Healthcare Financial Management Association Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule
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The
Introduction
HFMA would like to commend CMS for its thorough analysis and discussion of the many Medicare payment decisions addressed in the 2021 Proposed Rule. Our members would like to respond in this letter to the proposed rule's "Market-Based MS-DRG Relative Weights." We would like to take this opportunity to provide feedback on the proposed rule's requirement that hospitals report median Medicare Advantage (MA) and 3rd Party "payer specific negotiated charges" as part of their cost report for cost report periods ending on or after
Unfortunately, HFMA's members fail to see how transitioning to a system that uses median MA "payer specific negotiated charges" achieves the stated policy goals or improves the accuracy of the Medicare IPPS. Therefore, we encourage CMS to not propose this policy change in a future IPPS rule. Further, we do not see the utility of requiring hospitals to report their "payer specific negotiated charges" as part of the Medicare cost report and strongly encourage CMS not to finalize a proposal that increases provider administrative burden - contrary to the administration's "Patient's Over Paperwork Initiative" - and collects information that CMS is already requiring hospitals publicly post.
As you are aware, HFMA's members are strong supporters of efforts to increase transparency. We appreciate the opportunities over the past 18 months to meet with you and your staff to discuss our proposal (discussed below and included in detail in Appendix I) to remove regulatory barriers to creating the conditions for a functioning market for healthcare services by decoupling Medicare payments from charges. We believe this proposal will address a number of longstanding problems that distort the accuracy of Medicare payments and fix Medicare payment policy issues that increase payments for those patients and payers whose payment is calculated based on gross charges. Therefore, we strongly encourage the administration to work with HFMA, hospitals and health systems, and other key stakeholders to test, refine, and implement this proposal.
Potential Market Based MS-DRG Relative Weight Methodology Beginning in FY 2024
HFMA's members appreciate the creativity CMS displayed in developing its concept to rebase MS-DRG weights using the median "payer specific negotiated charge" (hereafter referred to as the "negotiated rate)." Specifically, the proposed rule requests comments on whether to use the data it is proposing that hospital report (discussed below) beginning with cost reporting periods ending in FY 2021 for determining the MS-DRG relative weights, beginning in FY 2024. If CMS adopted this idea, it would propose further details in the FY 2022 IPPS/LTCH PPS final rule.
The proposed rule states CMS is considering this in an effort to identify and implement "approaches to modify Medicare FFS payments to...encourage more robust price competition, and otherwise to inject market pricing into Medicare FFS reimbursement." CMS also states this proposal is an attempt to reduce the Medicare program's reliance on the hospital chargemaster. HFMA's members generally support these goals. However, they struggle to see how transitioning to a system that rebases MS-DRG weights using MA median rates achieves the stated goals or results in improving the accuracy of payments for Medicare Fee-For-Service inpatient services. We ask that CMS in the final rule describe the specific benefits to beneficiaries, the program, and hospitals it envisions occurring if this proposal was adopted. Further, Medicare payments for PPS hospital outpatient services (APC weights), outliers, new technology payments, and critical access hospital outpatient payments would still be tied directly to the chargemaster.
The conceptual framework put forth by CMS ignores the outsized role Medicare FFS weights plays in negotiations between hospitals and providers. The circularity introduced should this framework be implemented would ultimately cause Medicare FFS rates to become detached from actual resource use. CMS's rate rebasing concept using median MA negotiated rates also assumes that MA rates are negotiated under open market conditions, similar to the conditions under which hospitals contract with health plans for rates in the large group, small group, and individual markets. However, nothing could be farther from the truth. As CMS is well aware, there are a number of legal and regulatory constraints that prevent MA rate "negotiations" from occurring in a functioning market environment. These issues are discussed below in detail.
Role of Medicare FFS Weights in Medicare Advantage Negotiations
Using the median negotiated Medicare Advantage rate to re-base MS-DRG weights will introduce a significant element of circularity into the Medicare Fee-for-service payment system and overtime decrease the relationship between Medicare FFS payments and resource use.
In general HFMA members who are paid for inpatient hospital services provided to Medicare Advantage patients using MS-DRGs do not negotiate at a MS-DRG (or even service line level) from a "blank slate" based on the hospital's cost to produce, demand for the given service in the market, and the plan's ability to deliver MA volume to the provider in-exchange for price concessions across targeted services.
Instead, HFMA's members report that they typically contract with MA plans based on the Medicare Fee-For-Service MS-DRG weight schedule and the standardized amounts for operating and capital. This finding is similar to the various studies/1,/2,/3 cited in the IPPS proposed rule.
Similar to the studies cited in the in the proposed rule, based on discussions with HFMA's members contracted payment rates at the MS-DRG level are typically one to five percentage points higher than those for Medicare fee-for-service discharge. Typically, the MS-DRG weight schedule used is unmodified from that published in the Medicare IPPS final rule for the most recent fiscal year aligned with the contracting term. Often, MA payments for DSH and other "add-ons" if the hospital is eligible for them in Medicare FFS are included.
Where MA contracted rates are higher than the Medicare FFS rate, the source of variation is typically increased standardized amounts for operating/capital, a prospectively negotiated increase in payment to reimburse providers for bad debt associated with cost sharing for Medicare Advantage members, and/or to cover the increased costs of MA plans administrative utilization management strategies. In instances where contracted MA payments are lower than Medicare FFS payments HFMA's members report that it is a result of not negotiating add-on payments similar to Medicare FFS. Actual payments for services provided to MA members may be lower than FFS for similar DRGs for a range of reasons, most typically for quality related payment claw-backs or similar penalties.
This qualitative feedback is supported by survey data from HFMA's members. About 77% of HFMA members responding to a survey on the prevalence of MS-DRGs in MA contracting report that over 50% of their MA revenue flows through MS-DRG contracts. And 100% report that for their MA contracts based on MS-DRGs they report that they use the IPPS MS-DRG weights and the standardized amounts as the basis for the contract. Where there is variance between the amount paid under Medicare FFS and the MA contract 84% of members report that the source of the variation is from adjustments to the standardized amount, not changes to the IPPS MS-DRG weights.
HFMA's members report their ability to negotiate an increase to the standard amount, the inclusion of add-on payment factors, and/or the inclusion of a prospective amount for Medicare bad debt is predicated on their position in the market relative to the Medicare Advantage plan. Typically, securing these add-ons is more challenging if the Medicare Advantage plan has a large share of the market which is similar to findings in one of the studies cited by CMS in the proposed rule./4
If CMS were to propose and finalize rebasing MS-DRG weights using MA median negotiated rates, it would introduce a significant element of circularity into the FFS and MA payment systems. Moving away from calculating MS-DRG weights using a proxy for cost that is directly linked to resource utilization creates two technical challenges that overtime will erode the accuracy of FFS (and MA) payments. As you are aware, HFMA has worked with members representing over 580 hospitals to develop a methodology for decoupling hospital payments from Medicare charges that will both improve the accuracy of FFS payments and remove the barriers the FFS system poses to price transparency. We discuss this proposal in detail below.
First, CMS will lack a sufficient mechanism to price new MS-DRGs. Second, as advances in technology and practice patterns change the resource requirements, using the MA median negotiated rate (which is ultimately based on current FFS weights) will not incorporate this reallocation in resource use into rebased weights in FFS. As a result, overtime, CMS's MS-DRG weights will be based less on the actual resources required to deliver inpatient hospital care and slight changes in market power between hospitals and MA plans. HFMA's members believe this is in contrary to section 1886(d)(4) of the Act which requires the Secretary to, "assign an appropriate weighting factor which reflects the relative hospital resources used...within that group compared to discharges classified within other groups."
If this concept is ultimately proposed and implemented, it will reallocate payments across the MS-DRG schedule. However, this reallocation will be based on the market clout of large Medicare Advantage plans and health systems, not a more accurate reflection of the relative resources used to deliver inpatient care to Medicare beneficiaries.
Second, HFMA's members are also concerned about the completeness of the MA negotiated rate data that would be collected as part of the weight rebasing process. For example, our members question whether data on MA negotiated rates can accurately be "cross-walked" and collected for hospitals who have plans that pay them based on per diems. At the national level MS-DRGs are most frequently used to determine Medicare Advantage payments for inpatient services. However, in at least one state that we are aware of the dominant health plan (which has 94% market share) pays for inpatient services for its non-Medicare Advantage product lines using a system of tiered per diems. The tiered per diem is not based on severity (with the most resource intense cases - cases with the highest CMI in a DRG system - being mapped to the highest per diem), but on length of stay. Under this system cases with longer average lengths of stay are mapped to lower per diems. So, it will not be possible for providers in this state (or other states using similar systems) to report a contracted commercial rate that accurately approximates those paid using MS-DRGs.
Instead, they will either need to provide the actual average amount paid or multiply the average length of stay per MS-DRG times the per diem the MS-DRG is mapped to. Given the complexity of the process, we believe it will be challenging to derive "apples to apples" data that is comparable and can be crosswalked to the negotiated rates or actual payments reported by providers. And for these discharges, payments are based on length of stay and not resource use. Historically, length of stay has been a proxy for resource use, intensive use of high cost technologies, therapeutics, and devices have shortened lengths of stay for many MS-DRGs. Given these changes in practice patterns, we believe incorporating data from a tiered per diem system would reduce the accuracy of the resulting weights.
MA Rates Are Not Negotiated in an Open Market Environment
There are a number of legal and regulatory barriers that place an artificial cap on Medicare Advantage payments. This prevents market forces from acting on MA rate negotiations between plans and providers.
First, regulations place an artificial regulatory ceiling on the prices providers can demand from MA plans. As you are well aware, 42 CFR Sec. 422.214 limits the amount MA plans are required to pay out-of-network providers to the Medicare Fee-For-Service amount. While a hospital could choose not to participate in a MA plan's network, the economic penalty to the plan for a non-participating hospital is de minimis.
Additionally, MA plans are paid a capitated amount based on county level benchmarks calculated using Medicare Fee-For-Service spending. Even if the constraint on payments to out of network providers was removed, basing capitated amounts on FFS benchmarks in effect limits the MA plan's ability to pay market rates (similar to those rates found in the large group, small group, and individual markets) and offer a solvent MA product. Second, MA plan network adequacy requirements act as a countervailing force placing a regulatory floor under rates negotiated by hospitals and health plans.
These artificial, regulatory constraints inhibit the market from working properly to set payments. Similar to the findings in the various studies cited in the proposed rule, HFMA's members report limited variation at the MS-DRG level when comparting prices and payments for services provided to MA and Medicare FFS members. Therefore, MA rates are sent in an environment largely sheltered from market forces by the hands of the same governmental regulation the proposed rule seeks to remove from inpatient Medicare FFS payments. Even if MA rates were negotiated in an unfettered market, the statutes related to key facets of the Medicare FFS payment system - specifically the operating standardized amount and budget neutrality requirement for changes in MS-DRG weights - would neuter any market influence that might be injected into the Medicare FFS payment system by rebasing weights using MA median negotiated rates.
Standardized Operating Amount: Section 1886(d)(2) of the SSA required the Secretary to establish the original operating standardized amount using data from the base period (1983). Section 1886(b)(3)(B) of the Act then governs the annual updating of the standardized operating amount using a market basket update factor that is administratively determined as prescribed in statute. Currently, the market basket update includes statutorily required adjustments for quality reporting (Section 1886(b)(3)(B)(viii) of the act), use of qualifying EHRs, (Section 1886(b)(3)(B)(ix) economy wide productivity (Section 1886(b)(3)(B)(xi), and fixed reduction defined in law to the update factor during the years 2010 to 2019 (Section 1886(b)(3)(B)(xii).
The statutory requirements related to the market basket update result in payments from the Medicare program to IPPS hospitals for inpatient hospital services that are well below the market clearing rates (those paid by commercial health plans) in the private market. However, the Medicare program has monopsony power as a purchaser of healthcare services for individuals ages 65 and over and the disabled. It is impossible for a hospital to not participate with the program and be financially sustainable. Therefore, providers are forced to accept payments below their cost to produce these services and well below the market clearing rate. CMS's potential proposal to rebase MS-DRG weights using the median negotiated rates will not rectify this fact. It is well documented that this shortfall acts as a hidden tax on the private sector, increasing the cost of healthcare for privately insured individuals.
Budget Neutrality Adjustment: Section 1886(d)(4)(C)(iii) requires changes to MS-DRG relative weights to be budget neutral. Therefore, even if MS-DRG weights calculated using median MA weights suggested an increase in overall payments for certain services, the DRG recalibration adjustment would result in an across the board reduction to the standardized operating amount. In theory this could be beneficial if changes in inpatient FFS payments resulting from weight rebasing using the median negotiated MA rate resulted a more accurate understanding of the underlying resources necessary to deliver inpatient care to Medicare beneficiaries. However, as discussed above, any shifts in weights that result from a calculation based on median MA rates will instead be reflective of plan or provider market concentration (or lack thereof).
Summary
HFMA's members strongly recommend CMS not propose and finalize any model that rebases MS-DRG weights using median negotiated MA rates. First, as described above, the model CMS is considering will result in MS-DRG weights that are less reflective of the resources necessary to provide care overtime as weights fail to account for changes in technology and are more the result of changes plan/provider market concentration than resources used to deliver care. HFMA's members believe this is contrary to section 1886(d)(4) of the Act which requires the Secretary to, "assign an appropriate weighting factor which reflects the relative hospital resources used...within that group compared to discharges classified within other groups" and adjusted to..." to reflect changes in treatment patterns, technology (including a new medical service or technology under paragraph (5)(K)), and other factors which may change the relative use of hospital resources."
Second, while CMS asserts its conceptual model to rebase MS-DRG weights will achieve its policy goal of "modify(ing) Medicare FFS payments to...encourage more robust price competition, and otherwise to inject market pricing into Medicare FFS reimbursement" the proposed rule does not provide evidence or a compelling argument as to how this proposal will actually achieve this goal. While MA rates are the product of a negotiation, HFMA members understand this is a negotiation derived from the Medicare FFS program (based on MS-DRG weights) and smothered by a thicket of Medicare Advantage regulations. Even if Medicare Advantage rates were unencumbered and truly market based, regulations governing IPPS operating standardized amounts and requiring changes in MS-DRG weights to occur in a budget neutral manner would inhibit injecting market pricing in Medicare FFS IPPS payments.
Third, HFMA's members do not believe this model for rebasing MS-DRG weights would materially reduce Medicare's reliance on the chargemaster. Medicare payments for PPS hospital outpatient services (APC weights), outliers, new technology payments, and critical access hospital outpatient payments would still be tied directly to the chargemaster. Therefore, the underlying incentives in the Medicare program - specifically through outlier payments - to increase charges faster than underlying cost remain with only limited restraint.
In a subsequent section of this letter, HFMA's members describe an alternative model for rebasing MS-DRG and APC weights that will fully decouple Medicare payments (including outliers, new technology, and CAH outpatient payments) from charges. Not only will this eliminate any incentive the Medicare program creates for hospitals to increase their charges faster than cost but reduce costs for patients whose services are based on hospital charges. The proposed solution is informed by the cost finding processes used by other countries that pay for inpatient services using DRGs. It is also grounded in Medicare cost finding principles and relies heavily on the existing Medicare cost report.
Proposed Market-Based Data Collection
In support of its potential proposal to rebase MS-DRG weights in 2024 using the median negotiated MA rate, CMS proposes that hospitals would be required to report the median:
* payer-specific negotiated charge that the hospital has negotiated with all of its MA plans, by MS-DRG; and
* payer-specific negotiated charge the hospital has negotiated with all of its third-party payers, which would include MA plans, by MS-DRG.
Hospitals would be required to report this information on their Medicare cost report for cost reporting periods ending on or after
HFMA's members strongly oppose this proposal as they do not believe it is necessary. Ostensibly, the purpose of this proposal is to collect data that would allow CMS to rebase MS-DRG weights using median MA rates should such a proposal be put forth and finalized by the agency. However, given the technical and legal shortcomings HFMA's members have identified coupled with ill-defined policy merits we do not believe CMS should propose its framework for rebasing MS-DRG weights using median MA rates. Collecting this data without a clear purpose will add administrative burden to hospitals without a clear goal which is contrary to the administration's Patients Over Paperwork Initiative. If the administration seeks data with which to model it's conceptual framework for rebasing FFS MS-DRG weights using median negotiated MA rates, HFMA believe there are more efficient (and faster) ways to obtain the data than altering cost report forms and waiting for hospitals to file revised cost reports. MA claims data is widely available (as noted in the studies referenced in the proposed rule). If CMS seeks to understand the redistributive impacts of its model (which it must before proposing it) it could obtain data from an organization like the
Finally, HFMA's members note that requiring them to report this data would be similar to (and duplicative of) CMS's requirement to post its negotiated rates that is effective on
Alternative Mechanism for Decoupling All Medicare Payments from Hospital Charges
Since 2009, acute hospital charges have increased by 31%/5 relative to their Medicare allowable cost to provide care. This charge inflation has negatively impacted certain types of patients whose payments are based on hospital charges. Acute hospitals and health systems recognize this and seek to rebase their charges to better align them with the cost to provide care plus a reasonable margin to invest in future services that will benefit the communities they serve. However, rebasing charges requires a hospital to coordinate any reduction in charges with Medicare, Medicaid and commercial health plans to ensure that this occurs in a revenue-neutral manner. Otherwise, the hospital will be financially harmed, thus diminishing its ability to serve the broader community, in its efforts to reduce costs for patients whose payments are based on charges.
Based on discussions with members representing over 580 hospitals HFMA believes it is possible to use data from acute hospitals' internal costing systems to calculate and submit the allowable cost per discharge for inpatient discharges and per ambulatory payment classification (APC) for outpatient services as part of the Medicare cost reporting process - hereafter the Direct Cost Model (DCM). This data would replace CMS's imputed cost per discharge or outpatient service in the calculation of certain cost-based payments and annual weight rebasing. The proposed solution is informed by the cost-finding processes used by other countries that pay for inpatient services using DRGs. It is also grounded in Medicare cost-finding principles and relies heavily on the existing Medicare cost report. HFMA has engaged a health economics modeling firm to validate the DCM, ensuring the data produced is reliable and does not result in changes to total program spending or reallocate spending across different types of acute hospitals.
Implementing the DCM for acute hospitals allows CMS to decouple payments for outliers, new technology and CAH outpatient payments, and weight rebasing from charges, thus eliminating the most significant barrier hospitals face when attempting to rebase charges. HFMA anticipates once this barrier is removed, hospitals will rebase their charges. This will not only provide immediate relief for patients whose payments are based on charges but also will create an environment where price transparency can flourish. Beyond creating an environment where price transparency can flourish, HFMA believes moving to the DCM has ancillary benefits for CMS. The data provided by the DCM represents an improvement over the current data used by CMS to calculate payments and rebase MS-DRG/APC weights. This will increase the accuracy of Medicare payments by reducing sources of distortion.
Included in Attachment I is a detailed discussion of the DCM. HFMA looks forward to any opportunity to provide CMS with assistance to reduce administrative burdens and create an environment where price transparency and market-based competition can flourish in Medicare. As an organization, we take pride in our long history of providing balanced, objective financial technical expertise to
We are at your service to help CMS gain a balanced perspective on this complex issue. If you have additional questions, you may reach me or
View attachment at: https://www.regulations.gov/contentStreamer?documentId=CMS-2020-0052-0670&attachmentNumber=1&contentType=pdf
Sincerely,
President and Chief Executive Officer
About HFMA
HFMA is the nation's leading membership organization for more than 42,000 healthcare financial management professionals. Our members are widely diverse, employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant and consultant.
HFMA is a nonpartisan professional practice organization. As part of its education, information and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards.
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Footnotes:
1/ https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2014.1427
2/ https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2014.1427
3/ https://journals.sagepub.com/doi/pdf/10.1177/0046958018779654
4/ https://journals.sagepub.com/doi/pdf/10.1177/0046958018779654
5/ HFMA analysis of FY2020 IPPS Final Rule impact file.
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The proposed rule can be viewed at: https://www.regulations.gov/document?D=CMS-2020-0052-0002
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