12/19/2003

"75 Percent Rule" and LMRP Changes Would Have Significant Impact on IRFs

Carel T. Hedlund
410-347-7366
cthedlund@ober.com

A combination of proposed changes in the "75 Percent Rule" and new draft Local Medical Review Policies (LMRPs), if adopted, 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. Until recently, such hospitals and units were reimbursed under the TEFRA Target Limit System. 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:

1. Stroke
2. Spinal cord injury
3. Congenital deformity
4. Amputation
5. Major multiple trauma
6. Fracture of femur (hip fracture)
7. Brain injury
8. Polyarthritis, including rheumatoid arthritis
9. Neurological disorders, including multiple sclerosis, motor neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson’s disease
10. Burns

42 C.F.R. § 412.23(b)(2).

This list of qualifying conditions has 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.

Proposed Changes in 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; (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.

With respect to the three arthritis-related conditions that are proposed to replace polyarthritis, in each instance CMS has proposed to require 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. . . ," 68 Fed. Reg. at 53,270, in order to be counted in the 65 percent (or later, 75 percent). Such a requirement could well disqualify many joint replacement patients from falling into one of these three groups.

CMS's proposed 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 per 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 proposed changes to the 75 Percent Rule. One industry survey has found that, if the proposed rule becomes finalized without changes, over 50 percent of IRFs say they would have to reduce capacity or services, and 23 percent say they would have to close. The trade association groups have mounted a significant lobbying effort in Congress to prevent these changes.

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.

Proposed LMRPs on Inpatient Rehabilitation
CMS’s reassessment of the 75 Percent Rule has also resulted in new draft LMRPs that propose stricter IRF medical necessity coverage criteria. At least four Medicare intermediaries have issued draft LMRPs on inpatient rehabilitation services. This is noteworthy in that, traditionally, 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.

Medicare Reform Bill Conference Report
The new Medicare Reform legislation signed into law on December 8, 2003 did not address the 75 Percent Rule. In the accompanying Conference Report, however, the Conference Committee "urged" CMS to delay implementation of the Rule until such time as the GAO issues 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 to the list. It remains to be seen whether the agency will comply with the congressional request.

Conclusion
Even if CMS modifies its proposed changes to the 75 Percent Rule based on industry concerns, it could achieve a similar result if intermediaries adopt stricter LMRPs on medical necessity for inpatient rehabilitation. IRFs will need to monitor both fronts carefully.

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