Health Law Daily CMS methodology for site neutral rate calculations upheld
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Tuesday, October 1, 2019

CMS methodology for site neutral rate calculations upheld

By Rebecca Mayo, J.D.

A court found that CMS’s methodology in applying the budget neutrality adjustment to site neutral long-term care hospital stays is a reasonable interpretation of the applicable statutes and regulations.

In a memorandum opinion a court found that CMS was reasonable in its determination that the budget neutrality adjustment (BNA) for site neutral payments is an appropriate adjustment that maintains budget neutrality within long-term care hospital (LTCH) prospective payment systems (PPS). The court noted that CMS had articulated its reasoning for its view and the calculation as applied by CMS maintains budget neutrality as required by congressional mandate (New Lifecare Hospitals of Chester County LLC v. Azar, September 30, 2019, Sullivan, E.).

Budget neutrality adjustment. High cost outlier (HCO) payments are available to some hospitals to offset extremely high costs that hospitals may incur in both inpatient and LTCHs. However, these payments cannot be projected to increase the overall Medicare payment obligations of the federal government. To account for the HCO payments, CMS reduces the Inpatient Prospective Payment System (IPPS) and LTCH payment rates by prospectively estimating the proportion of outlier payments and then prospectively reducing those rates to account for the outlier payments. This is known as the BNA.

To deter LTCHs from admitting patients who instead could be safely and efficiently treated in a lower-cost setting, Congress established a "site neutral" to be used for such patients under a dual-rate structure. Under this structure, a LTCH is only reimbursed at the standard Federal rate if the patient spent at least 3 days in a hospital’s intensive care unit immediately preceding the LTCH care, or received at least 96 hours of respiratory ventilation services during the LTCH stay. If these criteria are not met, the LTCH receives the site neutral rate, which is defined as the lower of the IPPS comparable per diem amount including any applicable outlier payments or 100 percent of the estimated cost for the services involved. After the site neutral rate is calculated, CMS makes certain adjustments including an adjustment to account for outlier payments made to site neutral cases in the LTCH PPS. A group of over 100 LTCHs challenged this calculation, asserting that accounting for outlier payments in the calculation of the base rate and then again after that rate is calculated is duplicative.

Notice and comment. The LTCHs challenged the validity of the rule establishing the methodology for applying the BNA to the LTCH site neutral payment rate by alleging that the Secretary failed to adequately respond to comments during the rulemaking process. The court noted that for each year that the rule was applied since 2016, commenters raised the same concerns about the application of the BNA and every year CMS provided a detailed explanation for why it chose to apply the BNA to site neutral LTCH cases. For 2019, CMS did not provide a detailed explanation but did expressly refer to substantive responses from previous years and incorporated the reasons outlined in previous responses. The court found the acknowledgement and consideration of the comments reasonable as CMS identified the major issues raised and stated the main reasons for its decisions.

Reasonable interpretation. The regulation at issue requires the Secretary to calculate the site neutral payment using the IPPS standardized amount the IPPS Federal rate, both of which incorporate the IPPS BNA. What is not clear from the statute is whether the BNA should be applied to the site neutral payment rate after the rate is determined. CMS asserts that to maintain budget neutrality within LTCH PPS, it is not sufficient to merely rely on adjustments incorporated into certain of the inputs for the calculation of the site neutral payment rate which account only for outliers in IPPS hospitals. The solution then is to adjust for outlier payments in the LTCH PPS by adjusting the site neutral payment rate itself. Without this adjustment, aggregate LTCH PPS payments would increase to a level that disrupts budget neutrality which would violate the congressional mandate to maintain budget neutrality.

Further, the court noted that Congress was aware of how CMS had implemented the IPPS comparable per diem amount in the short stay outlier context and chose to use the same term to define the site neutral payment rate. Therefore, Congress presumably understood that CMS would budget neutralize the high cost outlier payments for site neutral cases, as it had been doing for years in other cases. Therefore, the court concluded that the Secretary reasonably determined that the BNA for site neutral payments is an appropriate adjustment that maintains budget neutrality within LTCH PPS.

This case is No. 1:19-cv-00705-EGS.

Attorneys: Jason M. Healy (Law Office of Jason M. Healy, PLLC) for New Lifecare Hospitals of Chester County LLC d/b/a Lifecare Hospitals of Chester County, New Lifecare Hospitals of Dayton LLC d/b/a Lifecare Hospitals of Dayton and New Nextcare Specialty Hospital of Denver LLC d/b/a Colorado Acute Long Term Hospital. Joshua M. Kolsky, U.S. Attorney's Office, for Alex M. Azar, II.

Companies: New Lifecare Hospitals of Chester County LLC d/b/a Lifecare Hospitals of Chester County; New Lifecare Hospitals of Dayton LLC d/b/a Lifecare Hospitals of Dayton; New Nextcare Specialty Hospital of Denver LLC d/b/a Colorado Acute Long Term Hospital

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