CMS Proposes Dramatic Cuts in Reimbursement to Hospitals: An Editorial

Earlier this year, the Centers for Medicare and Medicaid Services (CMS) released its Fiscal Year (FY) 2007 Inpatient Proposed Rules for public comment. The proposed changes would affect both the current Diagnosis Related Group Weighting Methodology and the Patient Classification System in the Inpatient Prospective Payment System. While the official period ended on June 12, it did not happen without significant response from the medical community at large including just about every society involved with the provision of cardiac care.  The major reasons for the dramatic opposition to the proposed rules are threefold:  First, as detailed in the analysis provided by The Health Economics and Outcomes Research Institute of the Greater New York Hospital Association, the proposed reimbursement methodology for cardiac devices including AICDs, pacemakers, stents and cardiac valves, is flawed. Under CMS' proposal (which was prematurely endorsed by both the Medicare Payment Advisory Commission [MedPAC] and the Chairman of the House Ways and Means Committee), the basis for reimbursement is the 2003 Cost Report data submitted by hospitals. Such data obviously does not and cannot account for new clinical trial data, procedures, and devices that have contributed to the treatment of heart disease since 2003. Instead, with a blind eye to these clinical advances in cardiovascular medicine, CMS has proposed reducing reimbursement by 25 - 32% (for a variety of medical devices), guided by the erroneous belief that hospitals have been marking up the actual acquisition cost of devices to the same extent. While the net affect across the Medicare System is intended to be budget neutral, the true impact of the proposal would shift dollars away from the surgical DRGs in specialties such as cardiac and orthopedics and move them to the medical DRGs for conditions such as pneumonia, septicemia, etc. If the proposal comes to fruition in its present form, it would rock the financial foundation of many hospitals that have heavily invested in the provision of tertiary and quaternary cardiac care. A glaring example of such lies in the projected combined loss of revenue exceeding $37M for the four hospitals on Long Island with cardiac surgery programs.  Second, and closely related to the issues discussed above, is the fact that the proposed changes do not provide for severity adjustments within the DRGs, which are required to accommodate for the significant variability in Medicare reimbursement across the country. Those hospitals offering complex procedures, including the deployment of stents and/or the implant of devices, would experience a decrease in their reimbursement, while those facilities that do not perform these procedures would actually see an increase in reimbursement. Such a divergent reimbursement practice would only serve to further degrade an already fractionated healthcare delivery system, and could potentially hinder the delivery of appropriate care to an aging population who ultimately will drive up the cumulative cost of care over an individual's life span. In general, this represents poorly constructed public policy, which runs counter-intuitive to the ground-breaking revelations of clinical trials such as MADIT II and SCD-HeFT. Put more simply, the government proposes a flawed approach using flawed data to in effect be penny-wise and pound foolish.  Finally, moving above the micro-minutia of the accounting and budgetary focus of the system, it becomes readily apparent that in its attempt to accomplish budget neutrality by capping the cost of technological advances in medicine, CMS has simply targeted the most significant disease process in the country. While that may appear at first glance to achieve the fiscal objective, it raises dramatic quality of life and ethical concerns. The problem is even more compounded by the fact that the proposed changes are slated to be implemented as of October 1, 2006. Regardless of the side of the debate on which one might fall, it is simply prudent to implement dramatic change slowly over time so as to make every effort to maintain the stability of the system for which change is earmarked. A one-year deferred implementation of the final ruling would be prudent but is not likely, given the mandate from Congress for CMS to provide a budget-neutral solution.  In summary, the CMS proposal would be a major step in the wrong direction, a step this country's healthcare system cannot afford to take.