Washington Update: Monday, June 5, 2023
So long, debt ceiling. See you in 2025.
It’s finally over. The ending seemed a little anticlimactic but the debate could have easily spiraled out of control. And so, we salute our Congressional allies for bringing this in for a safe landing. In the end, threats by the Republican Freedom Caucus fizzled. They emerged looking bruised and apparently without the leverage they thought it had. The compromise that President Biden and Speaker McCarthy struck should strengthen the political standing of both leaders.
And so… back to the LTCH regulatory issue.
With the debt ceiling behind us, we switch gears this week to return to the LTCH regulatory issue. The CMS comment period ends this week and the final rule is expected by mid-August. We summarize some of the major arguments as developed by the extensive team studying the issue. Thanks to Mike Bender, Chris Carey, Tony Grigonis, Jason Healy, and many others for developing these arguments. Congress is already looking at possible changes in policy to address these issues.
Ten Points We Ask CMS To Consider When It Decides Policies for High-Cost Outliers (HCO) and the Fixed-Loss Threshold (FLT).
On April 13, 2023, CMS released the proposed LTCH rule for FY 2024. The rule proposes raising the fixed-loss threshold (FLT) in high-cost outlier (HCO) calculations from $38,315 to $94,378, an unprecedented increase of almost 150%.
The proposed FLT amount of $94,378 is simply unsustainable for LTCHs since no LTCH can afford to absorb anywhere near this amount of financial loss.
The core of our argument is that, in calculating these proposed formulas, CMS relied on data collected over the past several years – a highly atypical and anomalous period upon which to base payment formulas. If enacted, this policy would represent a significantly disruptive change and have the unintended consequence of discouraging LTCHs from treating the sickest patients.
Policymakers at CMS and in Congress have been generous with hearing us out at the most senior levels. These policymakers admit it’s a big change and the payment data does seem distorted clinicallyby COVID-19 AND economically by the unique post-pandemic environment. These policymakers acknowledge that small ripple in data assumptions - like inflation or labor costs - can lead to big a tsunami in payment policies. We hope policymakers see the wisdom in changing their assumptions to end-up at a more rational policy. We'll see in August when the final rule comes out. Here are some other points we have stressed when talking with CMS and Congress:
Select Medical, the American Hospital Association and the National Association of Long-Term Hospitals have submitted to CMS detailed “comment letters” with considerable data, analysis, and alternatives to reach a more rational HCO policy. Each of the organizations have suggested alternative assumptions for CMS to use in calculating the outlier threshold. Each alternative would produce more appropriate outlier projections for the coming fiscal year.
Just by making more conservative assumptions about cost projections, CMS can reach a much lower Fixed-Loss Threshold amount. We showed CMS how LTCHs have faced unique circumstances in the past three years and that these circumstances have skewed the charges and claims data. We also showed CMS that they can expect the claims and charge data to soon stabilize and slowly return to normal.
The most mystifying thing about this proposed policy is that it would penalize the very LTCHs – like Select Medical’s – who were doing exactly what CMS policy has encouraged for the past twenty-five years: Focusing on high-acuity patients. Lower-acuity LTCHs – with high percentages of site-neutral patients – would have significantly less exposure to this proposed policy.
If implemented, this policy would unintentionally discourage LTCHs from treating high-acuity patients and thereby undermine decades’ worth of CMS public policy. Only 1% of Medicare patients end up being treated in an LTCH but these are the sickest of the sick.
This HCO proposal would harm not only LTCHs but the general hospitals who refer patients to us. If LTCHs are unable to continue caring for the sickest patients, then it potentially puts the burden back on general hospitals who are facing their own challenges. LTCHs assist these hospitals by “decompressing” ICU units when there is a shortage of ICU beds, as is often the case. LTCHs provide additional capacity and, without it, numerous communities across the country would face increased difficulty meeting the demand for care.
And there are broader implications for the rest of the health care continuum: SNFs, for instance, can’t safely handle the patients that LTCHs treat. In 2022, half of our HCO patients required mechanical ventilation. Early discharge to SNFs is not a viable option for these patients.
We have also used this regulatory issue as an opportunity to remind CMS of the ongoing distortions in the broader LTCH payment system. The market basket update does not capture the unprecedented inflationary environment LTCHs are experiencing. The market basket is a time-lagged estimate that uses historical data to forecast into the future. When historical data are no longer a good predictor of future changes, the market basket methodology becomes ineffective.
On top of the inflationary cost pressures, many LTCHs are caring for sicker patients with longer average lengths of stay (ALOS). The patient population that LTCHs have treated over the past few years is unlike any we have seen before. Sicker patients and a nursing shortage resulted in major anomalies -- with significant impact on LTCH high-cost outliers.
We also point out the LTCH community that exists today is completely different than the one that existed before President Obama signed the 2013 LTCH criteria into law. The 2013 criteria brought LTCH spending down by 35% and led to the closure of 20% of the nation’s LTCHs. Today, LTCH margins are the lowest in all of the post-acute sector.
Finally, we remind policymakers that LTCH capabilities were on full display during the COVID-19 public health emergency (PHE). COVID-19 patients were three times more likely than non-COVID-19 patients to be admitted to an LTCH during the PHE. We're proud of our COVID-19 record.