Health Headlines – April 15, 2024

CMS Issues IPPS and LTCH Proposed Rule for FY 2025

On April 10, 2024, CMS issued its annual Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) Proposed Rule for Fiscal Year (FY) 2025 (the Proposed Rule). In the Proposed Rule, CMS proposes to, among other things, update the IPPS and LTCH PPS payment rates, establish an IPPS payment adjustment for establishing and maintaining access to essential medicines, make certain changes to the new program rules for graduate medical education (GME) programs, make revisions to the governing composition of the Provider Reimbursement Review Board, and make changes to the Medicare wage index. Comments to the Proposed Rule must be submitted by June 10, 2024. This article provides an overview of the key proposals in the Proposed Rule.

Payment Rates Overview

Under the Proposed Rule, the proposed increase in operating payment rates for general acute care hospitals under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting program and are meaningful electronic health record users would be 2.6%. This reflects a 3% projected increase in the hospital market basket update with a projected 0.4% productivity adjustment reduction. Additionally, hospitals may be subject to other payment adjustments under the IPPS, including payment reductions for excess readmissions under the Hospital Reduction Program, payment reduction for the worst-performing quartile of hospitals under the Hospital Acquired Condition Reduction Program, and adjustments under the Hospital Value-Based Purchasing Program. The Proposed Rule states that CMS expects that these proposed changes will increase hospital payments under the IPPS by $2.9 billion.

Additionally, CMS is proposing to increase the LTCH standard payment rate by 2.8% and LTCH PPS payments for discharges paid to the LTCH standard payment rate to increase by approximately 1.2% or $26 million.

Establishing and Maintaining Access to Essential Medicines

CMS proposes to establish an IPPS payment adjustment for the additional resource costs that small, independent hospitals incur in voluntarily establishing and maintaining access to a six month buffer stock of one more “essential medicine(s)” beginning in FY 2025. CMS proposes that “essential medicine(s)” would be defined as the list of 86 prioritized essential medicines in the Essential Medicines Supply Chain and Manufacturing Resilience Assessment report developed by the U.S. Department of Health and Human Services Office of the Assistant Secretary for Preparedness and Response published in May 2022, as well as any subsequent revisions to the list. CMS proposes that the hospitals that would qualify for this payment adjustment be both “small” and “independent.” Under the Proposed Rule, “small” means a hospital with 100 or fewer beds, and an “independent” hospital means a hospital that is not part of a chain organization. CMS proposes to define “chain organization” as a group of two or more health care facilities owned, leased, or through any other device, controlled by one organization. The Proposed Rule states that these small, independent hospitals tend to be more rural or lack resources to establish buffer stocks of these essential medicines.

The Proposed Rule states that this separate payment could be provided biweekly or as a lump sum at cost report settlement and is intended to help foster a more reliable, resilient supply of these essential medicines for these hospitals. This proposed payment adjustment, according to the Proposed Rule, would not be budget neutral. CMS estimates that 493 hospitals would qualify for the payment adjustment, as proposed, and that the cost to those hospitals to establish buffer stocks of essential medicines would, in the aggregate, be approximately $2.8 million. Under the Proposed Rule, Medicare would pay its share of those costs, which CMS estimates to be 11% (around $0.3 million).

The Proposed Rule also states that for essential medicines listed as “Currently in Shortage” on the FDA Drug Shortages Database, a hospital that newly establishes a buffer stock of that medicine while it is in shortage would not be eligible for separate buffer stock payment while that medicine remains in a state of shortage. However, if a hospital has already established and was maintaining a buffer stock of that medicine prior to the shortage, that hospital would continue to be eligible for separate buffer stock payments for that medicine even while the medicine remains in a state of shortage and even if the number of months of supply of that medicine in the buffer stock were to drop to less than six months as the hospital uses the buffer stock. Under the Proposed Rule, if the number of months of supply of medicine in a qualifying hospital’s buffer stock were to drop to less than six months for a reason other than that the essential medicine is listed as “Currently in Shortage,” any separate payment to a hospital would be adjusted based on the proportion of the cost reporting period for which the hospital did maintain the six (6) month buffer stock of that essential medicine.

Maternity Care Request for Information

CMS seeks to gather information on differences between hospital resources required to provide inpatient pregnancy and childbirth services to Medicare patients—on which the IPPS MS-DRGs relative weights for those services are based—as compared to non-Medicare patients. To the extent that the resources required differ between patient populations, CMS seeks information on the extent to which non-Medicare payers (e.g., State Medicaid programs) or other commercial insurers may be using the IPPS as a basis for determining their payment rates for inpatient pregnancy and childbirth services and the effect, if any, that the use of the IPPS as a basis for determining payment by those payers may have on maternal health outcomes. For example, the Proposed Rule explains that one area where CMS seeks additional information is the extent to which the use of the IPPS MS-DRG relative weights by state Medicaid programs may influence the number of low-risk cesarean deliveries for Medicaid patients. In addition to the information requests referenced above, CMS provides a list of questions in the Proposed Rule to help facilitate feedback.

Graduate Medical Education

The Proposed Rule seeks to implement recent legislation—specifically, the Consolidated Appropriations Act, 2023, which amended the Social Security Act—which requires the distribution of an additional 200 Medicare-funded residency positions (or “slots”) to train physicians, at least 100 of which will be for psychiatry or psychiatry subspecialty residencies.

In determining the qualifying hospitals for which an increase is provided, the Social Security Act requires the Secretary to take into account the “demonstrated likelihood” of the hospital filling the positions made available within the first five training years beginning after the date the increase would be effective, as determined by the Secretary. CMS proposes that a hospital show a “demonstrated likelihood” of filling the additional positions for which it applies by demonstrating that it does not have sufficient room under its current FTE resident cap(s) to accommodate a planned new program or expansion of an existing program. In order to be eligible for additional positions, the new program or expansion of an existing program could not begin prior to July 1, 2026.

Moreover, under existing law, when a hospital creates a new residency program, the “overwhelming majority” of residents in the program must be new. The Proposed Rule sets forth a standard to determine when an “overwhelming majority” is met. Specifically, CMS proposes that, in order for a residency program to be considered new, at least 90 percent of the individual resident trainees (not FTEs) must not have previous training in the same specialty as the new program. As explained in the Proposed Rule, if there were 50 trainees (not FTEs) entering the program over the course of the 5-year cap building period, then at least 45 of the trainees (90 percent of 50) must enter the program as brand new first year residents in that particular specialty. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, CMS proposes that this would render the program ineligible for new cap slots. Historically, hospitals have struggled to determine what constitutes a “new resident” and what percentage of residents have to be “new” to constitute a new program. CMS’s proposal provides helpful clarity in this regard. 

Medicare Wage Index

In the FY 2020 IPPS Final Rule, CMS adopted a policy to increase the wage index values for certain hospitals with low wage index values. CMS now proposes that this policy would be effective for at least three more years, beginning in 2025. Under this policy, CMS makes upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile. The adjustment for each eligible hospital is equal to half of the difference between the otherwise applicable final wage index value for the hospital and the 25th percentile wage index value for all hospitals that same year. In order to budget neutralize the additional payments made to low wage index hospitals, CMS applies a budget-neutrality adjustment to hospitals nationwide (litigation challenging this budget-neutrality adjustment is currently pending before the D.C. Circuit). CMS stated that it believes it is necessary to wait until the low wage index hospital policy has been in place for a sufficient time period after the end of the COVID-19 public health emergency to evaluate its effects before making any decision to modify or discontinue the policy. The first full fiscal year of wage data after the COVID-19 public health emergency is the FY 2024 wage data, which CMS anticipates will be available for FY 2028 rulemaking.   

CMS also announced that it proposes to revise the labor market areas used for the wage index based on the most recent core-based statistical area (CBSA) delineations issued by the Office of Management and Budget based on 2020 Census data. CMS believes that implementing the new OMB labor market area delineations would result in wage index values being more representative of the actual current costs of labor in a given area, though the agency also recognizes that hospitals in certain areas may experience a negative impact on their IPPS payment due to the proposal. In prior years, CMS had established transition periods when adopting changes that have significant payment implications, particularly large negative impacts. However, in the FY 2020 IPPS Final Rule, CMS finalized a wage index transition policy to apply a five percent cap on any decrease that hospitals may experience in their final wage index from the prior fiscal year. In FY 2023, the five percent cap policy was made permanent for all acute care hospitals. CMS believes the 5 percent cap policy will sufficiently mitigate significant disruptive financial impacts on hospitals that are negatively affected by the Proposed Rule and does not believe any additional transition period is necessary.

Provider Reimbursement Review Board

CMS proposes several changes to the governing composition of the Provider Reimbursement Review Board to “strike an appropriate balance between an appropriate level of turnover and CMS’s desire to recruit and retain qualified Board Members.” Proposed changes include:

• Modifications to the requirement that Board Members shall be knowledgeable in the area of cost reimbursement, so that it instead requires them to be knowledgeable in the field of payment of providers under Medicare Part A.
• Proposals to permit a Board Member to serve no more than three consecutive terms, instead of two consecutive terms allowed under current regulations. CMS also seeks comment on an alternative option for four consecutive terms rather than the proposed three.
• Proposals to permit a Board Member who is designated as Chairperson in their second or third consecutive term to serve a fourth consecutive term to continue leading the Board as Chairperson. CMS also seeks comment on an alternative option for the designated Chairperson to serve an additional two or three consecutive terms, instead of the proposed one additional consecutive term.

CMS believes that these changes have the potential to expand the pool of applicants seeking to serve on the Board.

Request for Information to Advance Patient Safety and Outcomes Across the Hospital Quality Programs

CMS is seeking comments to better understand how current quality reporting programs that account for unplanned patient hospital visits can better encourage hospitals to improve discharge processes. Specifically, the Proposed Rule states that CMS is seeking input on measures that would better represent the range of outcomes of interest to patients, including unplanned emergency department visits and the receipt of observation services within thirty (30) days following a patient’s discharge from an inpatient stay. Current measures that CMS uses to assess unplanned hospital returns include (1) three Excess Days in Acute Care (EDAC) measures that are currently in the Hospital Inpatient Quality Reporting (IQR) Program, which estimate days spent in acute care within thirty (30) days post discharge from an inpatient hospitalization for a principal diagnosis of the measure’s specified condition, and (2) the Hospital Visits After Hospital Outpatient Surgery measure, which includes any unplanned hospital visits within seven days of outpatient surgery. The three EDAC measures are currently:

• EDAC after Hospitalization for Acute Myocardial Infarction
• EDAC after Hospitalization for Heart Failure
• EDAC after Hospitalization for Pneumonia.

In order to better encourage hospitals to improve inpatient discharge processes, CMS is seeking comments on how these quality reporting programs can more comprehensively address unplanned patient visits to inpatient or outpatient care after discharge.

Medicare Promoting Interoperability Program

CMS is proposing to make certain changes to the Medicare Promoting Interoperability Program. The Medicare Promoting Interoperability Program is a program for eligible hospitals and critical access hospitals intended to encourage these hospitals to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record technology.

Under the Proposed Rule, CMS is proposing to make the following changes to the Medicare Promoting Interoperability Program: (1) separate the Antimicrobial Use and Resistance Surveillance measure into the following two measures: (i) Antimicrobial Use Surveillance and (ii) Antimicrobial Resistance Surveillance; (2) adopt two new Electronic Clinical Quality Measures (eCQM) for eligible hospitals and critical access hospitals; (3) modify the Global Malnutrition Composite Score eCQM; and (4) modify eCQM data reporting and submission requirements by proposing a progressive increase in the number of mandatory eCQMs that eligible hospitals and critical access hospitals would be required to report.

Under the Proposed Rule, the performance-based scoring threshold for eligible hospitals and critical access hospitals reporting to the Medicare Promoting Interoperability Program would change from sixty (60) points to eighty (80) points beginning with the electronic health record reporting period in 2025.

CMS estimates that these changes for the Medicare Promoting would result in an increase of 5,038 hours at a cost increase of $262,581 to the information collection burden for the electronic health record reporting period in 2027 and subsequent years.

Social Determinants of Health Diagnosis Codes

CMS is proposing to change the severity designation for the social determinates of health (SDOH) diagnosis codes describing inadequate housing and housing instability from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes. SDOH are the conditions in the environment where people are born, live, learn, work, play, worship, and age that affect the health, function, and quality of life outcomes and risks for individuals. The Proposed Rule states that CMS recognizes inadequate housing and instable housing as indicators of increased resource utilization in the acute inpatient hospital setting. After considering the impact on resource use, CMS proposes to change the severity level designation from NonCC to CC for FY 2025 for seven diagnosis codes reflecting inadequate or unstable housing situations.

The Proposed Rule states that these changes are part of CMS’s intention to recognize the influence that social factors, including housing stability and homelessness, can have on health and resource use.

The Proposed Rule is available here, and a CMS fact sheet is available here. The Proposed Rule is scheduled to be published in the Federal Register on May 2, 2024.  As stated above, comments are due by June 10, 2024.

Reporters, Ahsin Azim, Washington D.C., +1 202 626 5516, aazim@kslaw.com, and Brittany Tandy, Austin, +1 512 4572071, btandy@kslaw.com.

Senators Introduce New Bill for Transparency and Oversight in Health Care Transactions and Investment

On April 3, 2024, Senators Ed Markey (D-Mass) and Elizabeth Warren (D-Mass) released draft legislation titled the “Health Over Wealth Act” (the Proposed Bill). This Proposed Bill is another attempt to regulate private equity’s role in the healthcare sector – attempting to provide corporate transparency, government oversight, and regulation of for-profit investment in healthcare.

Background

As King & Spalding has noted in prior Health Headlines articles and client alerts, the Biden Administration has placed an increased focus on private equity’s role in the healthcare sector, including scrutiny of private equity acquisitions of healthcare providers.

Members of Congress, including both Democrats and Republicans, have also expressed interest and concerns with private equity investment in healthcare. Earlier this month, the Senate Homeland Security and Governmental Affairs Committee, chaired by Senator Gary Peters (D.-Mich), issued subpoenas to three of the nation’s largest private equity firms seeking information about hospital emergency department staffing businesses. In December, the Senate Budget Committee launched a bipartisan investigation led by Senators Sheldon Whitehouse (D.-R.I.) and Charles Grassley (R-Iowa) into two hospital systems associate with private equity firms.

Further, certain states have taken the initiative to pass their own oversight laws specific to private investment in the healthcare sector, with most of such laws requiring pre-closing notices and filings prior to the completion of a healthcare transaction. These laws generally provide for more in-depth disclosures as compared to traditional state-level review processes for licensing-related change of ownership filings. As of April 2024, twelve states have implemented versions of such laws and other states have similar legislation pending.

Health Over Wealth Act

The Proposed Bill includes four primary goals: (1) instituting federal reporting requirements for private equity investors (and other privately owned healthcare providers); (2) establishing “risk-mitigation” protocols aimed at reducing purported negative impacts from private ownership in healthcare providers; (3) requiring additional licensure requirements to be satisfied prior to a direct or indirect investment in a healthcare entity by a private entity; and (4) establishing a “task force” to “monitor” change in the healthcare marketplace.

1.     Reporting Requirements for Private Investment in Healthcare Entities

Under the Proposed Bill, private equity-backed and other for-profit owned providers would be required to annually report the following to HHS:

• debt;
• leadership of the health care entity;
• political spending by the health care entity;
• every asset purchased;
• real estate, mortgage and lease payments;
• number of payments to staffing firms; executive salaries and board membership of the for-profit owner and each health care entity;
• number of health care facilities owned by the for-profit company that have closed in the previous year;
• health care costs charged to patients and public and private health plans;
• conversion of non-patient care areas into patient care areas;
• health worker wage or benefit reductions;
• complaints of, or citations for, violations of state and federal antidiscrimination law, wage and hour law, and whistleblower complaints; and
• any other information that is deemed by the Secretary of HHS to be relevant for evaluating the impact of for-profit ownership on the provision of health care, health care quality, and safety.

2.     Risk Mitigation

Under the Proposed Bill, each for-profit corporation that owns a health care entity would be required to:

• establish an escrow account to cover operating and capital expenditures for 5 years, in case of closure or reduction of services;
• obligate a minimum capital investment in any owned health care entity; and
• carry out other activities HHS determines to ensure mitigation of the impact of closure, reduction in services, or reduction in quality or safety of care.

3.     Licensing Requirements for Private Investors in Healthcare Entities

If enacted, HHS would have a process pursuant to which HHS may issue licenses to private equity firms to invest in or purchase a health care entity. HHS may charge fees for such licenses and may revoke such licenses and require divestiture for failure to comply with the Act.

4.     Task Force to Monitor Healthcare Marketplace

The Proposed Bill would also require HHS to establish a task force comprising members that would include academic experts and researchers; representatives from organizations with purposes including consumer protection, antitrust, and health care; hospital and health care staff; and patients to:

• monitor changes in the healthcare marketplace;
• limit the role of private equity and consolidation in health care; and
• address changes or patterns in the marketplace that that increase, continue, or exacerbate disparities based on sex, sexuality, race, nationality, age, disability, immigration status, socioeconomic status, or location of residence.

Key Takeaway

While it remains unclear if this Proposed Bill will gain traction in Congress, it is the most detailed federal proposal to date to regulate private equity in the healthcare sector. King & Spalding expects such efforts to continue through the election cycle. The recent efforts in Congress to investigate private equity in healthcare indicate there is a degree of bipartisan support. 

Reporter, Catherine Behnke, Chicago, +1 312 706 8047, cbehnke@kslaw.com.