Healthcare News & Insights

Bill could change Medicare payment policies

484540333A new bill pending in the U.S. House of Representatives could bring about some big changes in how hospitals get paid by Medicare in the next few years.

Back in the spring, Kevin Brady (R-TX), the chairman of the Ways and Means Subcommittee on Health, spearheaded a hearing about current issues hospitals were having with Medicare. As listed in a fact sheet about the hearing, the major issues discussed were:

  • misaligned incentives between payments for inpatient and outpatient services
  • use of auditors via the Recovery Audit Contractor (RAC) program to recoup overpayments
  • the “two-midnight” rule, and
  • issues with the RAC appeals process that effectively keep hospitals from contesting findings (most notably, the current backlog of appeals).

The hearing also discussed other, secondary consequences of these issues — mostly having to do with how the increase in appeals and observation stays has caused patients to experience issues with their Medicare coverage.

Proposed legislature

In response to these issues, Rep. Brady introduced the Hospital Improvements for Payment (HIP) Act of 2014. The act outlines several proposals to completely overhaul the way Medicare pays hospitals for certain procedures, and it also calls for key changes to the appeals process.

While the act’s title says “2014,” the provisions listed in the proposed law aren’t likely to be seriously discussed until next year. Reason: Congress isn’t currently expected to make any major decisions on bills, according to an article in Modern Healthcare.

Still, what’s written in the act can give hospitals an idea of what the government is thinking in terms of Medicare payment reform, which is helpful in case a major revamp is in the cards.

Potential changes

One of the biggest difficulties for hospitals right now is complying with Medicare’s “two-midnight” rule. The provision states that if it’s necessary for patients to be under observation status at a hospital for longer than two midnights, their visit automatically becomes an inpatient stay.

The HIP Act of 2014 proposes eliminating this rule in favor of a more simplified system that unites both the inpatient and outpatient payment systems, making them more consistent with each other and getting rid of the confusion (and payment differences) surrounding the two-midnight guidelines.

In the interim period between transitioning away from the old, separate payment systems and the new combined approach, the act says Medicare should create a per-diem reimbursement structure for shorter stays.

The bill also calls for the RAC auditing process to be revamped so that the Centers for Medicare & Medicaid Services (CMS) can work on clearing its backlog of over 800,000 appeals. New RAC audits would be forbidden for any reason until the new payment structure is in place.

There’s other relief for hospitals tucked into this bill as well. The HIP Act also calls for a repeal of the moratorium on the expansion of physician-owned hospitals put into place by the Affordable Care Act. In addition, a section of the HIP Act calls for changes in data-reporting requirements for critical access hospitals, including less severe penalties for failing to meet the requirements on time.

And these changes may come with a larger push for data transparency. The bill also wants to expand access to Medicare data, meaning that charges for certain procedures may fall under more scrutiny from the general public.

But there’s a bright side to this provision: It’ll hold CMS accountable for its payment policies, and it’ll make it easier for hospitals to know exactly where they stand with the federal agency in terms of rules, regs and quality measures they’ll need to meet.

Although these changes would only apply to Medicare, if any of these proposed features become law down the line, other private payors may follow suit with their payment and auditing policies. So it’s important to be aware of how these changes could affect your hospital.

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