healthcare financial management association · (fy) 2016 request for application (rfa) on september...

The Newsletter of the Massachusetts-Rhode Island Chapter

Volume XLIII • Number 2

• Outpatient Prospective Payment System

• Payment Changes

for Physicians

• Medicare Inpatient Prospective Payment System

• MassHealthAcuteHospital

Payment System Update

Healthcare Financial Management Association

x

On the Cover

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The HFMA National theme for 2015-2016 is “Go Beyond!”

In choosing a timely theme for this year, HFMA Chair Melinda Hancock, FHFMA, CPA has recognized that our collective responsibility and mutual challenge as healthcare finance professionals is to “Go Beyond!” the status quo. We work in a vital industry that is un-dergoing transformative change. Today, we are all called upon to look past the old ways of doing business in order to succeed in the next era in healthcare.

This message was particularly evident during the annual event hosted by our own Accounting & Regulatory Technical Committee. The education program’s focus on “Disruptive Trends in Healthcare” was a valuable overview of emerging trends that are shaking up how healthcare organizations deliver care to patients.

Change can be difficult, especially when each day seems to bring another new puzzle to solve. Fee-for-service payment methodologies that reward high volume are rapidly shifting to new value-based payment models that emphasize high-quality outcomes for patients. As a result, old boundaries have started to fade between the traditional roles that separate physicians, payers, and providers. Across the industry, we have begun col-laborating in unprecedented and innovative ways to accomplish meaningful improvements in the health of our communities.

The journey will be long, and we have only just begun. As financial leaders, we must bridge the gap between the realities of today and our vision for tomorrow. We find ourselves with one foot in the past while we look toward the future. We are skilled at managing according to metrics, but yesterday’s reliable measures of suc-cess are gradually losing relevance, and in some cases, the new target is not yet in sight.

HFMA must also “Go Beyond!” too. Our mission is to make sure that you receive exceptional quality and value for your HFMA membership. Over the years, we have earned a well-deserved reputation as an indispensable resource for education and networking. The Massachusetts / Rhode Island Chapter has a long history of excel-lence thanks to the hard work and dedication of our volunteers. We strive to continue building upon these accomplishments, which provide a rock-solid foundation for advancement.

Our Chapter has embraced the challenge to “Go Beyond!” in several ways. This year, we are looking closely at our education programs to consider more convenient venues, different times / dates, and alternative formats to the standard 50-minute presentation or panel discussion. In addition, we are creating more networking opportunities not only for experienced professionals but also for students and early careerists to tell us how HFMA can help support their professional development. Frankly, we also need to strengthen our use of social media like LinkedIn and Twitter to connect more effectively with members and potential new members.

Of course, our greatest asset is our members. We are counting on your ideas to help shape the Chapter’s future. Your feedback is absolutely critical to identify the membership benefits and services that are most im-portant to you. As always, please do not hesitate to contact me directly at [email protected]. We are grateful for all suggestions and questions. Thank you in advance for taking the time to share your thoughts. We look forward to hearing from you!

Timothy C. Hogan, JD, FHFMA, CHCPresident

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HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION

Contents

Volume XLIII Number 2

President’s MessageI by: Timothy C. Hogan

In choosing a timely theme for this year, HFMA Chair Melinda Hancock, FHFMA, CPA has recognized that our collective responsibility and mutual challenge as healthcare finance

professionals is to “Go Beyond!” the status quo.

Medicare Inpatient Prospective Payment SystemI by: John Muhlen, CPAFacilities contract with Medicare to furnish acute hospital inpatient care and agree to accept predetermined acute Inpatient Prospective Payment System (IPPS) rates as payment in full.

MassHealthAcuteHospitalPaymentSystem UpdateI by: Allison LeBlancThe Commonwealth of Massachusetts Executive Office of Health and Human Services (EOHHS) issued the rate year (FY) 2016 Request for Application (RFA) on September 5, 2015 and will be effective October 1, 2015. The FY 2015 rates will be applicable until September 30, 2015.

Outpatient Prospective Payment SystemI by: Erik Holmberg, CPAPer CMS, CY 2016 OPPS payments are esti-mated to decrease by $43 million. Over 4,000 hospitals are paid under OPPS, including most hospital outpatient department services.

CFO InterviewI by: Linda A. Burns, M.H.A., M.B.A.Interview with Dennis Chalke, Senior Vice President, CFO and Treasurer Baystate Health

Payment Changes for PhysiciansI by: Samantha White, CPAMedicare pays for physician services - as well as the services of some eligible non-physician healthcare professionals - under a fee sched-ule, which specifies payments for more than 7,000 health care services and procedures ranging from routine office visits to complex surgical procedures..

Accounting&RegulatoryTechnicalMeetingPictures from the October 16, 2015 meeting at the Doubletree Hotel, Westborough, MA

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OFFICERS & DIRECTORS

PresidentTimothy Hogan, FHFMA

President ElectBeth O'Toole

SecretaryRosemary Rotty, MHA, FHFMA

TreasurerGarrett Gillespie

Immediate Past PresidentDeborah Wilson, CPA

DirectorsMarvin Berkowitz, FHFMA

Lori BurgielLinda Burns, MBA, MHA

Umesh KurpadErik Lynch

Kathleen Maher Laurie Nelle, FHFMA, MBA

Robert Nelson, FHFMA, CPARichard Russo

Ames RybaDeborah Schoenthaler

Rosemary SheehanDavid TolleyGerard Vitti

William Wyman, FHFMA

Ex OfficioJeffrey Dykens, CPA

Gerald O’Neill, FHFMAJohn Reardon, FHFMAJeanne Schuster, CPA

Michael Souza, FHFMARichard Wichmann

HFMA Advisor is a publication of the Massachusetts - Rhode Island Chapter of the Healthcare Financial Management Association devoted to keeping membership current on national & local healthcare financial topics. Opinions and views expressed in the articles and features of the publication are those of the author(s) and do not necessarily reflect the position of the Massachusetts-Rhode Island Chapter or The National Chapter of Healthcare Financial Management Association. Articles submitted are subject to editorial changes made by the committee. Article submis-sions, comments and requests for further information and advertising rates may be forwarded to: Linda A. Burns, M.H.A., M.B.A. or Kate Stewart, HFMA Massachusetts-Rhode Island Chapter, 465 Waverley Oaks Road, Suite 421, Waltham, MA 02452, [email protected]

N e w s l e t t e r C o m m i t t e e

Linda A. Burns, MBA, MHA, Consultant, Ambulatory Care & Physician Services, Linda A. Burns, MHA, MBA Consulting & Physician PracticeKate Stewart, Attorney, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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(continued on page 6)

Medicare Inpatient Prospective Payment System

By: John Muhlen, CPA

Discharges are assigned to diagnosis-related groups (DRG), a classification system that groups similar clinical conditions (diagnoses) and the procedures furnished by the hospital during the stay. The beneficiary’s primary di-agnosis and up to eight secondary diagnoses that indicate comorbidities and complications will determine the DRG assignment. Similarly, DRG assignment can be affected by up to six procedures furnished during the stay.

The Centers for Medicare & Medicaid Services (CMS) published its final rule for the FY 2016 hospital inpatient prospective payment system in the August 17, 2015 Federal Register. Changes are effective October 1, 2015, unless otherwise noted.

Facilities contract with Medicare to furnish acute hos-pital inpatient care and agree to accept predetermined acute Inpatient Prospective Payment System (IPPS) rates as payment in full. The inpatient hospital benefit covers Medicare beneficiaries for 90 days of care per episode of illness with an additional 60 day lifetime reserve. Illness episodes begin when beneficiaries are admitted and end after they have been out of the hospital or Skilled Nursing Facility (SNF) for 60 consecutive days.

Hospitals receive payment on a per discharge or per case basis for Medicare beneficiaries with inpatient stays. Re-lated therapeutic outpatient department services provided within three days prior to admission are included in the payment for the inpatient stay and may not be separately billed.

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input price index.

The FY 2016 final rule sets forth a full market basket update of 2.4% for hospitals in all areas, provided that hospitals submit sufficient quality data. Specifically, hospitals must report 59 quality measures to receive the full market basket update. The value of the market basket update is tied into participation in the inpatient quality reporting (IQR) and the electric health record (EHR) incentive program. In FY 16, the value of the market basket will continue to be only impacted by the IQR program. In FY 15, the IQR market basket penalty shifted from its traditional -2.0% percentage points to 25% of the full market basket. In FY 16, the EHR pen-alty will be increased to 50% of the full market basket. The EHR penalty will increase to 75% in FY 17. The IQR penalty will remain consistent at 25%. The goal is to have these penalties make up 100% of the market basket if implemented by FY 2017.

By law, CMS must adjust the proportion of the standard-ized amount that is attributable to wages and wage-re-lated costs (known as the labor-related share) by a factor

MS-DRG Classifications and Relative WeightsCMS maintains Medical Severity (MS)-DRGs in order to better account for the severity of illness and resource consumption for Medicare beneficiaries. The MS-DRGs includes three severity levels based on secondary diagno-sis codes; (i) Major Complication/ Comorbidity (MCC), (ii) Complication/ Comorbidity (CC), and (iii) Non-Complication/ Comorbidity (Non-CC).

CMS did not propose and is not adopting any major changes to the MS-DRG classifications and relative weights. For FY 2016, CMS will increase the total MS-DRG groupings from 751 to 758. The majority of the DRG’s weights will change by +/- 5%. The other major change for the MS-DRG’s is the adoption of the Interna-tional Classification of Disease, 10th edition (ICD-10). This went into effect on October 1st, 2015 as well.

Standardized Amounts CMS rebases the market basket every four years by updating the input price and cost indices used in the calculation. CMS may also revise the market basket by changing the data sources for price proxies used in the

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( Medicare Inpatient Prospective Payment System - continued from page 5)

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that reflects the relative difference in labor costs among geographic areas (known as the wage index). The standard operating payment rate per discharge is comprised of an average standardized amount that is divided into a labor-related component and a non-labor related component. The labor-related share represents the national average proportion of operating costs that are related to, influ-enced by, or vary with the local labor market. The Final rule for FY 2015 wage index labor-related share increased from the FY 2014 labor-related share of 69.6% to 68.8% for hospitals with a wage index over 1.0. This remained consistent in FY 16. The FY 2016 standard amounts are as shown in chart at top right:

The FY 2016 federal operating rate is $5,466.09, a .5% increase from the FY 2015 rate of $5,437.85. The FY 2016 Federal capital rate is $438.65, a .8% increase from the FY 2015 rate of $434.97.

Coding AdjustmentsIn 2014 CMS adopted a provision to apply a retrospec-tive coding adjustment of -0.8% to the federal operating rate. The reduction was approved by Congress as part of

the American Tax Payer Relief Act (ATRA) to offset a portion of the cost that would have been assumed by the Medicare physician payment fix. The law requires CMS to reduce inpatient payments by $11 billion (-9.3%) over a four year period (through FY 2017). This legislation allows CMS to retroactively recoup for increases in inpa-tient payments that the agency asserts occurred during the FY 2008 through FY 2012. Additional ATRA mandated coding adjustments will be put into place in future years.


Standard Rate for Hospitals with a Wage Index Greater Than 1.0(69.6% Labor Share and 30.4% Non-Labor Share) Labor-Related Non-Labor-RelatedFull Update $ 3,804.40 $ 1,661.69Reduced Update $ 3,737.07 $ 1,632.38

Standard Rate for Hospitals with a Wage Index Less than or Equal to 1.0(62.0% Labor Share and 38.0% Non-Labor Share) Labor-Related Non-Labor-RelatedFull Update $ 3,388.98 $ 2,077.11Reduced Update $ 3,329.00 $ 2,040.35

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In FY 16, the coding adjustment remained the same as in the previous year (-0.8%).

These retrospective coding adjustments are one-time adjustments that will affect hospitals and will not perma-nently be built into the IPPS rate; CMS will adjust the federal operating rate upward with a positive adjustment once the $11 billion is fully recouped. However, this posi-tive adjustment should not be expected until FY 2018, at the earliest.

Hospital Wage Index and Geographic Adjustment FactorWhen determining prospective payments to hospitals, CMS adjusts the labor-related standardized national reim-bursement amounts to account for geographic differences in hospital wage costs. This adjustment is performed by means of a local area wage index (AWI), which acts as a relative measure comparing area average hourly wages to a national average. The FY 2016 wage index was based on data obtained in the FY 2012 cost report and occupational mix survey data from calendar year 2012 in order to calcu-late the wage index for each hospital.

The local AWI, Capital GAF and standardized rates are as shown on the graph below:


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Barnstable 1. 3344 $6,738.28 1.1940 Berkshire 1. 2956 $6,590.67 1.1940 Bristol 1. 3004 $6,608.93 1.1940 Essex 1. 2956 $6,590.67 1.1940 Franklin 1. 2956 $6,590.67 1.1940 Hampden 1. 2956 $6,590.67 1.1940 Hampshire 1. 2956 $6,590.67 1.1940 Middlesex 1. 2956 $6,590.67 1.1940 Nantucket 1.2956 $6,590.67 1.1940 Norfolk 1.2956 $6,590.67 1.1940 Plymouth 1.315 $6,664.48 1.1940 Suffolk 1.315 $6,664.48 1.1940 Worcester 1.2956 $6,590.67 1.1940 Providence, RI 1.2079 $6,257.02 1.1036

County/Wage Area AWI RATE Capital GAF

2016

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In FY 16, CMS moved forward in adopting its proposal to update the CBSA’s. These are the labor-markets that define a hospital’s Medicare wage index. CMS Changed the CBSA delineations to have a direct impact on the Medicare wage index. CMS created new CBSAs, con-verted urban counties to rural, rural counties to urban and existing counties were split to make additional counties. This had a direct effect on Massachusetts as Franklin coun-try was categorized as rural. Thus making it the new rural floor of Massachusetts (previously Nantucket).

Wage Index Reclassifications Hospitals or groups of hospitals (defined by counties) can change to another area for wage index purposes by apply-ing to the Medicare Geographic Classification Review Board. Hospitals seeking reclassification must meet specific proximity and wage level criteria.

Occupational Mix AdjustmentAs part of the methodology for determining prospective payments to hospitals, standardized amounts must be ad-justed for area differences in hospital wage levels to reflect the relative hospital wage level in the geographic area of the hospital, compared to the national average hospital wage level. The occupational mix adjustment controls the

effect of hospitals’ employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses (RNs), licensed practical nurses (LPNs), nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying costs associated with these choices reflect hospital management decisions rather than geographic differ-ences in the costs of labor. The occupational mix factor is intended to neutralize the effect of employee mix, resulting in a decreased wage adjustment for hospitals with higher skill mixes and an increased wage adjustment for those with lower skill mixes. The law provides for the collection of data on occupational mix every three years.

The FY 2016 occupational mix adjusted national average hourly wage (AHW) is $40.2555. The FY 2015 occupa-tional mix adjusted national average hourly wage (AHW) is $39.2971. As required by law, CMS uses a survey tool to collect new occupational mix data for adjustment of the wage index.

Outlier ThresholdsTo promote access to high quality inpatient care for seri-ously ill beneficiaries, Medicare provides additional pay-

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ments for outlier cases (i.e. cases with extraordinarily high costs). These cases are identified by comparing their esti-mated operating and capital costs to a fixed loss threshold.

A hospital-specific cost-to-charge ratio (CCR) is applied to the covered charges for a case to determine whether the costs of the case exceed the fixed-loss outlier threshold. Payments for eligible cases are then made based on a mar-ginal cost factor, which is a percentage of the costs above the threshold. Outlier cases are paid 80% of the difference between the estimated cost of the patient case and the outlier threshold.

In order to maintain outlier payments at 5.1% of total pay-ments under the IPPS, the final rule calls for a change in the outlier threshold from $24,758 in FY 2015 to $22,544 for FY 2016.

Hospital Readmission Reduction ProgramThe FY 16 program will maintain the number of read-missions condition areas at 5. In FY 2016, the program will evaluate readmissions for patients admitted for acute myocardial infarction (AMI), heart failure (HF), chronic obstructive pulmonary disease (COPD), elective total hip arthroplasty (THA) and total knee arthroplasty (TKA). CMS is also redefining the calculation on the previous readmission rates. The amended calculation will slightly increase the national readmission rates.

Hospital Acquired Condition Reduction ProgramIn FY 16, CMS continue the Affordable Care Act (ACA)-mandated Hospital-Acquired Condition (HAC) Reduc-tion Program. This program will evaluate hospitals on four levels: AHRQ Patient Safety Indicators, Central Line-Associated Bloodstream Infection (CLABSI), Catheter-Associated Urinary Tract Infection (CAUTI) and surgical site infection. This rule is budget neutral similar to the readmission reduction program. Hospitals with a Total HAC Score as calculated under the adopted polices that falls within the bottom twenty five percent will be subject to a 1.0% reduction in IPPS payments.

Value Based Program (VBP)The FY 2016 program will evaluate hospital quality data in 4 areas: process of care, patient experience of care, patient

outcomes and efficiency. The new calculation will be more heavily weighted on outcomes and efficiency then the previous year’s data. The program in the prior year was funded through a 1.25 percent reduction in IPPS rates. Data applicable to the FY 16 VBP is unavailable. However the information should become available in October 2018 were they look to do a full overhaul of the VBP program.

Graduate Medical Education (GME)Direct Medical Education payments attempt to recognize the direct costs associated with the operation and adminis-tration of a GME program. Medicare pays teaching hospi-tals for the direct costs of GME based on a hospital-specific base period per resident amount (PRA). PRAs are updated annually for inflation and there is a limit on the number of FTE residents a hospital may include in its resident count for calculating direct GME payments.

Indirect Medical Education (IME) AdjustmentCMS did not propose and is not adopting any major changes to the IME and GME payment policies. In FY 14, CMS provided an additional payment to teaching hospitals in an effort to recognize the higher costs related to the operation of a GME program. The IME adjustment factor is calculated using a hospital’s ratio of residents to beds and a formula multiplier, which is represented as “c” in the equation: c x {((1 + ratio of residents to beds) raised to the 0.405 power)-1}. CMS will not change the IME adjustment factor of 1.35 utilized in FY 2015.

The formula is traditionally described in terms of a certain percentage increase in payment for every 10% increase in the resident-to-bed ratio. Currently, observation bed days are included in the number of available inpatient beds used for purposes of calculating a hospital’s IME adjustment.

Rural Referral CentersRural hospitals that meet certain criteria can be classified as a Rural Referral Center under IPPS. This status allows:

– exemption from the 12% cap on Disproportionate Share Hospital (DSH) payments that is applicable to other rural hospitals; and

– Special treatment under the geographic reclassifica-tion rules including:

• Exemption from the proximity criteria; and

• Exemption from the requirement that a hospital’s AHW must exceed the AHW of the labor market area where the hospital is located.

A hospital may voluntarily cancel its rural status, in which case it will lose its RRC designation and will lose the above-mentioned exemptions. However, it will continue


Outlier Threshold Outlier Annual Change

Amounts Threshold in Threshold

FY 2014 $ 21,748 -.33%FY 2015 $ 24,758 13.8%FY 2016 $ 22,544 -8.9%


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to be exempt from the requirement that its average hourly wage exceed that of its labor market area for the purpose of geographic reclassification.

To obtain RRC status, a rural hospital must maintain a minimum of 275 beds available for use. As an alternative, one can obtain RRC status if it meets certain minimum case-mix index (CMI) and discharge criteria and at least one of three optional criteria, relating to specialty composi-tion of medical staff, source of inpatients or referral volume.

Medicare DSH CalculationMedicare makes an additional payment to hospitals that serve a disproportionate number of low-income patients. To qualify for the Medicare DSH adjustment the hospital must: 1. be located in an urban area, have 100 beds or more,

and more than 30% of its net inpatient care revenue is derived from state and local government payments for care furnished to low-income patients; or

2. calculate its DSH patient percentage (DPP) using the complex statutory formula as follows:

Medicare SSI Days + Medicaid (Non-Medicare Days)Total Medicare Days Total Patient Days

The second method is the most common method used by hospitals to qualify for DSH payments. The first part of the computation includes patient days for patients who were entitled to Medicare Part A and Supplemental Security Income (SSI). This number is divided by the total number of Medicare Part A days. The second part of the computa-tion includes patient days for patients who were eligible for Medicaid, not including any days in the first computation, divided by total patient days. Hospitals whose DPP exceeds 15% are eligible for a DSH payment adjustment. CMS will continue to determine the final DSH-eligibility at cost report settlement.

CMS implemented significant changes to the current Medicare DSH payment policies due to ACA require-ments in FY14. These changes reduced and redistributed DSH funding. The law made it so 25% of estimated DSH funding under the traditional formula be continued to be paid to DSH hospitals. The remaining 75% was reduced to reflect the impact of insurance expansion and CMS redistributed those funds to the separate uncompensated care payment system. This payment was determined based on each individual hospital’s ratio of uncompensated care relative to its total compared to all DSH-eligible hospitals.


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CMS has adopted the following rules in order to define this program:

* Funding dedicated to the new Uncompensated Care Factor: this was the 25% of estimated DSH payments to all hospitals under the previously methodology. The estimate of funds to be paid is based on the most recently reviewed and filed cost report data (FY 2011/12). The estimate includes projections for inflation, utilization, and case mix changes. Hospital-specific factors related to the projections have not been yet made available. This amount will allow $3.353 billion dollars to be dis-tributed from this fund.

* ACA-mandated DSH Funding Reductions: The ACA required DSH funding dedicated to uncom-pensated care payments to be reduced by a factor that reflects the impact of insurance expansion before it will be distributed to a hospital. Based on studies performed by CMS, the rate of uninsured is expected to decrease from 18% to 17%. This is the other 75% portion taken away from the former DSH payment system. This will provide about $10.058 billion worth of funds to be allocated to

uncompensated care.

* Determination of Hospital Specific Uncompensated care Payments: CMS adopted its proposal to use Medicaid days and Medicare SSI days as a proxy for uncompensated care. These days currently make up the numerator of the traditional DSH formula. CMS believes the use of low-income patient days will provide insight into the treatment costs associ-ated with uninsured patients.

CMS did not propose or any major changes for DSH payment policies for FY 16. Based on the data, CMS is projecting that 2,396 hospitals will be DSH eligible in FY 16. DSH dollars available to hospitals under the ACA’s payment formula will see a decline from FY 15. The decline is due to two reasons: the first being the updated traditional DSH dollar projections issued by CMS and new insurance expansion estimates from the Congressional Budget Office (CBO).

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hospital adjustment to account for the higher costs for discharge for low volume hospitals. The FY 2011 final rule modified the provisions for the eligibility criteria. For FY 2011 through FY 2013, a hospital qualified as a low volume hospital if it had more than 15 road miles from another hospital and had less than 1,600 Medicare discharges. In addition, CMS will scale the low volume hospital adjust-ment for those hospitals with discharges between 200 - 1,600 discharges. Accordingly, for qualifying hospitals with fewer than 1,600 Medicare discharges but more than 200 Medicare discharges, the low volume add-on payment is calculated by subtracting from 25%, the proportion of pay-ments associated with the Medicare discharges in excess of 200. Legislative action by Congress extended this criteria through the end of FY 17.

Critical Access Hospitals (CAH)CAHs may elect to bill the Medicare fiscal intermediary for facility services and professional services to its outpa-tients. The physician must assign his or her billing rights to the CAH in order for the hospital to bill Medicare for both the facility and professional services. Under this optional payment methodology, the CAH receives reason-able cost payment for its facility costs and 115% of the professional fee schedule amounts.

In addition, per ACA, current regulations state that a CAH will receive payment for ambulance services at 101% of reasonable costs require as long as the CAH or the entity furnishing the services is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH or the entity.

As part of the American Recovery and Reinvestment Act of 2009 (ARRA), Congress mandated payment adjust-ments to be applied to Medicare eligible hospitals, and critical access hospitals (CAHs) that are not meaningful users of Certified Electronic Health Record (EHR) Tech-nology under the Medicare EHR Incentive Programs.

Critical Access Hospitals (CAHs) that are not meaning-ful users will be subject to a payment adjustment for fiscal year 2015. This payment adjustment is applicable to a CAH’s Medicare reimbursement for inpatient services during the cost reporting period in which they failed to demonstrate meaningful use. If a CAH has not demon-strated meaningful use for an applicable reporting period, then for a cost reporting period that begins in FY 2015, its reimbursement would be reduced from 101 percent of its reasonable costs to 100.66 percent. For a cost reporting period beginning in FY 2016, its reimbursement would be reduced to 100.33 percent of its reasonable costs. For a cost reporting period beginning in FY 2017 and each subsequent FY, its reimbursement would be reduced to 100 percent of reasonable costs.

Inpatient payment for CAH’s requires that physicians certify that the patient may reasonably be expected to be discharged within 96 hours after admission. Prior to FY 14, a physician was required to certify no more than 1 day before the date on which the claim for payment for the inpatient CAH service was submitted. CMS changed the policy based on the expected implementation of the two-midnight rule. The certification policy now requires the certification to be completed, signed and documented in the medical records prior to discharge.

CAH status may also be at risk because of the new CBSA delineations. CMS has provided a two-year grace period for CAHs to retain their status either by reclassification or other mechanism. FY 2016 is the second year of the grace period. ❏

John Muhlen, CPA, is a supervisor in Feeley & Driscoll, P.C.’s Healthcare and Human Services Group.

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MM ISSUE_2r1_.cs5.5b .indd 13 2/11/16 12:22 PM

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Request for Applications: Acute Care HospitalsThe Commonwealth of Massachusetts Executive Office of Health and Human Services (EOHHS) issued the rate year (FY) 2016 Request for Application (RFA) on September 5, 2015 and will be effective October 1, 2015. The FY 2015 rates will be applicable until September 30, 2015.

InpatientThe basic payment methodology for inpatient services for FY2016 remained substantially consistent with RY2015, except as those instances specified below. Similar with prior year, each in-state acute hospital will be paid an ad-judicated payment amount per discharge (“APAD”). The APAD will reflect the case weight assigned to that specific discharge and will cover the entire length of the acute stay from admission to discharge. The discharge specific APAD

is determined in a similar method to RY2015 by calculat-ing the following steps. First, the statewide operating stan-dard per discharge (adjusted for the hospital’s wage area) is added to the statewide capital standard per discharge. Next, that sum is multiplied by the MassHealth DRG Weight on a properly submitted inpatient claim. Finally, a hospital-specific per discharge “pass-through” payment for malpractice and organ acquisitions is added to that amount and if applicable, adjusted by the hospital’s per discharge percentage payment reduction for potentially preventable readmissions (PPRs).

The statewide average payment amount per discharge (SPAD) is based on the actual statewide costs of providing inpatient services using the base year 2012 DHCFP-403 cost report. The amount is adjusted for inflation, outliers, an efficiency standard, and each hospital’s wage area index. The chart on page 15 provides the resulting SPAD for the past five years. (continued on page 15)

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MassHealth Acute Hospital Payment System Update

By: Allison LeBlanc

Issue 2 15

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Acute care hospitals are paid for Administrative Days using an all-inclusive per diem rate (“AD Rate”). (An Administrative Day is a day of inpatient hospitalization on which a patient’s care needs can be met in a less-intensive setting and on which the patient is clinically ready for discharge, but an appropriate setting is not yet available.). The AD rate is comprised of two components: a routine base per diem payment and an ancillary add-on. The base per diem payment in FY 2016 is $200.19, which represents the median nursing home rate, as determined by CHIA. The ancillary add-on is based on the ratio of ancillary charges to routine charges, calculated separately for Medicare Part B/Medicaid eligible patients and Medicaid-only eligible patients on AD status, using MassHealth

paid claims data (Last update - October 1, 1997 to September 30, 1998). The resulting AD rates, updated for inflation, for RY 2016 was $260.09, for Medicaid/Medicare Part B-eligible patients and $281.25, for Medicaid-only eligible patients.

An acute care hospital currently qualifies for an outlier per diem payment equal to 75% (FY 2015), of the hospi-

tal’s transfer per diem in addition to the hospital-specific standard payment amount per discharge or transfer per diem payment.

For critical access hospitals, the final payment will be calculated to provide an amount equal to 101% of the critical access hospital’s allowable costs as determined by EOHHS utilizing the Medicare cost-based reimbursement methodology for both inpatient and outpatient services. In RY2016, interim payments rates were derived utilizing cost data from the hospital’s FFY14 CMS 2552-10 cost report, rather than the 403 cost report.


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Statewide Average Payment Amount Per DischargeRate Year Statewide Average Payment Change % ChangeFY 2016 $9,391.96 $ 82.51 0.89%FY 2015 $9,309.45 $369.13 4.13%FY 2014 $8,940.32 $695.91 8.44%FY 2013 $8,244.41 $135.61 1.67%FY 2012 $8,108.80 $212.79 2.69%

( MassHealth Acute Hospital Payment System Update - continued from page 14)


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Readmission PenaltyIn FY12, MassHealth implemented a readmission penalty for Hospitals and in 2013 this rule was further expanded. The rule states that any Hospital with a greater number of potentially preventable readmission (PPR) chains than expected PPR chains will receive a 2.4%, 3.4% or 4.4% adjustment to it’s SPAD (including pediatric SPAD). PPR chains are defined as a readmission or sequence of readmissions. I.E. John Doe is admitted on October 1st, 2012, readmitted on October 22nd, and readmitted again on November 10th, this sequence is considered as one readmission. The PPR methodology remained unchanged for RY2016, however, the data source will now be MMIS claims data, rather than hospital discharge data reported to CHIA as it was in RY2015.

The formula to calculate each hospital specific Actual-to-Expected (A:E) PPR ratio is:

Actual PPR RateExpected PPR Rate

Actual PPR rate is derived by dividing the number of readmission chains (explained above) by the total number of at-risk admissions.

Expected PPR rate is the statewide average PPR rates for each APR-DRG applied to each Hospital’s case-mix. The expected PPR rate therefore reflects how a given Hospital could have been expected to perform on each APR-DRG recorded in its HDD filing for the time period specified above.

A Hospital with Excess PPR Volume that does not qualify for an Improvement Adjustment (explained below) will be subject to a “PPR Percentage Payment Reduction per Discharge” calculated as follows:

Actual to Expected PPR Ratio RY16 Hospital’s Non-Improvement-Adjusted PPRActual to Expected PPR Ratio RY15 X Percentage Payment Reduction per Discharge

If a Hospital has Excess PPR Volume for RY16 but has achieved an improvement as indicated by decrease to its Actual-to-Expected PPR Ratio in RY16 compared to RY15. EOHHS will adjust downward the PPR Percentage Payment Reduction per Discharge that the Hospital would otherwise receive. This Improvement Adjustment is cal-culated by applying the percent decrease in the Hospital’s had a RY15 Actual-to-Expected PPR Ratio of 1.30 and a RY16 Actual-to-Expected PPR Ration of 1.17, which is a decrease of 10%, and a RY16 Non-Improvement-Adjusted



Issue 2 17

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PPR Percentage Payment Reduction per Discharge of 3%, its RY16 PPR Percentage Payment Reduction per Dis-charge would be adjusted as follows:

Hospital’s PPR Percentage Payment Reduction per Discharge = 1.17/1.30 x 3% = 90% x 3% = 2.7% per Discharge

OutpatientOutpatient services are paid through a payment amount per episode methodology (“PAPE”). The PAPE methodol-ogy establishes a hospital-specific episodic rate for most MassHealth acute outpatient hospital services. Except for critical access hospitals, each hospital-specific RY16 PAPE is a blended rate that equally weights the hospital’s RY15 PAPE in effect on 9/30/15 and the preliminary RY16 PAPE determined as below. The proposed RFA would eliminate the 90% floor from previous years where, no PAPE shall be less than 90% of the hospital’s prior year PAPE .

The RFA identifies two types of providers reimbursed through the PAPE system: Hospital Outpatient Depart-ments and Satellite Clinics (Including Hospital Licensed Health Centers). Each Hospital’s PAPE is based on the outpatient statewide standard and the Hospital’s case mix index. The outpatient statewide standard is calculated based on MassHealth payments for outpatient services in the PAPE base year. As customary, the PAPE base year is rebased to the most current complete year. This statewide standard rate is then adjusted for inflation using the same operating inflation updates as inpatient services. The infla-tion rate in 2016 is 1.573%.

The PAPE methodology pays hospitals for all covered out-patient services — excluding laboratory services, audiology dispensing, vision care dispensing, and dental services, (see below) — provided in a calendar day. The standard PAPE rate is adjusted for each hospital based on the Area Wage Index (AWI) and patient case mix.

The calculation of each hospital’s PAPE is computed by taking the product of the Outpatient Statewide Standard and the specific hospital’s case mix index plus a hospital –specific Outlier Add-on that is new for RY2016. The (continued on page 18)

hospital-specific case mix index is trended from case mix data from paid claims data for a period of time to deter-mine the Average APG Weight per Episode. In every case, the hospital-specific average APG weight per episode is calculated for the relevant period by dividing the relevant payment by the number of episodes for the relevant period, and then by the conversion factor. For the FY2016 PAPE, the state-wide standard is $164.47. The hospital-specific fixed outlier add-on for the preliminary RY16 PAPE is a separate amount added to the PAPE base payment. The add-on is calculated by dividing the hospital’s episode-specific outlier values by the hospital’s number of episodes, utilizing PAPE base year data. Outlier values were calcu-lated using an outlier threshold of $4,500 and a marginal cost factor of 80%.

Historically, each hospital’s case mix factor was based on several years’ of data; however, similar to 2012 this multiyear trending has been eliminated and each hospital’s actual case mix is applied to offset changes in rates. Due to this methodology, the FY16 PAPE rate is an equal blend of the Hospital’s FY15 PAPE and the preliminary FY16 PAPE calculation.

For critical access hospitals, similar to inpatient, final pay-ment for RY15 will be calculated to provide an amount equal to 101% of the Hospital’s allowable costs as deter-mined by EOHHS utilizing the Medicare cost-based reim-bursement methodology for both inpatient and outpatient services. In RY2016, interim payment rates were derived utilizing cost data from the hospital’s FFY14 CMS 2552-10 cost report, rather than the 403 cost report.

The chart at the bottom of the page summarizes statewide rates for the past five years:

Laboratory ServicesHospitals will be paid for laboratory services according to the Outpatient Hospital regulations at 130 CMR 410.455 through 410.459, subject to all restrictions and limitations described in regulations at 130 CMR 401.000.

The maximum allowable payment for a laboratory service

Statewide Outpatient Payment Amount Per Episode (PAPE)Rate Year PAPE rate $ Change % Change2016 $164.47 $4.59 2.87%2015 $159.88 ($3.05) (1.87%)2014 $162.93 $0.24 0.01%2013 $162.69 ($5.71) (3.39%)2012 $168.40 $6.23 3.84%


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shall be at the lowest of the following:

• The amount listed in the most current applicable CHIA Clinical Laboratory Services fee schedule at 101 CMR 320.00 and the Surgery & Anesthesia fee schedule at 114.3 CMR 16.00;

• The Hospital’s Usual and Customary Charge; or

• The amount that would be recognized under 42 U.S.C. 13951(h) for tests performed for a person with Medicare Part B benefits. The amounts recognized under 42 U.S.C. 13951(h) include services furnished to an inpatient of a skilled nursing facility by a regis-tered professional nurse, bed and board in connection with those services, physical or occupational therapy or speech-language pathology services, medical social services, such drugs, biological, supplies, appliances, and equipment, furnished for use in the skilled nurs-ing facility, and lastly, other services necessary to the health of the patients as are generally provided by the facility.

Audiology Dispensing Hospitals will be paid for the dispensing of hearing aids only by a hospital-based audiologist according to the audi-


ologist regulations at 130 CMR 426.00 et seg., and accord-ing to the fees established in 101 CMR 323.00 (hearing aid dispensers).

Vision Care DispensingHospitals will be paid for the dispensing of ophthalmic ma-terials only by a hospital-based optometrist, ophthalmolo-gist, or other practitioner licensed and authorized to write prescriptions for ophthalmic materials and services ac-cording to the vision care regulations at 130 CMS 402.00 et seq., and according to the fees established in 101 CMR 315.00 (vision care services and ophthalmic materials).

Dental ServicesHospitals will be paid for covered dental services accord-ing to the Dental regulations at 130 CMR 420.000 except when the conditions in 130 CMR 420.430(A)(2) or (D) apply. These conditions include the use of a hospital or freestanding ambulatory surgery center for extractions only if those members health, due to a medical condi-tion, would be at risk if those procedures were performed in the provider’s office. Secondly, MassHealth will pay for the surgical removal of an impacted tooth in a hospi-tal or freestanding ambulatory surgery center only when medically necessary. When either of the aforementioned conditions apply, EOHHS will pay the hospital its PAPE. The hospital-based dentist may not bill for any professional component of the service that is billed by the hospital.

DSH SPAD AdjustmentIn FY 2014, EOHHS will make a supplemental payment to hospitals that received more than 63% of gross patient service revenue (GPSR) from government payers and free care as determined by the hospital’s FY14 403 cost report. Every supplemental payments to each qualifying dispro-portionate share hospital will be equal to the sum of 6% of its total FY 15 APAD and Outlier payments and 1% of its total FY15 outpatient PAPE payments based on Medicaid paid claims data file as of March 31, 2016.

Pay-for-Performance Quality Reporting Re-quirements and Payment MethodsMassHealth Pay-for-Performance (P4P) Initiative Quality Reporting and Payment Methods provides a method for quality scoring and converting quality scores to payments contingent upon hospital adherence to a quality standards and achievement of performance thresholds and bench-marks based on G.L. c. 118E, sec. 13B. The maximum amount of payout for RY16 will remain the same at $50M. This is planned to be paid in a subsequent rate year fol-lowing finalization of the 2015 P4P data. Consistent with RY15, there will be an option for EOHHS to make interim RY16 P4P payments, followed by subsequent review and


Issue 2 19

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settlement of final amounts owed or overpayment made. Additionally, the tobacco treatment measure set will be eligible for pay-for-reporting incentive payments in RY16, which is a change from previous years.

The incentive payments under the RFA may cumulatively total no more than the maximum amount allotted for each quality measure category as shown in chart above.

The final eligible Medicaid discharges for each quality measure category in the table above will be calculated based on the FY15 MMIS Discharge Data for payer codes

103 and 104 only. The total amount of P4P payments for each hospital will be calculated using the following formulas.

(Hospital’s Eligible Medicaid Discharges) x (Quality Measure Category per-Discharge Amount) x (Total Perfor-mance Score) = Hospital P4P Payment for an Individual Measure Category.or(Hospital’s Eligible Medicaid Discharges) x (Quality Measure Category per-Discharge Amount) x (Composite Performance Score) = Hospital P4P Payment for a Health Disparity Measure Category.

A hospital’s total FY16 P4P payment will be the sum of the P4P payments for each quality measure category for which the hospital qualifies for payment. The aggregate sum is also referred to as the “Hospital’s Final RY16 RFA total P4P Payment Amount”. In order for a hospital to receive its P4P payment it must submit all information required and comply in accordance with the applicable reporting requirements.

Estimated Fiscal EffectEOHHS estimates that annual aggregate acute hospital state plan expenditures resulting from these payment methods will increase by $25.2 million overall, broken down as described. An estimated $28.1 million increase in estimated annual aggregate in-state acute inpatient and outpatient hospital state plan expenditures. Next, an esti-mated $2.9 million decrease in estimated annual aggregate out-of-state acute inpatient and outpatient hospital state plan expenditures due to projected reduction in estimated utilization of out-of-state acute hospital services. ❏

Allison LeBlanc, CPA, is a Senior Audit Associ-ate in Feeley & Driscoll, P.C.’s Healthcare and Human Services Group.

About the Authors

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J.P. Morgan proudly supports the Massachusetts- Rhode Island Chapter of HFMA.


Pay-for-Performance (P4P) Maximum Allocated Amount Payment CalculationQuality Measure Category Maximum Allocated

AmountEstimated Eligible Medicaid Discharges*

Estimated Per Discharge Amount*

Maternity $ 22,000,000 11,349 $ 1,938.50Care Coordination $ 11,000,000 47,326 $ 232.43Health Disparities Composite $ 2,500,000 58,675 $ 42.61Emergency Department $ 7,000,000 27,564 $ 253.95Tobacco Treatment (pay-for-reporting) $ 7,500,000 18,812 $ 398.68Total $ 50,000,000 ---- ----

*The estimated eligible Medicaid discharges and estimated per-discharge amount for each measure category are based on FY13 HDD. The final numbers on these two columns will be determined based on FY15 MMIS Discharge Data, when that data becomes available.

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The Centers for Medicare and Medicaid Services (CMS) published the proposed Medicare Outpatient Prospective Payment System (OPPS) rule for calendar year (CY) 2016 on July 8, 2015.

Per CMS, CY 2016 OPPS payments are estimated to de-crease by $43 million. Over 4,000 hospitals are paid under OPPS, including most hospital outpatient department


services. OPPS is a hybrid of a prospective payment system and a fee-for-service system. In CY 2015, CMS proposed to expand the categories of related items and services pack-aged into a single payment for a primary service by finaliz-ing 25 comprehensive APCs within 12 clinical families to replace the device-dependent APCs, with 9 new compre-hensive APCs and 2 new clinical families proposed in CY 2016. As shown below: (WHA 2015 & 2016)

© 2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Outpatient Prospective Payment SystemBy: Erik Holmberg, CPA

Proposed New CY 2016 C-APCs

Proposed New CY 2016 APC DescriptorsClinicalFamilies

5165 Level 5 ENT Procedures ENTXX5492 Level 2 Intraocular Procedures EYEXX5416 Level 6 Gynecologic Procedures GYNXX5361 Level 2 Laparoscopy LAPXX5362 Level 2 Laparoscopy LAPXX5123 Level 3 Musculoskeletal Procedures ORTHO5375 Level 5 Urology and Related Services UROXX5881 Ancillary Outpatient Services When Patient Expires N/A8011 Comprehensive Observation Services N/A

Issue 2 21

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By: Linda A. Burns, M.H.A., M.B.A.Board Member, Healthcare Financial Management Association

Mass. and Rhode Island Chapter, and Co-Editor, HFMA Advisor

Interview with Dennis Chalke Senior Vice President, CFO and Treasurer

Baystate Health

CFOINTERVIEW

Q. HFMA Advisor Ms. Burns: Many healthcare organizations are now multi-corporate structures that include hospitals, medical groups, home health, health insurance plans, and more. Any comments on the challenges and benefits of these multi-corporate structures as they affect the CFO’s role?

A. Mr. Chalke: Baystate Health is a $2.3 billion integrated healthcare system located in western Massachusetts. It includes five hospitals (one tertiary teaching, which includes a dedicated children’s hospital), an employed physician group with over 500 providers, a health plan with 200,000 plus lives, a visiting nurse association and hospice, a home infusion and respiratory therapy service company, and a physician- hospi-tal organization with more than 1,200 providers.

While high-quality, patient-centered care is at the core of our mission, each sector (hospital, physicians, and health plan) has its own unique issues and challenges. Hospitals are labor- and capital-intensive, and their key metrics and driv-ers of success are much different than those of a health plan, which generates significant revenue with a relatively small employee base. Hospi-tals must have effective and efficient revenue cycle and supply chain capabilities and be able to manage their largest expense, staffing, in a cost-effective manner. Health plans have their own unique challenge – 90% or more of their premium revenues are paid out in 30-45 days for medical expenses for their members. Man-aging healthcare costs with a large network of providers--which may or may not have the same aligned incentives--is certainly a challenge. New

technologies and increasing drug costs are also a major challenge, and it is important that these trends are incorporated into the pricing of premi-ums where negotiated. One common challenge across all services, entities and sectors is under-payment by Medicaid, particularly in western Mass., and we feel a more fair and equitable solution to fair reimbursement to hospitals for fulfillment of their mission needs to be developed across the Commonwealth to address this issue.

As we move further into population health and assume more and more risk in the provider entities, some of the differences between provid-ers and insurers become blurred, and owning a health plan can provide significant advantages. Health plans are in the business of managing risk. They have many of the tools, systems, and infrastructure to be successful as they have been managing population health for many years. These tools and experiences can be leveraged to benefit the provider organizations as they pursue risk-based contracts. Owning an insur-ance company also can provide financial balance in environments of reduced patient utilization, as declining hospital revenues may be offset by reduced medical claims in the health plan.

Q. HFMA Advisor Ms. Burns: Besides risks associ-ated with complying with laws and regulations related to payment for services, there are many other business risks healthcare organizations face. What are one or two risks that you have identified, and how have you and your organi-zation taken actions to mitigate those risks?

HFMA Advisor22

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(Interview with Dennis Chalke - continued from page 21)

CFOINTERVIEW

A. Mr. Chalke: In addition to the myriad laws and regulations pertaining to billing for services provided, there are numerous risks in health-care today. Developing an enterprise risk as-sessment is a useful process to ensure these are identified with appropriate mitigating strategies where possible. If you look back several years, the biggest risk may have been the significant volatility in malpractice premiums. These have been somewhat mitigated through captive insurance companies, which enable us to keep premiums manageable and support our physi-cian workforce in doing so. Today, however, the risks are much more numerous and significant.

As previously discussed, one area of growing exposure is the transfer of more and more risk from insurers to providers. Many managed care contracts have risk corridors with both upside opportunity and downside risk based on financial performance and quality and safety metrics. The settlement of these contracts often does not take place until 9-12 months after the fiscal year-end, so revenue recognition at year-end is much more difficult. In addition, downside risk could result if interim fee-for-service payments exceed bud-get, or if other metrics are not met. New Medi-care shared savings plans, referred to as Next Gen, contain downside risk of up to 15%, and Medicare budgets can be twice as large as com-mercial budgets for the same number of enrolled lives. For an enrolled Medicare population of 25,000 lives, the total budget could equal $250 million or more, and poor performance could have a significant negative impact on the bot-tom line of the organization. These risks can be mitigated through a number of strategies which have historically been used by the managed care industry. These include having the appropriate data and analytic tools to identify and predict high risk patients, assigning case managers to those patients, purchasing reinsurance to protect against high-cost outliers, creating an aligned integrated provider network with aligned in-centives, and avoiding unnecessary emergency

department visits, admissions and readmissions.

Another area of risk is the financial markets, where interest rates and investment returns can significantly impact an organization. Small movements in interest rates can have a large impact on pension expense for defined ben-efit plans and on variable rate debt. Invest-ment returns can have negative impacts on cash and can erode days cash-on-hand during market downturns. These risks can partially be offset through investment diversification strategies and various hedging techniques.

Q. HFMA Advisor Ms. Burns: Price transparency is receiving a lot of press lately, especially as more patients are enrolled in health insurance plans with higher deductibles and co-payments and provid-ers’ are being compared and contrasted on price-points for given levels of quality. What are some ways you are addressing price transparency?

A. Mr. Chalke: Price transparency is a goal most in the industry would like to achieve. Typi-cally the patient is interested in the “bottom line” or what they will owe. Quoting exact pricing is very complex, given the individual co-pays, co-insurance and deductibles of the many insurance carriers and plans available.

Baystate has made it as easy as possible for the patient by investing in systems and processes to help the patient navigate through the details. A self-pay patient can call in and ask the cost for a particular test from our charge master. In the case of a complex procedure, patients can receive a specific quote after review by a cost analyst. Any patient requesting their responsi-bility after insurance will be given information from an internal estimating product. Soon, the patient will be able to request price data online. Recently we have been working with our physi-cians to include both the facility fee and the

Issue 2 23

TECHNICALBULLETINCFOINTERVIEW

(Interview with Dennis Chalke - continued from page 22)

professional fee for a one-stop shopping process.

Q. HFMA Advisor Ms. Burns: More physicians are engaging in leadership roles for financial management and quality for clinical services and programs, whether as a chief of service or medi-cal director or clinical leader. How would you define financial literacy for a physician who aspires to be an effective chief of service or medi-cal director in an organization such as yours?

A. Mr. Chalke: All leaders including physicians, nurses and other clinicians need to have a strong

understanding of finance in order to be successful in their roles. Many are running departments, while others are leading large businesses such as major service lines or entire organizations. They are responsible for not only the financial performance of their respective area but also for safety, quality, patient experience and employee engagement metrics and management. We refer to this as our balanced scorecard. Leaders need to understand the key metrics within each business unit, how they impact financial perfor-mance and how to address any budget variances. Leadership training is key to helping clinicians take on these additional responsibilities.

Dennis W. Chalke

Senior Vice President, Chief Financial

Officer & Treasurer, Baystate Health

oversees the financial operations of

BH including reporting and budgeting,

capital financing, managed care

contracting, revenue cycle, and supply

chain functions.

He joined Baystate in 1988. Mr. Chalke

holds an MBA from the University

of Massachusetts, Amherst and a BA

in Economics from Ithaca College,

Ithaca, NY.

Dennis W.Chalke

Boston Medical Center Health

System

Senior Vice President

Chief Financial

Officer

Treasurer

HFMA Advisor24

TECHNICALBULLETIN

The Centers for Medicare and Medicaid Services (CMS) published the final Medicare Outpatient Prospective Pay-ment System (OPPS) rule for calendar year (CY) 2015 on November 10, 2014. The final changes to the Medicare OPPS were effective January 1, 2015 unless otherwise noted.

The Medicare OPPS applies to Medicare services fur-nished by all hospitals ― including hospitals excluded from IPPS. OPPS also applies to partial hospitalization services furnished by both hospitals and community mental health centers.

OPPS payments are based on groups of outpatient services called ambulatory payment classifications (APCs), which classify thousands of outpatient services into hundreds of groups. Services in each APC are similar in clinical respects and in terms of required resources. The APC pay-ment rate for each group applies to all services in the group and is wage-adjusted to account for geographic differences. Depending on the actual services provided, hospitals may be paid for more than one APC per encounter.

The APC structure does not apply to certain outpatient services that currently are reimbursed under separate fee

schedules, including physical, occupational, and speech therapies, orthotic and prosthetic devices, durable medical equipment (DME), clinical diagnostic laboratory services, and ambulance services.

APC Group ChangesAs required by law, CMS must revise the APC groups to identify drugs and medical devices that no longer qualify for pass-through status, new and deleted Healthcare Com-mon Procedure Coding System/Current Procedural Termi-nology (HCPCS/CPT) codes, change in technologies, new services, and new cost data.

CMS pays for hospital outpatient services on a rate-per-service basis that varies according to the APC group to which the service is assigned. CMS uses the Healthcare Common Procedure Coding System (HCPCS), which includes certain Current Procedural Technology (CPT) codes to identify and group the services within each APC.

The table at the top of page 25 shows the change in the number of APCs per category over a three-year period: (WHA) (continued on page 25)

( Outpatient Prospective Payment System - continued from page 20)

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Issue 2 25

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In CY 2016, CMS is proposing to discontinue the com-posite APC payment policies for APC 8009 (would be paid through the new comprehensive APC 8011: Compre-hensive Observation Services) and to change APC 0034 (would be paid through the new comprehensive APC 8010 with same naming convention). (WHA15)

Recalibration of APC WeightsCMS uses cost-based relative payment weights for OPPS based on geometric mean costs.

For CY 2016, CMS proposes to recalibrate the APC rela-tive payment weights for services furnished on or after January 1, 2016 for each APC based on claims and cost report data for hospital outpatient department (HOPD) services using the most recent available data to construct a database for calculating APC group weights. (2016 FR)

Conversion Factor UpdateOPPS payment rates have been calculated by multiplying a (continued on page 26)

single national conversion factor (or base rate) by APC-specific relative weights based on median cost. To account for local area wage variances, the labor-related component of the APC amount is wage-adjusted utilizing inpatient full wage index values.

The proposed market basket update factor is -0.29% for CY 2016, which reflects the estimate of the hospital inpatient market basket percentage increase of 2.7% less the mandated 0.6% ACA productivity reduction adjust-ment, less the 0.2% pre-determined adjustment, less the required proposed wage index budget neutrality adjustment of .07%, less the pass-through budget neutrality adjustment of 0.12%, and less the inflation adjustment for excess pack-aged payments for laboratory tests of 2.0%. This results in a proposed conversion factor for CY 2016 of $73.929, a decrease from $74.144 in CY 2015. (WHA)

The proposed conversion factor for the quality data report-ing program for hospital outpatient care, known as the

National Standard Conversion Factor

Rate Year Standard Conversion Factor $ Change % Change

CY 2016 $73.93 -$0.21 -0.29%

CY 2015 $74.14 $1.47 2.02%

CY 2014 $72.67 $1.36 1.91%

CY 2013 $71.31 $1.29 1.84%

CY 2012 $70.02 $1.14 1.66%

CY 2011 $68.88 $1.64 2.38%

CY 2010 $67.24 $1.18 1.79%


APC CategoryStatus Indicator

Final CY 2014

Final CY 2015

Proposed CY 2016

Clinic or Emergency Department Visit V 15 15 13Significant Procedures, Multiple Reduction Applies T 181 129 65Significant Procedures, No Multiple Reduction S 131 134 80Pass-Through Devices Categories H 1 2 4Ancillary Services X 38 - -Comprehensive APCs for Device-Dependent Services J1 - 25 33Observation Services J2 - - 1Non-Pass-Through Drugs/Biologicals K 284 289 280Partial Hospitalization P 4 4 4Blood and Blood Products R 34 34 34Brachytherapy Sources U 17 17 17Pass-Through Drugs and Biologicals G 31 35 32New Technology S/T 82 82 100Total 818 766 663

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Hospital Outpatient Quality Reporting (OQR) Program, for those hospitals that fail to meet the 26 quality measure-ments will be reduced by 2% for an adjusted conversion factor of $72.478. (WHA) (see chart at bottom of page 25)

Proposed Items and Services to be “Packaged” or Included in Payment for a Primary ServiceFor CY 2016, CMS proposes to expand the categories of related items and services packaged into a single payment for a primary service with 14 clinical families of supporting services and 34 comprehensive APCs. (FR pg. 28)

The 14 clinical families are:

1. Automatic Implantable Cardiac Defibrillators, Pacemakers, and Related Devices

2. Breast Surgery

3. ENT Procedures

4. Cardiac Electrophysiology

5. Ophthalmic Surgery

6. Gastrointestinal Procedures

7. Gynecologic Procedures

8. Laparoscopic Procedures

9. Neurostimulators

10. Orthopedic Surgery

11. Implantable Drug Delivery Systems

12. Radiation Oncology

13. Urogenital Procedures

14. Vascular Procedures

Wage Index AdjustmentThe OPPS labor-related share is 60 percent of the national OPPS payment for all hospitals. Specifically, approxi-mately 60 percent of the costs of services paid under the OPPS were attributable to wage costs based on a regression analysis. CMS confirmed that this labor-related share for outpatient services is appropriate and therefore, CMS is not proposing to revise this policy for CY 2016. There were, however, new CBSA delineations for CY 2015 in which some urban counties became rural, rural counties became urban, and existing CBSAs were split apart or incorporated additional counties. To mitigate negative impacts, CMS proposed a 1 year transitional wage index for any hospital that experienced a wage index decrease solely due to the new CBSA delineations (estimated to be about 740 hospitals). The transition value was for CY 2015 only, utilizing wage data used to calculate the 2015 wage indexes, with 50% based on the previous CBSA delinea-tions and 50% based on the new CBSA delineations. The transitional wage index expired and is not effective for CY

2016. (WHA)

Outlier PaymentsOPPS outlier payments are provided for individual proce-dures or services with extraordinarily high costs compared to the payment rates for their APC group. These payments are added to the APC payment amount in order to miti-gate hospital losses when treating high cost cases.

In the CY 2015 final rule, CMS maintained total outlier payments at 1.0 percent of total OPPS payments. CMS made an outlier payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and final fixed-dollar threshold of $2,775 are met. (Fed Reg)

In CY 2015 for community mental health centers (CMHCs), the outlier payment was calculated as 50 per-cent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate if a CMHC’s cost for partial hospitalization services, paid under either APC 0172 or APC 0173, exceeds 3.40 times the payment rate for APC 0173. (WHA)

For CY 2016, CMS proposes to continue its policy of esti-mating outlier payments to be 1.0 percent of total OPPS payments. In addition, CMS proposes that 0.49 percent of the 1.0 percent be allocated to CMHCs for partial hospi-talization (PHP) outlier payments. CMS also proposes that the hospital outlier fixed-dollar threshold be set at $3,650 to ensure that the estimated CY 2016 aggregate outlier payments equal 1.0 percent of estimated aggregate total payments under the OPPS. (Pg. 48 2016 FR)

Rural Sole Community Hospital AdjustmentFor CY 2016, CMS proposes to continue the adjustment of 7.1 percent to certain rural SCHs, including essential rural sole community hospitals (EACHs). This increase will apply to all services paid under OPPS, excluding separately payable drugs and biologicals, devices paid under the pass-through payment policy, and items paid at charges reduced to costs. (2016 FR)

Partial HospitalizationPartial Hospitalization (PHP) is an intensive outpatient psychiatric program provided to patients in place of inpa-tient psychiatric care. Historically, CMS established pay-ment rates based on median costs but has recognized that their methodology is impacted by charge manipulations made by CMHCs to increase outlier payments. As a result of these charge issues, there have been significant swings in the median cost per diems.

(Outpatient Prospective Payment System - continued from page 25)


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The final CY 2015 and proposed CY 2016 PHP and blended CMHC per diem rates are as indicated in chart above (WHA)

Transitional Pass-Through Payments

Pass-Through SpendingFor CY 2016, CMS estimates that pass-through spending for both drugs and biologicals and devices would equal ap-proximately $146.6 million (approximately $136.8 million for device categories and approximately $9.8 million for drugs and biologicals), which represents 0.25 percent of total projected CY 2016 OPPS spending. (Pg. 89 FR) In addition, CMS estimates that pass-through spending in CY 2015 would not amount to 2.0 percent of total projected program spending. (FR)

Payments for Pass-Through DevicesAs required by law, a category of devices is eligible for pass-through payments for at least 2, but not more than 3 years under the OPPS. CMS must propose and finalize the dates for expiration of pass-through status for device categories as part of the OPPS annual update.

In CY 2016, there are currently three device codes eligible for pass-through payment: C2613 (Lung biopsy plug with delivery system), C2623 (Catheter, transluminal angio-plasty, drug-coated, non-laser), and C2624 (Implantable wireless pulmonary artery pressure sensor with delivery catheter, including all system components). CMS is pro-posing to remove C1841 (Retinal prosthesis, includes all internal and external components) from the list of devices currently provided pass-through status (WHA)

Packaging Policy for Low-Cost Drugs, Bio-logicals and RadiopharmaceuticalsFor CY 2016, the packaging threshold for drugs, biologi-cal and radiopharmaceuticals is $100 per day. In 2015, CMS also finalized the separate payment of items with an estimated per day cost greater than $100. Further, CMS

finalized the payment for separately payable items similar to payment for other separately payable nonpass-through drugs and biological under OPPS at ASP +6.0 percent. (2015 FR) The proposed CY 2016 rules mirror the final-ized CY 2015 rules.

Devices Replaced with No Cost or Hospital Receives CreditHistorically, it has been the practice of manufacturers to offer replacement devices for malfunctioning devices without any cost to the providers. In CY 2007, CMS implemented a policy that reduced the payment for select device-dependent APCs when the hospital received cer-tain replacement devices without cost or full credit for the device being replaced. The policy did not apply to cases in which there was a partial credit toward the replacement of the device.

For CY 2014, CMS reduced OPPS payment for applicable APCs by the full or partial credit a provider receives for a replaced device. In CY 2016 this existing policy will be followed, with a proposal that lists devices to which this payment adjustment would apply no longer need to be specified. (2016 FR)

Inpatient-Only Procedures PaymentsIn the April 7, 2000 final rule, CMS identified procedures that are typically provided only in an inpatient setting and would not be paid by Medicare under the OPPS. These procedures make up what is referred to as the inpatient list and specifies the services for which the hospital will be paid only when provided in the inpatient setting be-cause of the nature of the procedure, underlying physical condition of the patient, or the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged. (Pg. 802 of 2012 FR Final Rule)

In response to comments requesting the inpatient list be eliminated in its entirety, CMS stated their continued belief in the inpatient list as a valuable tool for ensuring


Proposed AAPC GGroup Title

CY 2016 Proposed Per Diem Rate

CY 2015 Final Per DDiem Rate

(%) CChange

0172 Level I Partial Hospitalization (3 services) for CMHCs $100.17 $96.51 3.8%

0173 Level II Partial Hospitalization (4+ services) for CMHCs $139.62 $114.23 22.2%

0175 Level I Partial Hospitalization (3 services) for PHPs $185.27 $179.11 3.4%

0176 Level II Partial Hospitalization (4+ services) for PHPs $207.24 $195.62 5.9%

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OPPS only pays for services that can be appropriately pro-vided as a hospital outpatient procedure. Therefore, CMS will not eliminate the inpatient only list at this time. (Pg. 215 of 2013 FR Final Rule)

For CY 2015, CMS added CPT code 22222 to the CY 2015 inpatient list. For CY 2016, CMS is proposing to remove the following seven services from the inpatient-only list: 0312T, 20936, 20937, 20938, 22552, 54411, and 54417.

Physician Supervision RequirementsAll outpatient therapeutic services furnished in hospitals and CAHs require a minimum of direct supervision unless the service is on the list of services that may be furnished under general supervision or is designated as a nonsurgical extended duration therapeutic service.

For CY 2016, CMS continues its stance that direct super-vision is the most appropriate level of supervision for most hospital outpatient therapeutic services and will continue to enforce physician supervision requirements. (FR)

Reporting of Hospital Quality Data and Other Quality InitiativesAs required by law, CMS reduces the annual inflation update factor for most services furnished by hospitals that fail to meet the reporting requirements of the Hospital Outpatient Quality Reporting (Hospital OQR). This re-duction does not apply to payments for separately payable pass-through drugs, biologicals and devices, separately payable non-pass-through drugs and non-implantable biologicals, separately payable therapeutic radiopharma-ceuticals, and services assigned to New Technology APCs.

26 outpatient quality measures fall under the Hospital OQR in CY 2017 payment determination. Outpatient providers that fail to successfully report these measures in CY 2016 will receive a reduction of 2.0 percentage points to the market-basket update in CY 2017 payment determination.

In CY 2016, there are 27 measures for determination. (WHA)

Validation of Quality ReportingIn order to receive the full OPPS payment rate update, hospitals must meet administrative, data collection and submission, and data validation requirements to partici-pate successfully in the Hospital OQR Program. Hospitals that do not participate in the program, withdraw from the program, or do not meet the requirements will not receive the full OPPS payment rate update and will receive a reduction of 2.0 percentage points to their OPD fee

schedule increase factor for the applicable payment year. (Pg. 120-1 of 2014 FR)

CMS mandates that hospitals achieve a minimum 75 percent validation score. (2014 FR)

EHR Incentive Program and Establishment of a New Electronic Quality Reporting PilotThe program, authorized by the ARRA of 2009, provides incentive payments to hospitals and doctors that success-fully adopt “meaningful use” EHR systems under rules established by CMS.

Since CMS does not yet have the capabilities of accepting the submission of quality data electronically, the agency acknowledges that eligible hospitals and CAHs seeking to achieve meaningful use status in payment year 2013 and subsequent years can continue to report quality measure results as calculated by certified EHR technology through attestation rather than electronic submission to CMS.

As an alternative, CMS established a new Electronic Reporting Pilot program. For payment year 2013, CMS acknowledges that eligible hospitals and CAHs participat-ing in the Medicare EHR Incentive Program may meet the quality reporting requirements of the program by participating in the proposed Electronic Reporting Pilot. CMS notes that participation in this Electronic Report-ing Pilot will be voluntary and that eligible hospitals and CAHs may continue to attest to the quality measure results calculated by certified EHR technology.

In the CY 2013 final rule, CMS finalized their proposal to continue the electronic reporting pilot for the Electronic Health Record (EHR) Incentive Program. (Pg. 2 & 282 of 2013 FR Final Rule)

For CY 2014, CMS finalized regulation to provide a spe-cial method for making hospital-based determinations for 2013 only in the cases of those eligible professionals (EPs) who reassign their benefits to Method II CAHs. CMS has been unable to make EHR payments to these EPs for their CAH II claims or to take those claims into consid-eration in making hospital-based determinations because of systems limitations. Adopting the method for 2013 will allow CMS to begin making payments based on CAH II one year earlier than CMS would be able to do under cur-rent regulations. CMS also finalized a minor clarification to the regulations concerning the cost reporting period to be used in determining final EHR payments for hospitals. In cases where there is no 12-month cost reporting period that begins on or after the beginning of a payment year, CMS will use the most recent 12-month cost reporting period available at the time of final settlement in order to


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Erik Holmberg, CPA, is a supervisor in Feeley & Driscoll, P.C.’s Healthcare and Human Services Group.

About the Author


determine final EHR incentive payments for the hospital. (2014 FR)

Data Collection for Services Furnished in Off-Campus Provider-Based Outpatient ClinicsCMS seeks to better understand how the growing trend toward hospital acquisition of physician offices and subse-quent treatment of those locations as off-campus provider based outpatient departments affects payments under the MPFS and OPPS, as well as beneficiary cost-sharing obligations. In order to gain more information on this trend and how it is affecting Medicare, CMS finalized the collection of data on the type and frequency of outpatient hospital and physician services furnished in off-campus provider-based clinics beginning on January 1, 2015. CMS created an HCPCS modifier to be reported with every code for physicians’ services (CMS-1500 claim form) furnished in an off-campus provider-based clinic and with every code for outpatient hospital services (UB–04 form). (2015 FR & WHA15)

Two-Midnight Rule for Inpatient StaysHospital stays that are expected to be two midnights or longer will continue to be presumed appropriate for inpatient admission and will not be subject to medical

necessity reviews. For stays expected to last less than two midnights, CMS proposes the following:

• For stays for which the physician expects the patient to need less than two midnights of hospital care (and the procedure is not on the inpatient only list), an inpatient admission would be payable under Medicare Part A on a case-by-case basis based on the admitting physician’s judgment.

❍ Documentation in the medical record must sup-port that an inpatient admission is necessary.

❍ CMS will monitor the amount of these types of admissions and will prioritize these types of cases for medical review.

• CMS plans to change the medical review strategy by having QIO contractors be responsible for conducting reviews of short inpatient stays, in the place of MACs by October 1, 2015. ❏

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Medicare pays for physician services - as well as the services of some eligible non-physician healthcare professionals - under a fee schedule, which specifies payments for more than 7,000 health care services and procedures ranging from routine office visits to com-plex surgical procedures. The fee schedule is based on national proxies for three components that approxi-mate the respective resources utilized in providing the service: physician work expense, practice expense, and malpractice relative value units (RVUs).

Payment rates in the physician fee schedule are based on the RVUs for a particular service multiplied by both the local geographic practice cost indices (GPCIs) and a standard national conversion factor. In response to the spiraling growth of Medicare payments for professional services, Congress developed a target update to the con-version factor, called the sustainable growth rate (SGR). The SGR was calculated based on a combination of

factors including medical inflation, projected growth in the domestic economy, projected growth in the number of fee-for-service Medicare beneficiaries, and changes in Medicare laws and regulations. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) repealed the SGR formula and provides specific annual updates to payments for the next ten years and beyond. MACRA provided for a 0.5 percent update to the PFS beginning July 2015 and through 2019. Payment rates will then freeze for 2020 through 2025 and beginning in 2026 payment rates will be updated annually based on Merit-Based Inventive Payment System or Alternative Payment Models, based on which program providers participate in.

Geographic Practice Cost Indices (GPCIs)Geographic Practice Cost Indices (GPCIs) are used to

Payment Changes for PhysiciansBy: Samantha White, CPA

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measure resource cost differences among localities com-pared to the national average for each of the three fee schedule components (i.e. work, practice expense (PE), and malpractice (MP)). PE and MP GPCIs reflect the full relative cost differences, whereas the work GPCIs reflect only one-quarter of the relative cost differences compared to the national average. Additionally, section 1848(e) (1) (E) of the Act provided for a 1.0 floor for the work GPCIs, which was set to expire on March 31, 2014. Section 201 of the MACRA extended the 1.0 floor for the work GPCIs through calendar year 2017.

Relative Value Unit – Practice Expense RVUPractice expense (PE) is the portion of the resources used in furnishing a service that reflects the general categories of physician and practitioner expenses, such as office rent and personnel wages, but excluding MP expenses.

The Medicare law requires CMS to adjust the Medicare Physician Fee Schedule (MPFS) payment rates annu-ally. For CY 2016, the MACRA has replaced the PFS update that would otherwise occur on January 1, 2016 with a zero percent update for January 2015 through June 2015; 0.5 percent for July 2015 through 2019; and 0 percent for 2020 through 2025. For 2026 and beyond, the update will be 0.75 percent for eligible alternative payment model (APM) participants and 0.25 percent for all others. Based on this update, CMS has estimated the conversion factor necessary to maintain budget neutrality to be $36.1096.

The Medicare Payment Advisory Commission (Med-PAC) must report to Congress by July 1, 2019, with “recommendations for any future payment updates for professional services under such program to ensure adequate access to care is maintained by Medicare beneficiaries.”

The table at the bottom of the page illustrates the his-torical change in the conversion factor (and thus in av-erage physician reimbursement for Medicare services).

Electronic Prescribing and Physician Quality Reporting System (PQRS)In the CY 2009 final rule CMS stated that Physicians and other eligible professionals who adopt and use qualified electronic prescribing (e-Prescribing) systems may earn an incentive payment on their total Medicare allowed charges. This incentive was in addition to an incentive payment for physicians who successfully report measures under the Physician Quality Report-ing System (PQRS). Effective in 2019 under MACRA, the “Merit Based Incentive Payment System” (MIPS) quality program will become the only Medicare quality reporting program, replacing PQRS, Electronic Health Records/Meaningful Use (MU), and the value-based payment modifier (VBM).

The PQRS is a quality reporting program that provides payment adjustments to eligible professionals and group practices based on whether they satisfactorily report data on quality measures for covered professional services furnished during a specified reporting period or to individual eligible professionals that satisfactorily participate in a qualified clinical data registry (QCDR). Under MIPS, participation in a QCDR will also qualify as a clinical practice improvement activity.

Although eligible professionals in CAHs were not able to use the claims-based reporting mechanism to report PQRS quality measures data in 2014, beginning in 2015, these eligible professionals in CAHs may par-ticipate in the PQRS using ALL reporting mechanisms available, including the claims-based reporting mecha-nism.

In the CY 2015 final rule, CMS established that an eligible professional wishing to meet the proposed criterion for satisfactory participation in a QCDR for the 2017 PQRS payment adjustment report on at least 2 outcome measures (or if less than 2 outcome mea-sures are available for reporting, report on at least 1

Medicare Physician Fee Conversion Factor

CY 2013 CY 2014 CY 2015 CY 2016 proposed

Effective 1/13 Effective 1/14 Effective 4/15 Effective 1//16Conversion Factor $34.02 $35.82 $35.93 $36.11Actual Change 0.001% 5.29% 0.31% TBDOriginal Proposed Change -27.41% -24.43% -0.08% .89%

( Payment Changes for Physicians - continued from page 30)

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outcome measure and at least 1 of the following types of measures: resource use; patient experience of care; or efficiency/appropriate use, or patient safety). In the CY 2016 proposed rule, CMS is proposing the same criteria for satisfactory participation in a QCDR for the 2018 PQRS payment adjustment report

The Medicare Improvements for Patients and Providers Act of 2008, enacted on July 15, 2008, provided a bonus for e-Prescribing by physicians and eligible professionals of 1% in 2011 and 2012 and 0.5% in 2013. If physicians and eligible professionals do not e-Prescribe, they will be penalized -1% in 2012, -1.5% in 2013, and -2% in 2014 and beyond. The CY 2011 final rule included a reduction in the threshold needed to achieve the bonus. The level required to qualify for the bonus payment was lowered from eighty percent of all applicable services to fifty percent.

Individual Physician PQRS Measure ReportingIn the CY 2015 final rule, CMS established that, for the 12-month reporting period for the 2017 PQRS payment adjustment, the eligible professional would

report at least 9 measures, covering at least 3 of the NQS domains AND report each measure for at least 50 percent of the eligible professional’s Medicare Part B FFS patients seen during the reporting period to which the measure applies. Of the measures reported, if the eligible professional sees at least 1 Medicare patient in a face-to-face encounter, the eligible professional would report on at least 1 measure contained in the proposed cross-cutting measure. If less than 9 measures apply to the eligible professional, the eligible professional would report up to 8 measure(s), AND report each measure for at least 50 percent of the Medicare Part B FFS patients seen during the reporting period to which the measure applies. Measures with a 0 percent performance rate would not be counted.

Consistent with the CY 2015 final rule, in the CY 2016 proposed rule CMS proposes the same criteria for the 12-month reporting period for the 2018 PQRS payment adjustment.

Group Practice PQRS Measure ReportingPhysicians may also report PQRS measures as a group practice under the Group Practice Reporting Option (GPRO).

Consistent with the CY 2015 final rule, in the CY 2016 proposed rule, CMS proposes the following three (3) options for satisfactory reporting for the 2018 PQRS payment adjustment for group practices comprised of 25 of more eligible professionals:

• Proposed Option 1: If a group practice chooses to use a qualified registry, the group practice would report all CAHPS for PQRS survey measures via a certified vendor, and report at least 6 additional measures, out-side of CAHPS for PQRS, covering at least 2 of the NQS domains using the qualified registry. If less than 6 measures apply to the group practice, the group practice must report all applicable measures. Of these 6 measures, if any eligible professional in the group practice sees at least 1 Medicare patient in a face-to-face encounter, the group practice would be required to report on at least 1 measure in the cross-cutting measure set. When there are instances where a group practice does not have at least 6 measures, a group practice would still be able to meet the satisfactory reporting criterion via registry if the group practice reports on as many measures as are applicable to the group practice’s practice. If a group practice reports on less than 6 individual measures, the group practice would be subject to a measure application validity pro-cess (MAV), which would allow CMS to determine


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whether a group practice should have reported quality data codes for additional measures and/or measures covering additional NQS domains.

• Proposed Option 2: If a group practice chooses to use a direct EHR product, the group practice would report all CAHPS for PQRS survey measures via a certi-fied vendor, and report at least 6 additional measures, outside of CAHPS for PQRS, covering at least 2 of the NQS domains using the direct EHR product. If less than 6 measures apply to the group practice, the group practice must report all applicable measures. Of the additional 6 measures that must be reported, a group practice would be required to report on at least 1 measure for which there is Medicare patient data.

• Proposed Option 3: Alternatively, if a group practice chooses to use the GPRO web interface, CMS pro-poses the following criterion for satisfactory reporting: the group practice would report all CAHPS for PQRS survey measures via a certified vendor. In addition, the group practice would report on all measures included in the GPRO web interface; AND populate data fields for the first 248 consecutively ranked and assigned beneficiaries in the order in which they appear in the group’s sample for each module or preventive care measure. If the pool of eligible assigned beneficiaries is less than 248, then the group practice would report on 100 percent of assigned beneficiaries. A group practice would be required to report on at least 1 measure for which there is Medicare patient data.

Physician Feedback and Value-Based Payment ModifierUnder the Affordable Care Act, CMS was required to begin making “value-based payment adjustments” to some physicians in 2015 and to all physicians by 2017. Initially, the payment adjustment ranged from a low of -1.5 percent to a high of +2 percent. Under the law, the Value Modifier went into effect on January 1, 2015, and only applied to groups of 25 or more eligible profes-

sionals. The Value Modifier will apply to all physicians treating Medicare patients by January 1, 2017.

In the CY 2013 rule, CMS finalized policies to deter-mine the amount of the value-based payment modifier for CY 2015 by categorizing groups of physicians with 100 or more eligible professionals into two categories. Category 1 includes groups of physicians that either (a) self-nominate for the PQRS as a group and report at least one measure or (b) elect the PQRS Administrative Claims option as a group. Category 2 includes groups that do not fall within either of the two subcategories (a) or (b) of Category 1. Groups within Category 1 could elect to have their value-based payment modifier for CY 2015 calculated using the quality-tiering meth-odology, which could result in an upward, neutral, or downward adjustment amount. For groups that made this election, CMS used the performance rates on the quality measures reported through the PQRS and the performance rates on three outcome measures to cal-culate the group’s quality composite under the quality-tiering approach. If a group in Category 1 that elected quality-tiering self-nominates for the GPRO web-interface or CMS-qualified registry and did not meet the satisfactory reporting criteria for the PQRS incentive payment, CMS used the group’s performance on the Administrative Claims option to calculate the group’s quality composite under the quality-tiering approach. The value-based payment modifier for groups of physi-cians in Category 1 that did not elect-quality tiering is 0.0 percent, meaning that these groups did not receive a payment adjustment under the value-based payment modifier for CY 2015. Category 2 includes groups that do not fall within either of the two subcategories (a) or (b) of Category 1. For the groups that are in Category 2, the value-based payment modifier for the CY 2015 payment adjustment period is -1.0 percent. Chart at bottom of page is a summary of the value-based payment modifier using the quality-tiering approach.

2016 Value Modifier Amounts for the Quality-Tiering Approach

Quality/Cost Low Cost Average Cost High Cost

High Quality +2.0%* +1.0%* +0.0%Average Quality +1.0%* +0.0% -0.5%Low Quality +0.0% -0.5% -1.0%

* Groups of physicians eligible for an additional +1.0x if (1) reporting Physician Quality Reporting System quality measures through the GPRO web-interface or CMS-qualified registry, and (2) average beneficiary risk score is in the top 25 percent of all beneficiary risk scores. (CMS risk adjustment models are used to calculate risk scores, which predict individual beneficiaries’ health care expenditures, relative to the average beneficiary.)


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In the CY 2014 final rule, CMS implemented additions and refinements to the existing value-based payment modifier policies. These changes continued the phased-in implementation of the value-based payment modifier by reinforcing the emphasis on quality measurement, alignment with the PQRS, physician choice, and shared accountability. Specifically, the final rule included the following:

• To apply the value-based payment modifier to groups of physicians with 10 or more eligible professionals in CY 2016.

• To make quality-tiering mandatory for groups within Category 1 for the CY 2016 value-based payment modifier, except that groups of physicians with between 10 and 99 eligible professionals would be subject only to any upward or neutral adjustment determined under the quality-tiering methodology, and groups of physicians with 100 or more eligible professionals would be subject to upward, neutral, or downward adjustments determined under the quality-tiering methodology.

• To increase the amount of payment at risk under the value-based payment modifier from 1.0 percent to 2.0 percent in CY 2016.

• To align the quality measures and quality reporting mechanisms for the value-based payment modifier with those available to groups of physicians under the PQRS during the CY 2014 performance period.

• To include the Medicare Spending Per Beneficiary (MSPB) measure in the total per capita costs for all attributed beneficiaries domain of the cost composite.

• To refine the cost measure benchmarking methodol-ogy to account for the specialties of the physicians in the group.

In the CY 2015 final rule, CMS implemented additions and refinements to the existing value-based payment modifier policies. These proposals continue the phased-in implementation of the value-based payment modifier by reinforcing the emphasis on quality measurement, alignment with the PQRS, physician choice, and shared accountability. Specifically, the final rule included the following:

• To apply the VM to all physicians and nonphysician eligible professionals in groups with 2 or more eligible professionals and to solo practitioners starting in CY 2018

• In CY 2017, CMS will apply a maximum downward adjustment of -2.0 percent for groups with 2-9 EPs and solo practitioners, if the group or solo practitioner

does not meet the quality reporting requirements for the PQRS. Groups of two to nine EPs and solo practi-tioners will be held harmless from downward adjust-ments under the quality-tiering methodology for the CY 2017 payment adjustment period.

• Category 2 to include groups and solo practitioners that are subject to the 2017 VBM but do not fall within Category 1.

• To apply the VM to physicians and nonphysician eligible professionals participating in the Shared Savings Program, the Pioneer ACO Model, the CPC Initiative, or other similar Innovation Center models or CMS initiatives starting in CY 2017.

• To clarify the exclusion of nonassigned claims for non-participating providers from the VM.

• To increase the amount of payment at risk for groups of 10 or more eligible participants under the VM from 2.0 percent in CY 2016 to 4.0 percent in CY 2017.

• To align the quality measures and quality report-ing mechanisms for the VM with those available to groups and individuals under the PQRS during the CY 2015 performance period.

• To expand the current informal inquiry process to


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allow additional corrections for the CY 2015 payment adjustment period.

• To address the concerns raised by NQF regarding the per capita cost measures in the cost composite.

In the CY 2016 proposed rule, CMS proposes additions and refinements to the existing value-based payment modifier policies. These proposals continue the phased-in implementation of the value-based payment modifier by reinforcing the emphasis on quality measurement, alignment with the PQRS, physician choice, and shared accountability. Specifically, the proposed rule includes the following:

• To use a similar two-category approach for the CY 2018 VM based on participation in the PQRS by groups and solo practitioners. Category 1 would in-clude those groups that meet the criteria to avoid the PQRS payment adjustment for CY 2018 as a group practice participating in the PQRS GPRO. Category 1 to include groups that have at least 50 percent of the group’s eligible professionals meet the criteria to avoid the PQRS payment adjustment for CY 2018 as individuals

• To revise the criteria for groups to be included in

Category 1 for the CY 2017 VM.

• To include in Category 1 for the CY 2018 VM those solo practitioners that meet the criteria to avoid the CY 2018 PQRS payment adjustment as individuals,

Physician Compare WebsiteThe Affordable Care Act (“ACA”) required that, by no later than January 1, 2011, CMS develop a Physi-cian Compare Internet Web site with information on physicians enrolled in the Medicare program, as well as information on other eligible professionals who partici-pate in the PQRS. CMS launched the first phase of the Physician Compare Internet Web site (http://www.medicare.gov/find-a-doctor/provider-search.aspx) on December 30, 2010. The initial phase included the posting of the names of eligible professionals who satis-factorily submitted quality data for the 2009 Physician Quality Reporting System. The second phase, which was completed in CY 2012, included making publicly available through the Physician Compare website, infor-mation on physician performance that provides com-parable information on quality and patient experience measures. As part of the ACA, CMS submitted a plan

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Photos courtesy of Tony Slabacheski, Regional Medical Waste

Cybersecurity panel moderator Cynthia Izzo (KPMG) and conference chair Mike McCollister (Ernst & Young)

Chapter President Tim Hogan with David Dreher (Ernst & Young) and Eric Schwartz (PwC)

Cybersecurity panel: Jim Noga (Partners Healthcare), Ken Patterson (Harvard Pilgrim), Manu Tandon (Beth Israel Deaconess Medical Center), Cynthia Izzo (KPMG, moderator)

Conference presenters Karen Pfeil (PwC) and Meredith Wasko (PwC)

Conference presenter Larry Goldberg (Larry Goldberg Consulting)

Accounting &

Regulatory Technical Meeting

October 16, 2015

Doubletree Hotel, Westborough, MA

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for making quality and patient experience data publicly available to Congress by January 1, 2015.

In late 2015, a sub-set of the individual and group level 2014 PQRS measures will be publicly reported on Physician Compare. The following individual and group practice level measures will be available for public reporting in late 2015:

• All 2014 PQRS GPRO measures collected via the Web Interface for group practices of 25 or more EPs.

• A sub-set of 2014 PQRS GPRO measures collected via registry or EHR for groups of 2 or more EPs.

• 2014 Consumer Assessment of Healthcare Providers and Systems (CAHPS) for PQRS measures.

• A sub-set of 2014 PQRS individual EP measures collected via registry, EHR, or claims. 20 measures are available for public reporting and align with the group-level measures available for reporting via the Web Interface.

For 2016, CMS proposes to expand public reporting of group-level measures by making all 2015 PQRS Group Practice Reporting Option (GPRO) web interface, registry, and EHR measures for group practices of two or more eligible professionals (EPs) and Accountable Care Organizations (ACOs) available on Physician Compare in 2016.

As in 2014, CMS proposes to publicly report 20 PQRS individual measures reported in 2013 and collected through a registry, EHR, or claims in 2015. The agency proposes an expansion of measures for individual EPs by making all 2015 PQRS individual measures available on Physician Compare in late 2016, if feasible.

CMS also plans to provide information on whether EPs are satisfactory reporters under PQRS, have adopted EHR, and participate in the PQRS cardiovascular prevention program measures group in support of the Million Hearts Campaign.

CMS also proposes to publicly report 2015 Consumer As-sessment of Healthcare Providers and Systems (CAHPS) survey data for PQRS and group practices of two or more EPs, as well as the CAHPS data for ACOs for those who meet the sample size requirements and collect their data through a CMS specified CAHPS vendor, in 2016. For 2016, CMS also proposes to make available on Physi-cian Compare the 2015 Qualified Clinical Data Regis-try (QCDR) measures data collected at the individual measure level or aggregated to a higher level, if technically feasible.

Misvalued CodesIn the CY 2015 final rule, CMS transitioned to includ-ing proposed values for new, revised and potentially mis-valued codes in the CY 2016 proposed rule, rather than establishing them as interim final in the final rule with comment period. Therefore, stakeholders will have two opportunities to comment and to provide any new clini-cal information that was not available at the time of the RUC valuation that might affect work RVU values that are adopted on an interim final basis.

In the proposed CY 2016 rule, CMS proposed new values in the proposed rule for the codes that received complete RUC recommendations by February 10, 2015. Beginning with valuations for CY 2017, the new process will be applicable to all codes.

Chronic Care Management ServicesCMS states that they are committed to supporting primary care and care management for their potential to improve the health of patients and reduce the growth of expenditures in the Medicare program. Accordingly, in the CY 2014 final rule, CMS finalized a policy to



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pay separately for care management services, non-face-to-face, for patients with two or more chronic condi-tions beginning in 2015. In the CY 2016 proposed rule, CMS proposes a payment rate of $42.91 for the chronic care management (CCM) code, to be billed no more frequently than once a month. As noted in the CY 2014 final rule, the CCM service must include:

• Access to CCM services 24/7, which means provid-ing beneficiaries with a means to make timely contact with health care providers to address urgent chronic care needs;

• Continuity of care with a designated practitioner or member of the care team with whom the patient is able to get successive routine appointments;

• Care management for chronic conditions including systematic assessment of patient’s medical, functional, and psychosocial needs; system-based approaches to ensure timely receipt of all recommended preventive care services; medication reconciliation with review of adherence and potential interactions; and over-sight of patient self-management of medications;

• Creation of a patient-centered care plan document to assure that care is provided in a way that is congruent with patient choices and values;

• Management of care transitions between and among health care providers and settings;

• Coordination with home and community-based clini-cal service providers, as appropriate;

• Enhanced opportunities for a beneficiary and any relevant caregiver to communicate with the practitioner.

The billing requirements include:

• Informing the beneficiary about the availability of the CCM services and obtain written agreement to have the services provided;

• Documenting in the patient’s medical record that all of the CCM services were explained and offered to the patient, noting the patient’s decision;

• Providing the beneficiary a written or electronic copy of their care plan;

• Informing the beneficiary of the right to discontinue CCM services at any time;

• Informing the beneficiary that only one practitioner can furnish and be paid for these services during the 30-day period.

MACRA will permanently require Medicare to pay for care management of patients with CCM problems, without requiring an annual wellness visit or initial preventative physical examination. For CY 2016 CMS proposes to expand the billing requirements by expand-ing the beneficiary eligibility for CCM services and the beneficiary agreement requirements.

CMS also proposes requiring the use of an electronic health record (EHR) to furnish these CCM services. The EHR platform must include an electronic care plan that is accessible to all providers within the practice, as well as exchanged with providers outside the practice.

Medicare Telehealth ServicesGenerally, for Medicare payments to be made for telehealth services under the PFS several conditions must be met. Specifically, the service must be on the Medicare list of telehealth services and meet all of the following other requirements for coverage:

• The service must be furnished via an interactive telecommunications system.

• The practitioner furnishing the service must meet the telehealth requirements, as well as the usual Medicare requirements.

• The service must be furnished to an eligible tele-health individual.

• The individual receiving the services must be in an eligible originating site.

In the 2016 proposed rule, CMS is proposing to add two services that Medicare beneficiaries can receive via telehealth:

• Prolonged service in the inpatient or observation setting;

• End-stage renal disease related services for home dialysis ❏

Samantha White, CPA, is a supervisor in Feeley & Driscoll, P.C.’s Healthcare and Human Services Group.

About the Author


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