Medical Device Daily Washington Editor

WASHINGTON – Despite the June 12 closing of the open comment period for CMS's proposed rule changes for the Medicare inpatient prospective payment system (IPPS), members of the Medical Device Manufacturers Association (MDMA; Washington) at their annual meeting continued to lobby against an action they argue is good for neither patient nor medical device innovator.

After a pair of presentations on the subject, Mark McClellan, administrator for the Centers for Medicare & Medicaid Services (CMS; Baltimore), presented his best case to sell the changes to industry. But there was little indication that his appeal fell on anything other than deaf ears as the association's annual meeting came to a close last week.

Thomas Gustafson, deputy director of the Center for Medicare Management at CMS, outlined the government's dilemma. He said that the original Medicare program at present covers about 88% of all who are eligible, despite the rollout of Part C (Medicare Advantage) in the late 1990s and that “this will be the dominant product line at Medicare” for the foreseeable future.

His chart showed that while Medicare Advantage enrollment will rise from roughly 4.7 million enrollees in 2004 to just more than 13 million in 2013, the current base of enrollment in fee-for-service should hold steady at just under 36 million in that same time-frame.

Gustafson said that the June 12 recommendations offered by the Medicare Payment Advisory Commission included that CMS do a better job of capturing the severity of conditions and deal with hospital-specific relative values. He noted this latter as a response to the proliferation of specialty hospitals, “which has caused the hospital system to vibrate fairly severely” as other hospitals find their revenue streams slowing.

In the final rule for FY06, CMS “replaced nine cardiovascular DRGs [diagnostic-related groups] with 12 new ones that better recognize the severity of illness,” Gustafson said, noting that the agency will take interim steps to “improve the DRG system.”

“We pushed very hard to get out the proposed final rule for 2007” as early as possible, Gustafson noted, with the ink scheduled to dry by Aug. 1.

The 2007 rule deals with hospital-specific cost weights, a move prompted by MedPAC's observation that the system had induced bias “due to differential markups for ancillary services among the DRGs.” The commission also noted that charges for routine days, ICU days and ancillary services were not previously marked up consistently.

CMS believes that charge-based weights and DRG classifications “result in notable distortions between payments and the relative costs of care,” a condition the agency hopes to address with adjustments to relative weights and DRGs.

Hence, the proposed rule for 2007 includes hospital-specific cost weights and consolidated severity DRGs. The transition, however, promises to be complicated.

Gustafson said that the cost-based approach is not intended to utterly replicate actual costs, and he pointed out that assembling a database sufficiently “granular” to capture such data “would be a massive undertaking” essentially rendering it impractical.

At present, CMS is considering a proposal to alternative DRG systems, including one proposed by 3M (St. Paul, Minnesota), called All Patient Refined (APR).

According to Gustafson, the APR system has the same number of major diagnostic categories as CMS's 25, but it offers a more complex algorithm for filing statements of intent (SOIs), which are essentially placeholders for claims not yet filed. The APR system would offer the user a total of more than 1,200 SOIs compared to the current 526 available from CMS and the 856 that will be available if the proposed rules for 2007 roll out as currently written.

According to Gustafson, the CMS version of the proposed consolidation of DRGs by 2008 would “be budget-neutral to the hospital industry,” but, as previously reported, would cut payments for drug-eluting stents and defibrillators by 30% and 15%, respectively, while boosting payment for pneumonia and cellulitis by 10% and 13%. He noted that both the CMS and 3M proposals for DRG classification would boost payments for medical DRGs and reduce payments for surgical procedures.

Jo Ellen Slurzberg, vice president for reimbursement and health policy at Almyra (Boxborough, Massachusetts) and speaking on behalf of the industry, urged that CMS put all the proposed changes off until 2010 because “it is better to make the change all at once.”

She charged that CMS's cost data is obsolete and recommended that the agency “accumulate data from no less than 60% of hospitals,” including a representative mix of urban, suburban and rural hospitals.

“Can we standardize complexity?” Slurzberg asked, stating the industry's position that the proposed prospective payment system “has not clearly defined how specific diagnoses and procedures affect severity-based DRG assignments.”

The DRG system offered by 3M had little more to offer, according to Slurzberg. “It's hard to figure out which diagnoses count” in that system, she said.

Slurzberg urged CMS to keep the current charge-based system for now so that hospitals have time to train coders and to give CMS time to incorporate more recent cost data. She added that in the current schedule, hospitals would have to “undertake expensive and major systems changes in each of the next three years,” given the anticipated implementation of ICD-10, the disease classification system that will shortly replace its predecessor, ICD-9.

Slurzberg insisted that the hospitals used in the MedPAC analysis are “not representative of the full-service hospital,” and that only about 1% of all hospitals were part of that analysis.

The industry position was also said to include a recommendation that “specialty hospitals be removed from the current IPPS” to make way for a separate payment system that is tailored to “their unique patient populations,” as is the case with long-term care facilities.

“While we appreciate that CMS made the data and its proposal available earlier in the cycle than in the past,” Slurzberg said, “the proposed rule may have unintended consequences that cannot be fully evaluated” given the lack of data, transparency and reproducibility.

In his luncheon address to the medical device community following Gustafson's and Sluzberg's presentations, CMS chief McClellan noted that the agency had proposed “big rules with some very important reforms,” while reassuring industry that the overall idea is to come out with a “value-based payment system.”

He said that this is “one area where we intend to redirect our payments further,” expressing a preference for outcomes.

“What we want is to pay more for better care, fewer complications and reduced services,” McClellan said, urging the audience to consider that the current payment system is broken. He added: “We cannot afford to do this much longer.”

The CMS chief promised “incremental increases in payment when hospitals” cure disease with fewer readmissions and fewer complications later. “This,” he said, “is the way to save money in our healthcare system.”