Article preview from "The Gray Sheet" - April 26, 2010
Medicare reimbursement rates for most device-intensive hospital procedures would increase moderately next year even as overall payments to hospitals would decline under CMS' fiscal year 2011 inpatient 1 proposed rule, issued April 19.
Medicare Inpatient Proposal: No Near-Term Trouble Spots For Device Sector
Article preview from "The Gray Sheet" - April 26, 2010
Medicare reimbursement rates for most device-intensive hospital procedures would increase moderately next year even as overall payments to hospitals would decline under CMS' fiscal year 2011 inpatient 1 proposed rule, issued April 19.
Payments for almost all cardiovascular, orthopedic and general surgery diagnosis-related group (DRG) procedure categories will go up by single-digit percentages if the plan is finalized.
The proposal is "good news in today's hospital environment, suggesting a stable reimbursement landscape," writes J.P. Morgan device analyst Michael Weinstein in an April 20 report.
For interventional cardiology, DRG payment rates would increase from about 2% to 4%, with payments for bare-metal stent procedures increasing slightly more than those for drug-eluting stent placements, according to the proposal and industry analyst assessments.
On the cardiac rhythm management front, increases would generally range from about 1% to 3%, though two categories for placing an implantable cardioverter defibrillator in patients with multiple comorbidities would see slight declines.
Heart valve surgery payments would remain about flat on average, while reimbursement for implantable left-ventricular-assist-device procedures could go up by about 4%.
In orthopedics, joint replacements and revisions would see gains of about 2% to 5%, depending on the procedure and patient comorbidities. Proposed increases for spine surgery range from about 1% up to 8%, with the largest change for combined anterior/posterior spinal fusion in patients without comorbidities, a category that has experienced significant reductions in recent years.
Device firms are already experiencing pressure from hospitals to reduce prices in the wake of the economic downturn and a tightening overall reimbursement environment. But the new Medicare proposal will not contribute to those pressures, Weinstein and other device sector analysts agree.
"We see no impact on our pricing forecasts," Weinstein writes. But independent of the inpatient rule, his group is already modeling 7%-8% annual price declines for drug-eluting stents, 3%-5% cuts for ICDs and flat average pricing for ortho implants.
Overall Hospital Cuts In The Offing
At the same time, seeds for future pricing pressures are present in the CMS proposal. Under the plan, acute care hospitals would on average be paid 0.1%, or $142 million, less in fiscal 2011 compared to 2010. And once CMS incorporates payment updates required for 2011 by the Patient Protection and Affordable Care Act, the recently enacted comprehensive health reform law, that reduction would increase to 0.35%.
In comparison, for 2010, hospitals received a positive update of about 2%, and in previous years have received updates of greater than 3%.
The proposed cut principally results from CMS' plan to recoup previous overpayments in instances when hospitals coded patients on claims forms to higher paying severity level categories than appropriate. For 2011, the agency proposes a 2.9% decrease to adjust for past upcoding, which counterbalances positive adjustments for inflation and other factors to reach the net 0.1% reduction.
The agency incorporated patient severity-of-illness adjustments into the DRG system in 2008 and 2009, expecting some degree of inappropriate upcoding during the transition. CMS has now calculated that Medicare paid hospitals an extra 5.8% due to upcoding during the two-year period.
The proposal would cover half of the overpayment, with an expectation that the additional shortfall plus interest would be collected in 2012. There is also the chance CMS could decide in future years to recoup additional overpayments.
Industry watchers do not think the 2011 decrease in payments will cause a push for lower device prices, but "future 2011-2012 measures to contain costs could have some pass-through to devices," Morgan Stanley analyst David Lewis acknowledges.
CMS actually proposed a year-to-year cut to hospitals last year to recoup upcoding-based overpayments, but relented in the fiscal 2010 final rule, in part due to arguments from hospitals that the policy would perpetuate the impact of the recession ("The Gray Sheet" Aug. 10, 2009).
Cost Report Revisions: Another Long-Term Factor
Another proposal in the draft rule that bears watching over the next several years is to revise the forms hospitals use to report procedure costs and charges to CMS. The reports serve as the basis for DRG payment calculations.
Last year, CMS added a line to the forms entitled, "Implantable Devices Charged to Patients." The change came after years of complaints by device companies that requiring the costs of more complex implantables to be included on a line for "medical supplies" led CMS to underestimate device cost ("The Gray Sheet" April 21, 2008).
The change could potentially have a positive effect on device payments beginning in 2012 based on the typical three-year lag for cost reports in making their way into payment calculations.
- David Filmore
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