By Jane Hyatt Thorpe and Chris Weiser

Background

A high number of deaths occur every year due to potentially preventable adverse events, including medical errors, in the hospital setting. The most commonly cited research on this topic was published by the Institute of Medicine (IOM) in 1999. The IOM report, “To Err is Human: Building a Safer Health System” stated that hospital acquired conditions (HACs) caused by medical errors are a leading cause of morbidity and mortality in the United States.^[1] More recently, a 2007 study found that of 1.7 million infections acquired while a patient was receiving treatment in a hospital, 99,000 resulted in death in 2002.^[2] In addition, there is also a significant cost burden associated with potentially preventable HACs. In 2000, the Centers for Disease Control and Prevention (CDC) published a report estimating the cost burden of HACs to be almost $5 billion.^[3]

Prompted by the IOM report, the National Quality Forum (NQF) developed a list of 28 “Serious Reportable Events,” also referred to as “Never Events.” The NQF defines “Serious Reportable Events” as errors in medical care that are of concern to both the public and health care providers, clearly identifiable and measurable, and of a nature such that the risk of occurrence is significantly influenced by the policies and procedures of the health care organization. NQF endorsed this list as a systematic way for providers and health care organizations to design policies and procedures to identify and prevent these events.^[4]

In response to the IOM report, other related studies, and the work of NQF, Congress included a provision in the Deficit Reduction Act of 2005 (DRA) requiring the Secretary of the Department of Health and Human Services (HHS) to implement a nonpayment policy for inpatient hospitals paid under the inpatient prospective payment system in the Medicare program for at least two HACs deemed to be 1) reasonably preventable; high cost, high volume, or both; and 2) identifiable through ICD-9-CM coding as a complicating condition or major complicating condition when present as a secondary diagnosis at discharge that results in a higher payment. As the HHS agency responsible for oversight of the Medicare program, the Centers for Medicare and Medicaid Services (CMS) developed a two-step process to fully implement the Medicare HAC nonpayment policy required by the DRA. Beginning October 1, 2007, CMS required hospitals to specify whether or not certain diagnoses were present on admission (POA). The following year, beginning October 1, 2008, CMS implemented a nonpayment policy for higher reimbursement rates associated with specific conditions that were not identified by the hospital as POA.

In addition, CMS implemented a second nonpayment policy through its National Coverage Determination (NCD) process. NCDs for three additional adverse events became effective January 15, 2009. Through these NCDs, CMS will not reimburse any providers for charges related to the following adverse events: surgeries performed on the wrong patient, the wrong body part, or the wrong surgical procedure.

Prior to the passage of the Affordable Care Act (ACA), the HAC and NCD nonpayment policies implemented by CMS only applied to services provided under the Medicare program. Although CMS urged all state Medicaid programs to adopt similar nonpayment policies, only 21 adopted similar policies. As now required by the ACA, the HHS Secretary must extend HAC nonpayment policies to all state Medicaid programs.

Changes Made by the Affordable Care Act (Pub. L. 111-148 §§, as modified by P.L. 111-152)

Payment Adjustment for Health Care-Acquired Conditions (Section 2702)^[5]

• Regulation to Prohibit Payments for Health Care-Acquired Conditions: The Secretary must identify current state practices that prohibit payments to providers for health care-acquired conditions (HCACs), and incorporate elements of such practices, as appropriate, into a regulation to apply to the Medicaid program as a whole. The regulation must prohibit payments to states for any amounts expended for providing medical assistance for certain HCACs effective July 1, 2011.
• Definition of “Health Care-Acquired Conditions”: Section 2702 defines a HCAC as a condition for which an individual can be diagnosed, and that can be identified by a secondary diagnostic code by CMS (e.g., those included on the Medicare HAC list).^[6]
• Exclusion of Certain Conditions: Certain HACs that are included in the Medicare program may be excluded from non-payment under the Medicaid program if they are inapplicable to Medicaid beneficiaries as determined by the Secretary.

Implementation

Agency

CMS is responsible for issuing regulations pertaining to the Medicaid HCAC non-payment policy and implementing the program with state Medicaid programs.

Key Dates

• The ACA requires that regulations implementing the HCAC nonpayment policy for state Medicaid programs shall be effective as of July 1, 2011.
• CMS issued a proposed regulation to implement the HCAC nonpayment policy for Medicaid programs on February 17, 2011 with comments due by March 18, 2011.^[7]
• CMS issued a final regulation to implement the HCAC nonpayment policy for Medicaid programs on June 1, 2011 that was published in the Federal Register on June 6, 2011.^[8] CMS indicated that while the statutory effective date for the HCAC nonpayment policy is July 1, 2011, CMS will delay compliance actions until July 1, 2012.^[9]

Process

States must submit conforming State Plan Amendments (SPAs) to their state Medicaid plans to CMS. The SPAs must identify the HCACs the state Medicaid program will not reimburse providers for and indicate that Federal Financial Participation (FFP) is not available for these HCACs.

Key Issues

• Medicare HAC policy as floor: In the final regulation, CMS set the Medicare HAC policy as the minimum requirement or floor for state Medicaid programs. While many provider stakeholders have concerns with the application of the Medicare HAC nonpayment program, there is general support for applying the same list of HACs to the Medicare and Medicaid programs for consistency purposes, particularly from large multi-state health systems. Towards that end, many believe that rather than being a floor, the Medicare HAC program should be the entirety of what is applied to the state Medicaid programs. This would allow for uniform and consistent use of a federal set of HACs that will be updated accordingly through the federal notice and comment process. However, this would not allow states flexibility to address specific needs or issues within their communities and force those that have already adopted broader nonpayment policies to scale back their programs.
• Selection of Provider Preventable Conditions: In the final regulation, CMS affirmed the use of an umbrella term — “Provider Preventable Conditions” — that includes both HCACs as defined by the ACA as well as Other Provider Preventable Condition (OPPCs). OPPCs include wrong procedure, procedure performed on wrong body part, procedure performed on wrong patient (same as Medicare NCDs noted above), and services provided in settings other than inpatient hospitals such as outpatient hospital, nursing, and ambulatory care settings. In setting up this dual system, CMS intends to allow states greater flexibility in selecting PPCs for nonpayment under their state plans (as approved by CMS through the state plan review process) beyond the Medicare HAC and NCD list. In particular, CMS encourages states to consider the NQF list of serious reportable events. Many in the provider community are concerned with the flexibility CMS is allowing states. In particular, Section 3008 of the ACA requires CMS to study the potential impact of expanding the Medicare HAC program to other settings of care on quality of care, cost and access by January 1, 2012. Providers and other stakeholders are concerned that it is premature to expand the Medicaid program to other settings of care prior to completion and review of the study of potential Medicare expansion.
• Provider Reporting: CMS will require states to establish provider self-reporting procedures for PPCs related to claims for Medicaid payment or courses of treatment that would otherwise be payable by Medicaid. The purpose of this requirement is to ensure states have sufficient information to properly process claims and identify the availability of the Federal Financial Participation (FFP) amount. This will create a challenge and burden for providers to report this information and states will simultaneously need to develop a system to accept and process this information.
• Implementation Date: The ACA requires that CMS implement the Medicaid HCAC nonpayment policy to payments under approved Medicaid state plans no later than July 1, 2011. Many stakeholders expressed significant concern that it is not feasible or appropriate to implement this program in such a short time frame. The Medicare HAC program was authorized in 2005 and began with a year of reporting in calendar year (CY) 2007 followed by nonpayment in CY 2008. Many Medicaid programs are unprepared and do not have the necessary systems and software in place to appropriately select and identify HCACs and process payment adjustments beginning July 1, 2011. Furthermore, many noted that the short implementation time frame may impede Medicaid programs from working collaboratively with their stakeholder community to develop and select PPCs that best meet the needs of their state and communities. To address these concerns, CMS indicated that it will not pursue any compliance actions related to the Medicaid HCAC program until July 1, 2012 to give states additional time to implement their programs.

Recent Agency Action

• As noted above, CMS issued a final regulation to implement Section 2702 on June 1, 2011 that was published in the Federal Register on June 6, 2011.

Authorized Funding Levels

• As an entitlement program, Medicaid is not subject to the appropriations process.
• In the final regulation, CMS estimates the program will result in aggregate Medicaid savings of $35 million during fiscal years 2011 through 2015; $20 million for the federal share and $15 million for the state share.^[10]