A combination of changes in the "75 Percent Rule" and new draft Local Medical Review Policies/Local Coverage Determinations (LMRPs/LCDs) could result in significant operational and financial changes for inpatient rehabilitation facilities (IRFs).

Background
Since the beginning of the inpatient prospective payment system (IPPS) in 1983, Medicare has had criteria by which certain inpatient rehabilitation hospitals and units could be excluded from IPPS. For cost reporting periods beginning on or after January 1, 2002, IRFs are paid under a prospective payment system (IRF PPS), in which they receive a set amount per discharge, based on the Case-Mix Group (CMG) for the particular patient.

The primary requirement for exclusion from IPPS has been the so-called "75 Percent Rule," i.e., at least 75 percent of the inpatient population served by the hospital or unit in the most recent year must fall within one of the following ten conditions:

Stroke
Spinal cord injury
Congenital deformity
Amputation
Major multiple trauma
Fracture of femur (hip fracture)
Brain injury
Polyarthritis, including rheumatoid arthritis
Neurological disorders, including multiple sclerosis, motor neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's disease
Burns

42 C.F.R. § 412.23(b)(2) (2003).

This list of qualifying conditions had not changed in 20 years to keep up with changes in medical practice. Increasingly, knee and hip joint replacements have formed a large percentage of admissions to IRFs. A recurring issue has been whether such procedures fall under the condition of "polyarthritis." Due to inconsistencies in the way intermediaries have been applying the 75 Percent Rule, CMS put a moratorium on enforcing the rule in June 2002, and committed to take another look at the criteria.

Changes to the 75 Percent Rule
On September 9, 2003, CMS published a proposed rule that would change the criteria for being classified as an IRF exempt from IPPS. 68 Fed. Reg. 53,266. With respect to the 75 Percent Rule, CMS proposed three major changes: (1) to increase the number of conditions from ten to twelve, by removing "polyarthritis" and replacing it with three groups of conditions that narrowly identify certain types of arthritis-related ailments (the three groups are active, polyarthritic rheumatoid arthritis; psoriatic arthritis and seronegative arthritis; systemic vasculidities with joint inflammation; and severe or advanced osteoarthritis involving three or more major joints); (2) to reduce the 75 percent threshold to 65 percent for a period of three years to permit time to comply with these changes; and (3) during that three-year period, to permit patients who have a secondary medical condition that meets one of the twelve conditions to be counted in the 65 percent so long as, even in the absence of the admitting condition, the secondary condition would require treatment in an IRF rather than in another less acute setting.

In the preamble to the proposed rule, CMS also indicated it considered, but decided against, including cancer, cardiac conditions, pulmonary conditions and pain in the list of qualifying conditions, despite requests from the industry. CMS concluded that these conditions would cover most patients admitted to acute care hospitals, thereby blurring the distinction between IRFs and IPPS hospitals.

Congress, in the Conference Report to the MMA, urged CMS to delay issuing a final rule until such time as the GAO issued a report, in consultation with experts in physical medicine and rehabilitation, examining the current list of conditions for defining IRFs and determining whether additional conditions should be added. CMS did not abide by this expression of congressional intent, and instead issued a final rule on May 7, 2004. 69 Fed. Reg. 25,752.

In response to comments, CMS retained in the final rule its proposal to remove polyarthritis, replacing it with the three proposed arthritis-related conditions. CMS did, however, reduce the number of affected joints from three to two in the category of severe or advanced osteoarthritis. For each of these three categories, CMS requires that the patient have an impairment or dysfunction that "has not improved after an appropriate, aggressive, and sustained course of outpatient therapy services or services in other less intensive rehabilitation settings immediately preceding the inpatient rehabilitation admission ...." 42 C.F.R. § 412.23(b)(2)(iii).

Significantly, CMS also added a new 13th condition for hip or knee replacements, or both, during an acute hospitalization immediately preceding the IRF stay, if one of the following conditions are met: (1) patient undergoes bilateral joint replacement immediately prior to IRF; (2) patient is extremely obese; or (3) patient is 85 or older at time of admission to IRF. These restrictions are likely to reduce substantially the number of joint replacements that qualify under the 75 Percent Rule.

CMS also lowered the threshold during a transition period and extended the time period in which an IRF must comply with the new rules. For cost reporting periods beginning on or after July 1, 2004, and before July 1, 2005, 50 percent of an IRF's total patient population must meet one of the thirteen qualifying criteria. This compliance level increases to 60 percent for cost reporting periods beginning on or after July 1, 2005, and 65 percent for cost reporting periods beginning on or after July 1, 2006. For cost reporting periods beginning on or after July 1, 2007, IRFs must comply with the 75 Percent Rule unless, after further study, CMS changes the requirement.

CMS's changes are driven by its belief that many patients now in IRFs could be cared for either in acute care hospitals or in less acute settings such as SNFs. CMS contends that "there have been strong reimbursement incentives to send patients to IRFs and that these considerations have influenced the choice of setting for patients' care," 68 Fed. Reg. at 53,272, noting that the standardized payment per case in an IRF is $12,525, compared to an estimated average per-case amount for hospital inpatient, outpatient, and other post acute care settings of $7,000.

The industry is in an uproar over the changes to the 75 Percent Rule. While the final rule made some changes in response to industry comments, the industry still believes that a substantial number of IRFs could close due to failure to meet even the 50 percent compliance requirement that goes into effect next year. CMS, for its part, estimates savings at $320 million over five years. Expect to see continued lobbying by the industry to force additional changes to the final rule.

Proposed LMRPs on Inpatient Rehabilitation
While CMS has been revisiting the 75 Percent Rule, intermediaries have been reviewing the medical necessity of IRF stays. A number of intermediaries have issued draft LMRPs/LCDs on inpatient rehabilitation services that are in various stages of review. This is noteworthy in that, historically, LMRPs have related to outpatient services.

The Riverbend GBA draft LMRP, for example, states that inpatient rehabilitation is typically not covered for joint replacements, simple fractures, "niche rehabilitation (coma, cognitive, cardiac, pulmonary, pain, etc.)," among other conditions. Specifically with respect to total hip replacements, the draft LMRP states that recovery from a single hip replacement rarely requires inpatient rehabilitation. The rationale given is that "hip replacements require physical therapy to restore strength and [range of motion]. Other than the remobilization of the corrected joint (PT), additional therapies are rarely required as neuromuscular reeducation is not necessary. Hip replacements therefore do not require coordinated multi disciplinary intervention and additionally can be rehabilitated in a less intensive setting (SNF)." Similar statements are made for single knee replacements as well as for spinal fractures. The Riverbend GBA LMRP was released August 29, 2003, with a 60-day comment period.

Conclusion
Even if IRFs can restructure their patient mixes to comply with the revised 75 Percent Rule, they also will have to monitor carefully any intermediary revisions to medical necessity guidelines to avoid an increase in denials of Medicare stays.