With Congress having adopted its first budget resolution in several years, many questions have arisen as to what the legislation means for the federal government, businesses and individual taxpayers. In order to understand the budget deal, it is important to consider the context within which the agreement was reached, as well as the specific provisions it contains. Doing so allows for a more effective examination of the goals and potential impact of this significant, albeit incremental, measure.

By way of background, it must be stated that the Joint Select Committee on Deficit Reduction, or “Super Committee,” created by the Budget Control Act of 2011 (BCA), failed to identify $1.1 trillion in federal spending reductions as was required of it by law. As a result, across-the-board spending cuts, known as sequestration, took effect, despite the intentionally painful nature of the cuts, a consequence meant to incent Republicans and Democrats to find common ground on difficult spending negotiations. Absent congressional intervention, on Jan. 15, 2014, sequestration will require even deeper spending cuts to a number of programs.

However, these looming cuts, coupled with the aftermath of a politically damaging shutdown of the federal government in October 2012 and a Congress weary from repeated battles over continuing resolutions and debt ceilings, have set the stage for agreement on a broad framework for federal spending, cast between House Budget Committee Chairman Paul Ryan (R-WI) and Senate Budget Committee Chairwoman Patty Murray (D-WA). The agreement was approved by the House of Representatives on Dec. 12, followed by Senate passage on Dec. 18.

This budget agreement, known as the Bipartisan Budget Act of 2013 (Budget), among other things extends Medicare’s current physician payment update of 0.5 percent through March 2014, thereby averting a 23.7 percent payment cut to doctors scheduled to take effect on Jan. 1, 2014. The Budget covers the cost of this three-month, $7.3 billion temporary fix and other Medicare provisions largely by changing the way Medicare pays for long-term acute care hospital (LTACH) services. The following are key changes contained within the Budget that significantly impact payment to, and development within, the LTACH industry:

  1. New STACH Stay Requirement to Qualify for LTCH PPS Payment. Medicare discharges from LTACHs will be paid at the Long-Term Care Hospital Prospective Payment System (LTCH PPS) rate if a patient spends either at least (i) three days in an intensive care unit of a short-term acute care hospital (STACH) immediately prior to being admitted to an LTACH, or (ii) 96 hours on a ventilator in an LTACH and had an STACH stay immediately prior to being admitted to an LTACH. The LTACH discharge cannot have a principal psychiatric or rehabilitation diagnosis.
  2. Site-Neutral Payment Rate. All discharges that do not qualify for payment under the LTCH PPS will be paid at a new site-neutral payment rate that is the lower of either (i) the IPPS comparable per-diem payment rate including any short-stay outlier payments, or (ii) 100 percent of the estimated costs for services. This new payment policy will become effective for LTACHs with cost reporting periods beginning on or after Oct. 1, 2015. For fiscal years 2016 and 2017, a blended site-neutral payment rate will apply (half the site-neutral payment rate and half of the payment rate that otherwise would be applicable). Beginning fiscal year 2018, only the site-neutral payment rate will apply.
  3. Calculating Average Length of Stay. For cost reporting periods beginning on or after Oct. 1, 2015, LTACH discharges paid at the site-neutral payment rate or by a Medicare Advantage plan would be excluded from the calculations to determine whether the average length of stay of an LTACH exceeds 25 days.
  4. LTCH Discharge Payment Percentage. For cost reporting periods beginning in fiscal year 2016, CMS will advise each LTACH of its LTCH discharge payment percentage. The LTCH discharge payment percentage would be calculated as the number of discharges for which payment is not made at the site-neutral payment rate divided by the total number of discharges for the LTACH. For cost reporting periods beginning in fiscal year 2020, if an LTACH has an LTCH discharge payment percentage below 50 percent, then all LTACH discharges beginning in the next cost reporting period would be reimbursed at the IPPS rate. An LTACH could affirmatively appeal to CMS to have LTCH PPS payments reinstated if it fails to satisfy the minimum LTCH discharge payment percentage threshold.
  5. Extension of Development Moratorium. The Medicare, Medicaid, and SCHIP Extension Act of 2007 moratorium, as amended, on the establishment of new LTACHs and increases to the number of beds in an existing LTACH, would be reinstated for the period from Jan. 1, 2015, to Sept. 30, 2017. No exceptions would apply during the renewed moratorium period.
  6. Delayed Application of the 25 Percent Rule. LTACHs, including hospitals within hospitals (HWHs), satellite facilities and freestanding facilities, would not be required to comply with the 25 Percent Rule until Dec. 28, 2016, at the earliest, and relief would be granted retroactively for those LTACHs previously required to comply with the 25 Percent Rule in 2012 and 2013. Grandfathered HWHs would also be permanently exempt from the 25 Percent Rule. CMS would be required to report to Congress by December 2015 regarding the impact of the new site-neutral payment policy on LTACHs and whether to enact the 25 Percent Rule.

The Budget will prevent another government shutdown, but it does not address the debt ceiling, which Congress must resolve by next spring. However, the Budget will have broad implications across all industries, not just health care. McGuireWoods Consulting has prepared a summary of key Budget measures to help you better understand how the Budget will affect your business, and what it means for key industries, such as tax, health care and energy. If you have any questions, please do not hesitate to contact any of the authors listed below.