edits with most add-on codes because CMS considers edits related to the primary procedure to be adequate to prevent inappropriate payment for an add-on coded procedure. However, NCCI does include edits for some add-on codes when coding edits related to the primary procedure must be supplemented.

There are three “types” of add-on codes with the associated edit table. Each table lists the add-on code which is eligible for payment when reported with the primary code, the exception being 99291 critical care evaluation and management, first 3-74 minutes and 99292 each additional 30 minutes critical care. Transmittal 2607 goes into detail regarding the three different edit tables:

  • “Type I Add-on Code Edit Table” lists add-on codes for which the CPT Manual or HCPCS tables define all acceptable primary codes.
  • “Type II Add-on Code Edit Table” lists add-on codes for which the CPT Manual and HCPCS tables do not define any primary codes.
  • “Type III Add-on Code Edit Table” lists add-on codes for which the CPT Manual or HCPCS tables define some, but not all, acceptable primary codes.

Although the add-on code and primary code are normally reported for the same date of service, there are unusual circumstances where the two services may be reported for different dates of service. For example, when critical care (99291) begins on one date of service and rolls over into the following day and the additional critical care time (99292) is provided on that following day.

All providers should take the time to review each chapter of the new NCCI manual to identify any areas that may need clarification with CMS, your MAC and specific staff. Although the changes don’t appear to be that significant on first glance, providers have been stung by that in the past with clarifications that completely changed what we thought to have been true.

CMS releases the details for the outpatient therapy claims-based data collection requirement

Last week CMS released transmittal 2603 that explained how the new 42 non-payable functional G-codes and seven modifiers on selected claims for physical therapy (PT), occupational therapy (OT) and speech-language pathology (SLP) services will be implemented. Although the new codes and modifiers are required beginning with dates of service January 1, 2013, CMS has enacted a testing period in which hospitals and practitioners have until July 1, 2013 date of service to implement and prevent claims rejections.

This new required reporting was originally announced in the 2013 Medicare Physician Fee Schedule Final Rule; however the details were not known at that time. The purpose of the new reporting is to assist CMS reform the Medicare payment system for outpatient therapy services based on the patient’s condition and outcomes. This new requirement will affect hospitals, CAHs, CORFs, SNFs, home health agencies when the patient is not under a plan of care, as well as therapy services furnished personally by an incident to the service of a physician and non-physician practitioners (i.e. nurse practitioners, certified nurse specialists and physician assistants) and therapists in private practice.

The 42 new G-codes assess categories for mobility, body position; carrying, moving and handling objects, self-care, swallowing, motor speech, spoken language, attention, memory, and voice. The seven severity modifiers report percentage of impairment limitation restriction. According to this transmittal, it is the responsibility of the therapist, physician or non-physician practitioner who furnishes the services to track and document the G-codes and modifiers reported on the claim in the beneficiary’s medical record.

There are specific time frames for reporting that providers need to be aware of and create a tracking mechanism:

  • At the start of the therapy care (onset);
  • At least once on or before the 10th treatment day when ongoing therapy is needed;
  • When a re-evaluation is performed (identified by specific CPT codes); and,
  • At discharge.

Two functional G-codes will be required on a particular claim when functional reporting is required for therapy services under one plan of care (POC). However, it is possible for a claim to contain four or more non-payable G-codes in cases where a beneficiary receives therapy services under multiple POCs – PT, OT, and/or SLP – from the same therapy provider. The therapy discipline modifiers – GN, -GP, -GO will also be required in addition to the functional severity modifier. For hospitals, a “nominal charge” such as $0.01 must be included on the claim as well as another billable and separately payable service. Professional claims may report a zero charge if their software allows.

Even though the reporting of the functional G-codes and severity modifiers is not required on the claim until July 1, 2013 date of service, hospitals and other providers should test their systems early to prevent claims rejections issues. More details will be forthcoming as CMS roles out this new strategy. Remember that this information will be used to revise the current payment system so accuracy of the data is critical going forward.


OIG weighs in on ALJ appeals

With the recent news that legislation has been introduced to reform Recovery Auditors (RA) and that the American Hospital Association (AHA) and four health systems are suing the U.S. Dept. of Health and Human Services (HHS) for unfair Medicare practices in regards to the RA program, I thought it would be of interest to our readers to take a look at the OIG’s report and recommendations on their administrative law judge (ALJ) appeals review from 2010.

Prior to 2005, the OIG had found that at different levels of appeal, standards were not consistently applied and that CMS’s ability to defend its initial decisions was limited. Regulatory changes were then implemented, including requiring ALJs to follow new regulations that addressed how Medicare policy must be applied, when new evidence may be accepted and how CMS can participate in appeals. In addition, oversight was transitioned from the Social Security Administration (SSA) to HHS.

The third level of appeal that is conducted by ALJs differs substantially from the first two levels when appeals are filed with the Medicare administrative contractor (MAC) or the qualified independent contractor (QIC). One of the major differences is that the appellant has the right to a hearing before an ALJ; however, under certain circumstances, the ALJ may not conduct a hearing and may instead make a decision after reviewing the evidence in the case file or on-the-record review. Prior to 2005, ALJs were bound by Medicare laws, regulations, and National Coverage Determinations when making decisions, but were not bound by Local Coverage Determinations or CMS program guidance. In 2005, new regulations were introduced that required ALJs to “give substantial deference” to these policies and to provide an explanation if they decline to follow one of these policies in an appeal. Another change in 2005 was that an appellant must explain in writing the reason for submitting new evidence and ALJs may accept the new evidence only if they determine that the appellant had “good cause” for waiting until the ALJ level to submit it. As a party to the ALJ hearing, CMS or their contractors may also submit evidence, call or cross-examine witnesses during the hearing, and appeal to the next level. The OIG was disappointed to find that CMS participated in only 10% of the appeals that ALJs decided in FY 2010 and when CMS participated, ALJs were less likely to decide fully in favor of appellants.

After review of the data and extensive interviews with various staff, the OIG identified that providers filed 85% of the 40,682 appeals that ALJs decided in FY 2010. Certain providers filed appeals much more frequently than others – referred to by the OIG as “frequent filers.” ALJs reversed prior-level decisions by QICs and decided fully in favor of appellants in 56% of appeals in FY 2010. In contrast, QICs decided fully in favor of appellants in 20A% of appeals in FY 2010. What the OIG found was that ALJs differed from QICs in their interpretation of Medicare policies, in their degree of specialization, and in their use of clinical experts which ultimately contributed to different decisions at the ALJ and QIC levels.

During the interview process, both ALJ and QIC staff indicated that ALJs tended to interpret Medicare policies less strictly than QICs. Most ALJ staff noted that ALJs often decided in favor of appellants when the intent but not the letter of a Medicare policy was met. In contrast, most QICs noted that they try to follow Medicare policy strictly. In addition, ALJ and QIC staff commonly noted that some Medicare policies are unclear and that leads to more fully favorable decisions and to more variation among ALJs.


The OIG also noted at least two other findings. The ALJ and CMS staff raised concerns that the acceptance of new evidence and the organization of case files reduced the efficiency of the appeals system and that ALJ staff handled suspicions of fraud inconsistently.

The OIG report provides very clear recommendations to CMS and/or the Office of Hearings and Appeals (OHMA) and here is a summary of those that providers should be aware of.

  • Develop and provide coordinated training on Medicare policies to ALJs and QICs at least annually with the focus on Medicare policy for consistency at the second and third level appeals;
  • Identify and clarify Medicare policies that are unclear and can be interpreted differently by soliciting input from MACs;
  • Improve the efficiency of the appeals process by standardizing case files and accelerating OMHA’s Electronic Records Initiative to transition from paper to electronic files;
  • Revise the current regulations to provide more clear guidance to ALJs regarding when to accept new evidence submitted by providers;
  • Seek statutory authority to establish a “modest filing fee” for those providers who have been identified as “frequent filers” as a means to encourage them to assess the appeal before filing;
  • Determine whether specialization among ALJs would improve efficiency; however, the current statutory requirement is that appeals are randomly assigned and further development of this recommendation would be necessary; and,
  • Increase CMS participation in ALJ appeals making strategic decisions about which contractors are best suited to do this and which appeals most warrant CMS participation such as Part A hospitals and frequent filer appeals.

With the recent OIG report, legislation and lawsuit, it is apparent that changes are on the horizon and we can only hope it will be a win-win solution for all parties involved.



CMS publishes the 2013 OPPS and MPFS final rules

Right on cue, CMS released the 2013 OPPS Final Rule on November 1 and then followed up with the MPFS Final Rule. In a breaking news story, HCPro summarized the changes – the good, the bad and the ugly – that will impact hospitals across the country. I wanted to take this time to review several changes that will impact two high volume departments in the hospital outpatient setting – therapy services and laboratory.

Many laboratory departments have been struggling with the complexity and the number of CPT codes for molecular pathology – now at 115 codes in two different tiers – and how to implement the new codes, even though CMS had allowed hospitals to bill the “stacked codes” instead for 2012. That will all change with dates of service on January 1, 2013 when the stacked codes will be invalid and the CPT codes for the actual molecular pathology services will need to be reported and will be paid under the clinical Laboratory Fee Schedule (CLFS).

In 2012 when these codes first came into play, CMS stated they were not valid of payment and hospitals should still report combinations of “regular” CPT codes for payment that described various steps to perform a specific test – referred to as stacking because different groups of codes are billed depending on the components of the actual test. CMS also clarified in a Hospital Open Door Forum call that hospitals should also report the new molecular pathology codes with the stacked codes so that CMS could use that information for setting rates for implementation in 2013.

Hospitals need to begin now to get ready to implement the new codes as this has the potential to be a major project. This includes updating chargemasters, order entry and charge tickets so there will not be a delay in billing and reimbursement. Physicians, laboratory staff and coders may want to review the AMA CPT Assistant May 2012 and June 2012 for guidance on how to select the appropriate code. Keep in mind that hospitals will be responsible for creating their own pricing based on their current methodology and the CLFS as there is not a one-to-one crosswalk from the current CPT codes over to the molecular pathology codes.

Another major change for hospitals will be reporting functional limitation indicators and outcomes for outpatient rehabilitation therapy. This information will be found in the MPFS Final Rule and not under OPPS because therapy services are paid under the MPFS.

The MCTRJCA, the same Act that implemented the therapy caps and manual medical review for hospital outpatient services from October through December 2012, also required a claims-based data collection process to help reform the Medicare payment system. Of concern to Congress and CMS is that between 1998–2008, Medicare expenditures for outpatient therapy services increased at a rate of 10.1% per year while the number of Medicare beneficiaries receiving therapy services only increased by 2.9% per year. Beginning on page 221 of the display copy of the MPFS Final Rule, a thorough explanation is provided regarding what data CMS will be looking for under the five-year CMS project titled “Development of Outpatient Therapy Payment Alternatives” (DOTPA).

In summary, because current ICD-9 diagnosis codes cannot provide the data needed, specific G-codes will be used to identify what type of functional limitation is being reported and whether the report is on the current status, projected goal status or discharge status. Modifiers will also be used to indicate the severity/complexity of the functional limitation being tracked. The difference between the reported functional status at the start of therapy and projected goal status will represent any progress the therapist anticipates the beneficiary would make during the course of treatment. This reporting will apply to all therapy claims, including those for services above the therapy caps and those that include the -KX modifier.

Again, this will be a major undertaking to update the charge master, order entry systems and charge tickets with new G-codes for services that occur on January 1, 2013. Although this is not a change in the current reimbursement structure and hospitals will be given a six-month testing period to implement no later than July 1, 2013, therapists and billers, as well as other involved in coding and billing of therapy services should become familiar with the new data reporting requirement prior to January 1.

Hospital Outpatient Payment Panel announces recommendations

For the second time this year, the Hospital Outpatient Payment Panel has made its recommendations to establish supervision levels different than the default level of direct supervision for certain outpatient therapeutic services. The alternate level of supervision must take into consideration the quality and safety for the delivery of the service in relation its clinical nature and inherent risks.

Beginning in 2012, CMS established a sub-regulatory process for an independent panel made up of members from the prospective payment system hospital and critical access hospital communities to recommend, at the request of CMS or the public at large, the alternate levels of supervision (e.g. general or personal) for individual services described by HCPCS codes.

The panel held their first meeting in March of this year and the CMS approved recommendations became effective on July 1, 2012. The second meeting was held in August and based on those recommendations; CMS is proposing the following changes to the current supervision levels for these categories:

  • Influenza, pneumococcal and hepatitis B vaccine administration;
  • Trimming of nails;
  • Venipuncture via vein, VAD or central catheter;
  • Foley catheter insertion;
  • Changing of cystostomy tube;
  • Bladder scan for residual urine measurement;
  • Refilling portable pump;
  • Irrigation of implanted VAD; and,
  • IV hydration, initial hour and each additional hour.

The last service, IV hydration, had been previously identified by CMS as a “non-surgical extended duration service” in the CY 2011 OPPS final rule. Those types of services must be provided under direct supervision during the initiation of the service followed by general supervision for the remainder of the service. Initiation of the service is defined as the beginning portion of the service until the supervising physician or non-physician practitioner determines the patient is stable and the remainder of the service can be delivered safely under general supervision. The supervising physician must document the transition from direct to general supervision in the patient’s medical record.

However, CMS would not accept the Panel’s recommendations that the following services to be furnished under general supervision because the services either involve assessment by a physician or there is a significant potential for patient complications or reactions that would require the supervising physician or appropriate non-physician practitioner to be immediately available:

  • IV infusions and injections that are currently designated as non-surgical extended duration services;
  • H1N1 vaccine administration with family counseling.
  • Bladder irrigation;
  • Two casting/strapping procedures; and,
  • Direct admission for observation and observation per hour.

Of note is the fact that observation services were not addressed in the first meeting by the Panel, possibly because those services had been previously categorized into the non-surgical extended duration services; however, that did not alleviate the supervision concerns that critical access hospitals had raised. CMS announced in the 2013 OPPS proposed rule that they are considering giving CAHs and small rural hospitals one more year of non-enforcement for meeting supervision rules and also stated that it would most likely be the last year for that “waiver.” Based on CMS’ position that there is a significant potential for patient complications in regards to observations services, it is highly unlikely that we will see this move to a general supervision category any time soon and smaller hospitals should begin to prepare now.

These recommendations are open for public comment through October 24, 2012 and the final decisions will become effective on January 1, 2013. Hospitals that may have a stake in loosening the supervision requirements for the delivery of these outpatient services may submit their comments via email to: .

CMS policies and conversion from ICD-9 to ICD-10

It was a rather quiet week last week as CMS and the Medicare contractors, including providers, get ready to implement the IPPS final rule on October 1, 2012. A transmittal was published last week that I thought was worthy of a little more discussion.

As we all know the implementation deadline for ICD-10 was officially changed from October 1, 2013 to October 1, 2014 for all providers and suppliers. Although this may seem like a long way off with all of the other items that need more immediate attention, keep in mind that it takes a lot of work behind the scenes to convert ICD-9 data to ICD-10 data – especially when there is not a one-to-one match for many of the code conversions.

CMS is announcing in transmittal R1122OTN that it is beginning the process of converting the ICD-9 diagnosis and procedure codes over to “comparable” ICD-10 codes including any related denial messages, frequency edits, and other claims processing logic. We know what a huge operational task our own data conversion will be; however, CMS must also convert national coverage determinations as well as make other system changes well in advance to prevent unnecessary denials and delays in payment to its providers.

One item of interest in this transmittal is that CMS has stated that they will not only be updating but also creating national coverage determination (NCD) hard-coded shared system edits as they relate to the coding conversion. At first glance, the statement that they would be creating new NCD edits set me back and sounded a little opportunistic and outside of the current policy making procedures. However, CMS included the following “disclaimer” in the transmittal:


If the purpose is to create only edits to match the current policies and/or policies that are created between now and October 1, 2014, that makes sense in an effort to have efficient conversion processes and ultimately kill two birds with one stone. One new edit that will be created in the Common Working File (CWF) is for frequency restrictions when billing the HCPCS codes for bone density to be 1 X per 23 month period. This edit will not be a change in current coverage policy but rather will put into place front end processes to streamline claims payment systems.

Usually, providers will see in the transmittal an effective date that is on or before the implementation date that the Medicare contractors have to comply with. In this rare case, we see the reverse where their implementation date is January 7, 2013 and the providers’ effective date is October 1, 2014.

Going forward, providers should monitor these types of transmittals and share with their ICD-10 implementation committees. Both local and national coverage determinations will be converted and if facilities have created their own internal edits, these will also need to be updated to prevent delays inadvertently caused by the providers themselves.


Outpatient therapy manual medical reviews begin October 1 for hospitals

Each year on October 1, the inpatient prospective payment system (IPPS) changes go into effect along with a few other changes and updates in the outpatient arena. This year, hospitals will fall under the outpatient therapy cap exceptions regulation, something they have not had to deal with in the past. Under the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA), these caps will now be implemented for dates of service October 1 – December 31, 2012 for outpatient physical therapy, occupational therapy, and speech-language pathology services provided in a hospital outpatient department, as well as Part B SNF, comprehensive outpatient rehabilitation facilities (CORFs), rehabilitation agencies (ORFs), private practices, and HHAs (TOB 34X). Several transmittals that were released last week explain how this process will work – R2537CP and R1117OTN. There was also a CMS Special Open Door Forum call held last week called Manual Medical Review of Therapy Claims and the slides can be downloaded at: Unfortunately, in my opinion, the slides and the call did little to explain how the process will work for hospitals.

In 2012, the cap on incurred expenses is $1,880 for physical therapy and speech-language pathology services combined. For occupational therapy services, the separate cap is $1,880 as well. Deductible and coinsurance amounts applied to therapy services count toward the amount accrued before a cap is reached. Although claims processing requirements associated with the caps are only applicable to hospitals on/after October 1, 2012, claims paid for hospital outpatient therapy services since January 1, 2012, are included in calculating the cap.

The MCTRJCA also required a manual review process for those exceptions where the beneficiary therapy services for the year reach a threshold of $3,700. The separate thresholds triggering manual medical reviews build upon the separate therapy caps. This manual review will be implemented for revenue codes 042X, 043X and 044X when billed on Type of Bill 013X or 012X.

So how will the manual medical review affect hospital outpatient therapy services? According to the regulation, all requests for outpatient therapy services above $3,700 must be approved or disapproved in advance of payment for services through a manual review process by the Medicare contractor. The provider will need to send a request for approval, including the supporting documentation, to the MAC in advance of providing service. Currently, there are no automatic exceptions through the use of modifiers or condition codes that providers can report to prevent the manual review process.

Once the request is made by the provider, the Medicare contractor will make a decision and inform the hospital and beneficiary within 10 business days of receipt of the documentation. Failure to make a decision within 10 business days will lead to an automatic approval of the request. Providers need to be aware that they can only request preapproval for up to 20 additional therapy treatment days per discipline each time the beneficiary is expected to require more therapy treatment days than previously approved. This could be quite burdensome for providers to track and request approval in advance of the therapy over at least the next three months while this provision is in effect. Keep in mind that a provider can chose to provide the services without preapproval and submit the claim. However, the contractor will deny the claim and the provider can then enter into the lengthy and costly appeals process.

Contractors will use the current coverage and payment policies included in the Medicare Benefit Policy Manual, Chapter 15, § 220 as well as their own local coverage determinations when making decisions if a service will be preapproved. Any department involved in providing and billing hospital outpatient therapy services should become very familiar with these policies to prevent the financial impacts of the denial and appeal process. Providers should be watching for more information coming directly from their MACs on how the review procedures will be implemented in their region.

Note: Unless Congressional action is taken, all of these provisions expire for dates of service after December 31, 2012. However, the regulations may be extended from year to year or for a portion of a year like what we are seeing in 2012. Medicare Claims Processing Manual Transmittal 2537 further explains that critical access hospitals (CAH) are not subject to any therapy cap policies and that “Indicator B” in the Common Working File is being created to prepare for possible future legislation to include these claims.

Financial impacts of the Hospital Readmissions Reduction Program

Last week, Kimberly posted an overview of the FY 2013 IPPS final rule and the potential impact to a hospital’s operating payments if they do not meet the separate standards for each of the quality based initiatives – up to a 4% reduction. This week I wanted to focus on one of the new programs – the Hospital Readmissions Reduction Program (HRRP) – in a little more detail. In reviewing the final rule, there were numerous comments from the provider community regarding various aspects of how this new program would be implemented but CMS did not seem to budge in its adaptation of the regulation as it was initially proposed.

CMS did finalize the definition of “readmission” as a readmission occurring when a patient is discharged from an applicable hospital (initial index hospitalization) and then admitted to the same or another acute care hospital within 30 days from the date of discharge from the initial hospital. Only one readmission during the 30 days following the discharge from the initial hospitalization will count as a readmission for purposes of calculating the ratios. None of the subsequent readmissions for that patient within 30 days after discharge would be counted as a new “index” admission. Although providers requested a shorter time period for determining a readmission (i.e. 7 or 14 days), CMS stated that the 30-day time period is consistent with the time period specified for the other related quality measures.

The HRRP requires a reduction to a hospital’s base operating DRG payments to account for excess readmissions of selected applicable conditions – acute myocardial infarction (AMI), heart failure (HF) and pneumonia (PNE). As explained in the final rule, the payment adjustment for each discharge is determined by subtracting the product of the base operating DRG payment amount for the discharge and the hospital’s readmission payment adjustment factor for the fiscal year from the base operating DRG payment amount for the discharge. This payment amount may then be further adjusted if the hospital qualifies for an IME or DSH adjustment, low-volume or outlier payment, or new technology adjustment. Sole-community hospitals and Medicare-dependent hospitals will have a specific formula applied based on consideration of the Federal payment rate and their hospital-specific payment rate. Of note is that this provision is not budget neutral and CMS has estimated that the HRRP will result in a decrease of approximately $280 million in payments to hospitals.

The final rule provided the following formula:

Formulas to Calculate the Readmission Adjustment Factor


Aggregate payments for excess readmissions = [sum of base operating DRG payments for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base operating DRG payments for HF x (Excess Readmission Ratio for HF-1)] +[sum of base operating DRG payments for PN x (Excess Readmission Ratio for PN-1)].


Aggregate payments for all discharges = sum of base operating DRG payments for all


Ratio = 1-(Aggregate payments for excess readmissions/Aggregate payments for all discharges).


Readmissions Adjustment Factor for FY 2013 is the higher of the ratio or 0.99 (1%).


The ratio would be rounded to the fourth decimal place, consistent with the calculation of other IPPS payment adjustments such as the wage index and DSH. In other words, a hospital included in this program can have an adjustment factor that is between 1.0 and

0.9900 for FY 2013 with increasing payment reductions set at 0.98 for FY 2014 and 0.97 for FY 2015 and subsequent fiscal years.

Because this calculation is performed separately for the three conditions, a hospital’s excess readmission ratio must be less than or equal to 1 on each measure to avoid aggregate payments for excess readmissions. CMS is required to apply the readmissions payment adjustment factor to all discharges, not just discharges for initial admissions with a readmission or admissions for the applicable conditions. CMS also adopted the minimum 25-case threshold to qualify for the reduction.

One of the many concerns that providers brought forward was the data period that was used to determine what a hospital’s adjustment factor would be with discharges beginning on October 1, 2012. CMS used claims data from July 1, 2008, to June 30, 2011, which providers believed that hospitals should not be assessed on readmissions that occurred during 2008 before the policy addressing this provision was passed in the Affordable Care Act. Although providers wanted CMS to use a shorter timeframe for measuring performance for readmissions such as a one-year or two-year period, CMS felt that a three-year period of index admissions improved the precision of each hospital’s readmission estimate.

Several providers were concerned that higher readmission rates occur in communities with more physicians and hospital beds and in areas with high poverty and large minority or older populations, not to mention hospitals that treat sicker patients with more complex procedures, such as organ transplants. These factors make it unclear whether readmissions always reflect poor quality. CMS did not feel that socioeconomic factors or extreme clinical circumstances should impact a hospital’s readmission rate. CMS specifically states that there is ample evidence that hospitals can reduce their readmission rates by ensuring patients are clinically ready at discharge, reducing risk of infection, reconciling medications, improving communication with community providers participating in transitions of care, educating patients adequately upon discharge, and assuring patients understand follow-up care upon discharge. Furthermore, the results of public reporting of the measures indicate that hospitals can do well on both mortality and readmission rates.

Hospitals should be aware that they could receive an HRRP payment reduction beginning on October 1, 2013 and also be cognizant of its potential financial impact across the board. In June, hospitals should have received—through their QualityNet account—reports which contained discharge-level information and their excess readmission ratios for the three applicable conditions. Hospitals are given 30 days to review and submit corrections for their excess readmission ratios. Looking ahead, CMS has listed the ICD-9-CM codes that were used to identify each applicable condition to calculate the aggregate payments for excess readmissions. Hospitals should begin to monitor these cases as well as discharge status codes that may be excluded from the calculation. Of note, the National Uniform Billing Committee intends to propose new discharge status code to identify planned readmissions which are excluded from the formula.

Impact of proposed geometric mean cost data for APC relative weight calculations

Last week we announced that the CY 2013 OPPS Proposed Rule had been published by CMS in a display copy and highlighted some of the key proposals. This week I wanted to go into more detail on the proposed change, from calculating APC relative weights using median cost data to using geometric mean cost data.

CMS has given several reasons why this shift has been proposed, including bringing OPPS more in line with the Inpatient Prospective Payment System (IPPS), which uses mean costs to determine the relative payment weights associated with each of the payment classification groups. CMS stated that the proposal to base the APC relative payment weights on the geometric mean costs rather than the median costs of services within an APC “would not significantly impact most providers”. Payments to low volume urban hospitals and to hospitals for which disproportionate share hospital (DSH) data are not available would increase by an estimated 2.1% and 4.0%, respectively. In contrast, payments to CMHCs would decrease by an estimated 6.9% due primarily to lower payments for APC 0173.

Using the CMS 2013 OPPS NPRM Geometric Mean-Median Based Payment Compare File, here is a comparison of what CMS would pay in 2012 vs. 2013 for the same service.

Patient presents to the Emergency Department for lower leg pain after a fall. The physician ordered an infusion, an IV push, and x-ray of the lower leg. The E/M level was assigned to a level four and the physician performed a closed treatment of a tibial shaft fracture. Keep in mind that specific drugs that may be separately payable are not included in the example below, as well as any packaged items or supplies.


July Add B Payment



Costs Payment


Geometric Mean Costs Payment






















This simple scenario demonstrates that payments in 2013 may increase overall – more so using the Geometric Mean data – which is good news for providers. Unfortunately, this will not be true across the board. The following is an example of a more complex fracture, most likely requiring the use of the operating room for the closed treatment of a tibia fracture with manipulation and with or without skeletal traction.


July Add B Payment



Costs Payment


Geometric Mean Costs Payment





CMS has used the median cost data for payment calculations since we began APCs in 2000. This change could potentially have a far reaching and as yet unknown impact into future reimbursements. At a minimum, hospitals should review the impact of this proposed payment methodology change for their high volume and/or high cost outpatient services and provide comments to CMS.

Correction: In last week’s note I stated that CMS is proposing to maintain the current payment rate that covers the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass-through status at average sales price (ASP) plus 6.0%.  Upon further review, I realized this is actually an increase of 2% over the current ASP plus 4%. I apologize for that misstatement.

CMS announces CY 2013 OPPS proposed rule

On Friday July 6, CMS was very busy releasing multiple proposed rules, one of which is the highly anticipated Outpatient Prospective Payment System (OPPS) proposed rule for calendar year 2013.

Each year in July, hospitals receive the news on what changes may be imposed that will update payment policies and payment rates for services furnished to Medicare beneficiaries in hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs) beginning Jan. 1, 2013. This year’s proposed rule has something for just about everyone.

I want to take a few minutes to point out some of the highlights and next week I will dissect specific areas of the proposed rule in more detail.

  • Payment rate increase – CMS is proposing to increase OPPS payment rates by 2.1% which includes 3.0 % market basket increase minus 0.9% statutory reductions. There will be a continuation of the current policy to reduce payments by 2.0 percentage points for hospitals failing to meet the hospital outpatient quality reporting (OQR) requirements. With these updates, CMS is projecting that the total payments under OPPS will be approximately $48.1 billion.
  • Change in payment methodology – CMS is proposing to use the geometric mean costs of services within an APC to determine the relative payment weights of services rather than the current median costs. According to CMS, geometric mean costs better reflect average costs of services than the median and would be consistent with what is used in the Inpatient Prospective Payment System (IPPS).  CMS’ analysis indicates that this change would have a limited payment impact on most providers with a small number experiencing payment gains or losses based on their service-mix.
  • Payment for drugs – CMS is proposing to maintain the current payment rate that covers the acquisition and pharmacy overhead costs of separately payable drugs and biologicals without pass-through status at average sales price (ASP) plus 6.0%.
  • Payment adjustments for non-HEU sources – CMS is proposing to make an additional payment to help cover the cost of radioisotopes produced from non-HEU (highly enriched uranium) sources. This is in an effort to reduce the reliance on reactors outside of the U.S. that produce HEU and promote the conversion of all medical isotope production to non-HEU sources.
  • Outpatient supervision – CMS is attempting to clarify language for PT/OT/ST services in hospitals and CAHs and is also proposing to extend the non-enforcement of supervision rules for CAHs and small rural hospitals for “one final year through CY 2013”.
  • Part A to Part B Rebilling Demonstration – The proposed rule provides an update on the demonstration—which is in effect through 2014—that allows hospitals to bill Medicare for all Part B services and be paid 90% of what would otherwise be allowable. CMS is soliciting comments on changes that could potentially provide more clarity regarding patient status for purposes of Medicare payment. CMS has stated they are concerned about the increase in the length of time patients are spending receiving observation services whereas providers continue to be concerned about the number of admissions that are denied because they are deemed not to be medically necessary.
  • Outpatient Quality Reporting (OQR) - CMS did not propose any new measures to those previously finalized for 2014 (23 measures) and 2015 (24 measures). However, CMS is proposing to defer data collection for one quality measure, OP-24 cardiac rehabilitation patient referral from an outpatient setting for one year and is confirming suspension of data collection for another, OP-19: Transition record with specified elements received by discharged ED patients. CMS is also proposing program procedures affecting measure retirement, measure suspension, measure retention, and administrative forms. The complete list of proposed measures can also be found in the Fact Sheet Appendix.
  • Inpatient Rehabilitation Facility – there are several proposals that would affect the IRF Quality Reporting Program such as implementing updates on a measure that will affect annual prospective payment amounts in FY 2014 and adopting policies regarding when notice-and-comment rulemaking will be used to update existing IRF QRP measures.
  • Quality Improvement Organizations – CMS is proposing several changes to the QIO program which will open the door for beneficiaries to use the QIO for complaint and dispute resolution including an improved electronic review process.

Another proposed rule that was released on Friday that providers may be interested in reviewing would update payment policies and rates for services furnished under the Medicare Physician Fee Schedule (MPFS). The biggest impact would be the proposed increase in payments to family physicians by approximately 7% and other practitioners providing primary care services between 3% and 5%. This payment increase is being proposed in part as a means to help primary care physicians improve quality of care and lower health care costs in the long run. Since 2002, providers have prepared for the significant reduction in MPFS payment rates under the sustainable growth rate (SGR) methodology and 2013 will be no different. Although, CMS is projecting a reduction of 27% and is required by law to include this reduction in these calculations, Congress will most likely act to avert the cuts just as they have done every year since 2003.

All providers, regardless of how they are reimbursed are encouraged to review and comment on the rule – the good, the bad and the ugly! You can view all 687 pages of the proposed rule here keeping in mind that comments can be submitted through September 4. The proposed rule will appear in the Federal Register on July 30 and the final rule with CMS’ responses to comments to be published by November 1. Hospitals and other providers will also want to review the numerous other proposed rules included below as some of the changes could have a significant impact on their operations.