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The Centers for Medicare & Medicaid Services (CMS) today issued a final rule that will increase the Medicare payment rates for long-term care hospitals (LTCHs) by 3.1 percent starting July 1, 2004. Medicare expects aggregate payments to these hospitals to increase to $2.96 billion during the 2005 LTCH rate year.

In the proposed rule published on January 30, 2004, CMS had projected a 2.9 percent increase in payment rates, with aggregate payments totaling $2.33 billion during the 2005 rate year. The higher projections in the final rule are largely due to the more rapid than expected transition of hospitals from a blend of the Federal rate and reasonable cost-based payment to 100 percent of the Federal rate.

"We are pleased that the implementation of the long-term care hospital prospective payment system (LTCH PPS) is proceeding smoothly," said CMS Administrator Mark B. McClellan, M.D., Ph.D. "CMS will continue to monitor and evaluate the success of the LTCH PPS as the remaining facilities transition to 100 percent of the Federal rate."

CMS had offered hospitals a five-year transition period, during which they would be paid based on a blend of the reasonable cost-based payment and the Federal Rate, and, as projected in the proposed rule, had expected 70 percent of LTCHs to opt for payment under 100 percent of the Federal rate. Instead, more than 93 percent of LTCHs have already moved to payment under 100 percent of the Federal rate. Accordingly, the transition period budget neutrality offset for the rate year 2005 will only be 0.5 percent, compared to 3.0 percent for rate year 2005 in the proposed rule, and down from 6.0 percent in rate year 2004. Because the base standard Federal rate was determined as if all LTCHs are paid based on 100 percent of the Federal rate, in order to maintain budget neutrality during the 5-year transition period, CMS reduces all LTCH payments to account for the additional costs of the transition period methodology.

In addition, the final rule sets the high cost outlier fixed loss amount at $17,864, compared to the proposed 2005 outlier fixed loss amount of $21,864, and down from $19,590 in rate year 2004. The fixed loss amount is used to compute the high cost outlier threshold. The outlier threshold is the amount by which the hospital's costs for a particular case must exceed the Medicare payment under the LTCH PPS, before Medicare makes an additional payment.

Long-term care hospitals, in general, are defined as hospitals that have an average Medicare inpatient length of stay greater than 25 days. These hospitals typically provide extended medical and rehabilitative care for patients who are clinically complex and may suffer from multiple acute or chronic conditions. Services typically include comprehensive rehabilitation, respiratory therapy, head trauma treatment and pain management.

The LTCH PPS, which now sets payments for over 300 long-term care hospitals, was designed to assure appropriate payment for services to the medically complex patients treated in these facilities, while providing incentives to hospitals to provide more efficient care to Medicare beneficiaries. Payments under the LTCH PPS are updated annually.

The final rule also expands the existing interrupted stay policy to include a discharge to an acute care hospital, inpatient rehabilitation facility (IRF), skilled nursing facility (SNF) or to the patient's home and readmission to the long-term care hospital within three days. The final rule provides that the entire LTCH hospitalization, both before and after the interruption, is seen as one episode of care, generating one long-term care diagnosis-related group (LTC-DRG) payment. Any covered inpatient or outpatient services provided by an acute care hospital or IRF, or covered services provided by a SNF to the LTCH patient during the interruption, would be the responsibility of the LTCH. The LTCH must provide the services either directly or "under arrangements" with the facility, and no other payment by Medicare to those providers for the services would be made. However, CMS is creating a one-year exception to this rule, allowing an acute care hospital providing care to an LTCH patient which is grouped to a surgical DRG under the acute care hospital inpatient prospective payment system (IPPS) to receive a payment under the IPPS.

If the interruption exceeds 3 days but is within the applicable fixed day period, Medicare payments to the LTCH are governed by the greater than 3 day interrupted stay policy. Therefore, if a long term care hospital patient is discharged to and readmitted from an acute care hospital within nine days, an inpatient rehabilitation facility within 27 days, or a skilled nursing facility within 45 days, the entire LTCH hospitalization, both before and after the interruption, is seen as one episode of care, generating one LTC-DRG payment. The intervening provider receives a separate payment under the applicable prospective payment system.

CMS has finalized its clarification of the requirements for a satellite or remote location to qualify as a LTCH. Generally, where an LTCH is separating from a parent LTCH, the facility must first be separately certified as a hospital (e.g., an acute care hospital) and then present the hospital's discharge data collected after it was separately certified to show that it has met the average length of stay requirement for five of the six months following certification. CMS is also finalizing its proposed policy whereby if the separation is required by the provider-based regulations, the hospital may submit average length of stay data for the satellite or remote location from the six-month period preceding the separation.

The rule also revises the procedure for calculating a hospital's average length of stay for purposes of qualifying for payment under the LTCH PPS, that is, days will be counted only in the cost-reporting period when the discharge occurs. However, in the final rule, LTCHs will be allowed to meet the existing definition for calculating average length of stay for an additional year if they fail to satisfy the new method.

CMS is not revising the LTC-DRGs and relative weights at this time. Because the LTC-DRGs and their relative weights are related to the inpatient hospital DRGs, those changes will be made at the same time as the hospital IPPS update on October 1, 2004.

The final rule will be published in the May 7 Federal Register, and will become effective for cost-reporting periods beginning on or after July 1, 2004.

The rule can be found at:

http://www.cms.hhs.gov/providers/longterm/cms-1263-f.pdf