The FY 2017 Financial Future: How the Cath Lab Impacts the Hospital Bottom Line

This article has been changed from the print version. Table 3 has been corrected.

Amid changing regulations, intense scrutiny of proper reimbursement, pressure to reduce costs, and the need to both measure and achieve high quality outcomes, the way hospitals provide care has been transformed. It’s no wonder that cardiovascular (CV) services are at the forefront of administrator’s minds, as the specialty is one of the most significant service lines in a hospital — meaning, a CV program has the potential to bring high-volume and high-revenue procedures to the hospital, but of course, not without high cost.

Corazon remains on the leading edge of payment updates and other important financial trends, and we believe it is imperative that hospitals are prepared for what is to come well in advance of the effective date of any changes. The following summary provides a high-level look at the upcoming fiscal year (FY) 2017 changes in terms of financial and quality standards.  

Understanding these updates can help hospital and program leaders, along with the cath lab staff, to be aware of new criteria and how the changes, either major or minor, impact the hospital’s bottom line.

Payment Updates

Inpatient Payments

Under the Centers for Medicare and Medicaid Services (CMS) FY2017 hospital inpatient final rule, the market basket update is 2.7% for acute care hospitals; however, hospitals will only see a net increase of 0.95% in overall operating payment rates due to adjustments.  These adverse adjustments include the following:

1. Documentation and Coding Adjustment = 1.5% decrease.  This adjustment was implemented in FY08 when CMS converted the Diagnosis Related Groups (DRG) system from CMS-DRGs to Medicare Severity (MS)-DRGs. This is the last year of the documentation and coding adjustment, and CMS has only recovered $5 billion. Therefore, the adjustment has almost doubled in FY17 in order to recover the total $11 billion due to past overpayments. 
2. Productivity Adjustment = 0.3% decrease. This adjustment was implemented in FY2012 to address economic productivity.
3. Accountable Care Act (ACA) Adjustment = 0.75% decrease. This adjustment was implemented in FY2011 to address the needs of the ACA and healthcare cost savings. CMS plans to continue this adjustment until FY2019 unless changes are made after the November 2016 presidential election.
4. Two-Midnight Policy Adjustment = 0.8% increase. Historically, CMS negatively adjusted inpatient payments due to the expected decline in the number of long observation stays and an increase in the number of inpatient admissions. In FY17, the two-midnight negative adjustment was removed and replaced with a positive adjustment, which is expected to offset the estimated costs hospitals incurred in FY14-FY16.  

Overall, facilities should realize a gain in inpatient reimbursement rates when compared to the prior fiscal year. Table 1 highlights a comparison of payments from FY2016 to FY2017 for the most common inpatient cath lab procedures. With the exception of percutaneous coronary intervention (PCI) without Stent and Pacemaker System, ALL cath lab procedures will receive an increase for inpatient payments.

Although there are overall increases in cath lab reimbursement, hospitals should be prepared for the proposed “cardiac bundle” called the Episode Payment Model (EPM), which has a direct impact on the cath lab.  The mandatory EPM follows the same structure as the Comprehensive Joint Replacement (CJR), except for two cardiac episodes: 

1. Coronary Artery Bypass Graft (CABGs) — defined by MS-DRGs 231-236;
2. Acute Myocardial Infarction (AMI) ­— defined by DRGs 280-282 for medical treatment and by MS-DRGs 246-251 for acute myocardial infarctions (AMIs) treated with PCI.

In CMS’s proposal, the mandatory bundle will take effect in July 2017 and run on a calendar year for five years until 2021; each year is referred to as a Performance Year. For example, Year 1 = July-Dec 2017 and Year 2 = Jan-Dec 2018. The cardiac bundles will evaluate the costs for Medicare inpatients plus 90 days post discharge for 98 randomly selected Metropolitan Service Areas (MSAs).  

During the duration of the mandatory EPM, hospitals, providers, and suppliers will continue to bill and collect as normal using their specific fee-for-service payment systems. However, after the completion of a performance year, all claims data for an episode is combined to calculate an actual episode payment. The actual episode payment would then be reconciled against an established, quality-adjusted target price. Target prices are based on a blend of hospital-specific data and regional historical data. The mix of hospital and regional data is weighted differently over the course of the program.  If the actual payment is less than the target price, then the hospital will recognize savings paid to the hospital — this is called a reconciliation payment. If the actual payment is greater than the target price, then CMS requires repayment from the hospital.

Table 2 highlights a high-level payment example if the EPM was in performance Year 4 or 5.

Recognizing that hospitals will need time to adapt to the new models and establish processes to coordinate care, the proposed rule includes a number of measures to ease the transition, including gradually phasing in risk.

In addition, CMS recognizes the role that cardiac rehab plays in the 90-day post-discharge continuum of care, and is incentivizing hospitals by providing additional payment: $25 per session for the first 11 sessions and $175 per session for each additional session, up to a total of 36 sessions. Medically treated AMIs are one of the highest reasons of readmissions; therefore, incentivizing hospitals to utilize cardiac rehab will potentially reduce costs.

The proposed rule can be viewed at https://innovation.cms.gov/Files/x/advancing-care-coordination-nprm.pdf and comments to the proposed EPM were due October 1, 2016.

Outpatient Payments

Since close to half of cath lab procedures are paid as outpatients, payments for this population must also be critically reviewed. In the proposed rule released by CMS in July 2016, CMS continues to aggressively shift outpatient payments to a true prospective payment system. 

Initiated in the CY2015 final rule, CMS continues the move towards Comprehensive Ambulatory Payment Classifications (c-APCs).  Comprehensive APCs combine a number of procedures required to support the delivery of the primary service into a single all-inclusive payment with no additional reimbursement for affiliated procedures performed during the same operative session. In the last two years, CMS focused on restructuring all high cost, device-dependent APCs (i.e., stents) into c-APCs. Hospitals are still required to append the status indicator “J1” to specify the c-APC.  

Table 3 illustrates the conversion and payment differences for PCI procedures. 

A new addition to the c-APC family is Diagnostic Cardiac Caths, which are now classified as c-APC 5191: Level 1 Endovascular Procedures.  This addition has caused a reclassification and renumbering of PCI procedures as illustrated in Table 3.  The highest level of PCI procedures saw the only decline in payments with a 1.3% reduction.  

Quality Updates

In order to realize maximum reimbursement potential, hospitals must adhere to the three quality standards noted below or else receive a reduction in base payments. Unfortunately, for hospitals with poor quality performance, the FY2017 increases in reimbursement for cath-lab based procedures will easily be overshadowed by penalties. Corazon believes this shift can have a major negative impact on hospitals that are not prepared to be paid based on quality — a national trend that is no doubt here to stay. We recommend all hospitals give due attention to fiscal details, though quality of care must be first and foremost in terms of goal attainment, not only for patient benefit, but also for the link to the bottom line.  

Readmissions

The Hospital Readmissions Reduction Program requires a reduction to a hospital’s base operating DRG payment to account for excess readmissions of selected applicable conditions. In addition to the five conditions (AMI, heart failure, pneumonia, chronic obstructive pulmonary disease, and total hip arthroplasty and total knee arthroplasty), CMS has added one new condition for coronary artery bypass grafting (CABG) in FY17.

Value-Based Purchasing (VBP)

The estimated base operating DRG payment amount reductions for FY2017 (2% reduction) is the same amount available for value-based incentive payments, which is approximately $1.8 billion overall. Although the measures for FY2017 were finalized in previous rulings, CMS has made final and proposed rulings for the future value-based purchasing (VBP) program. CMS is adding two condition-specific measures: (1) AMI and (2) heart failure, beginning in FY 2021, and a 30-day, all-cause, risk-adjusted mortality measure following CABG surgery in the FY2022 program year. 

Hospital-Acquired Conditions (HAC)

As part of the Affordable Care Act, a 1% reduction in payment is made to hospitals whose ranking is in the lowest performing quartile.  In the final rule, CMS added incidence rates for MRSA infection and clostridium difficile infection; however, the most notable change is the scoring methodology. CMS has shifted from a decile-based score to a continuous method called a Winsorized Z-score.  The new scoring method represents a hospital’s distance from the national mean. CMS believes the new approach is straightforward to implement, easily adapted as measures are added or removed, transparent, and familiar to a wide range of stakeholders.

Corazon recommends that hospitals pay close attention to quality data for the current year, especially because as standards shift, current outcome trends will help to determine whether a hospital will be penalized or incentivized in the future.

Other Notable Updates

ICD-10: One Year Later

After a full year of coding in ICD-10, a survey conducted by the American Health Information Management Association (AHIMA) Foundation found that “[coding professionals] experienced a 14.15% decrease in productivity, yet only a 0.65% decrease in accuracy.”1 Although the anxiety is still fresh in coder’s minds, accuracy concerns appear to be insignificant.  And just as coding productivity and efficiency may have improved for hospitals, CMS has issued its typical additions/revisions/deletions from the coding list. In particular, PCI’s ICD-10 ‘Device’ character options have expanded to better identify the number of stents inserted. Table 4 illustrates the combinations of PCI ICD-10 codes for FY17.

Cath Lab Staff Impact

The final rulings go into effect October 1, 2016 for the inpatient payment system and January 1, 2017 for the outpatient payment system. Savvy hospital and program leaders should always be looking at reimbursement for the cardiovascular service line, as changes to this specialty and included sub-specialties can have a major effect on the bottom line. This is true now more than ever since hospitals bear the financial risk of the mandatory cardiac bundles.

Based on this summary, Corazon recommends all hospitals pay close attention to the financial and quality performance of the CV service line, and the cath lab in particular. Though many of the FY2017 changes are positive, implementing efforts to maintain cardiovascular profit margins can favorably impact the overall organizational bottom line. An initial look at the financial, operational, and quality processes can reveal areas needing improvement and/or areas of opportunity. Any potential opportunity to improve performance should be considered a priority.

References and Sources

1. Butler M. Survey: coding productivity dipped after ICD-10 implementation. The Journal of AHIMA. Available online at https://journal.ahima.org/2016/06/13/survey-coding-productivity-dipped-after-icd-10-implementation/. Accessed September 23, 2016.
2. Department of Health and Human Services, Centers for Medicare & Medicaid Services 42 CFR Parts 510 and 512. Ruling CMS-5519-P.  Medicare Program; Advancing Care Coordination through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model (CJR). Available online at https://innovation.cms.gov/Files/x/advancing-care-coordination-nprm.pdf. Accessed September 23, 2016.
3. Notice of proposed rulemaking for bundled payment models for high-quality, coordinated cardiac and hip fracture care. CMS.gov. 7/26/2016. Available online at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-07-25.html. Accessed September 23, 2016.

Kristin Truesdell is a Manager at Corazon, Inc., offering strategic program development for the heart, vascular, neuro, and orthopedic specialties. Corazon has a full continuum of consulting, software solution, recruitment, and interim management services for hospitals, health systems, and practices of all sizes across the country and in Canada. To learn more, visit www.corazoninc.com or call (412) 364-8200. To reach the author, email ktruesdell@corazoninc.com.