Federal Health Care Reform Aims to Ban Medicaid Reimbursement for Health Care-Acquired Conditions Beginning July 2011

February 1, 2011

(Published in the Healthcare Review, January 2011)


During the 2008 presidential campaign, then-candidate Barack Obama promised health care reform that would, among other things, reduce Medicaid spending and improve patient safety and quality.  The legislation ultimately passed in 2010 – The Patient Protection and Affordable Care Act (the “ACA”) – aims to further these goals by barring Medicaid reimbursement to States for services that relate to health care-acquired conditions (HACs).  This pay-for-performance measure is codified at Section 2702 under Title II of the ACA and will take effect in July 2011, when the Secretary of Health and Human Services is to promulgate implementing regulations. 

Some 5 to 10 percent of patients entering a hospital acquire a HAC – an infection or condition that they did not have prior to admission and that they would not have acquired but for a preventable hospital error.  While economist estimates of the cost of treating HACs vary widely, the low cost estimates of $5.7 to $6.8 billion annually are still substantial when compared to the cost of inpatient stays for other medical conditions.  According to the Agency for Healthcare Research and Quality, the three principle diagnoses with the highest annual aggregate inpatient hospital costs (in 2006 dollars) include coronary artery disease ($17.5 billion), heart attack ($11.8 billion) and congestive heart failure ($11.2).  At the same time, the cost of treating HACs is largely borne by outside payers rather than providers.  The non-economic impact of HACs has been equally as devastating: drug resistant hospital acquired infections are now the fourth leading cause of death in the U.S., right after such other killers as stroke, cancer and heart disease.

In recent years the federal government and private insurers alike have taken steps to reduce their costs and the incidence of HACs by incentivizing providers to improve patient safety and adhere to evidence-based guidelines.  In 2006 President Bush signed the Deficit Reduction Act of 2005 (the “DRA”), amending the Social Security Act to prohibit Medicare payment for treatment of certain HACs.  The DRA provides that its rule applies to secondary diagnoses (i.e. a diagnosis not present upon admission) which are selected by the Secretary according to the following criteria: (1) the condition must be associated with a high cost of treatment or high occurrence rates within hospital settings; (2) the condition must result in higher payment to the facility when submitted  as a secondary diagnosis; and (3) the condition can reasonably be prevented by adoption and implementation of evidence-based guidelines.  The Secretary’s selected conditions are published in Centers for Medicare and Medicaid Services (“CMS”) regulations, and for fiscal year 2011 they include:  foreign object retained after surgery, air embolism, blood incompatibility, pressure ulcer stages III & IV, certain falls and trauma (fracture, dislocation, intracranial injury, crushing injury, burn, electric shock), catheter associated urinary tract infection, vascular catheter-associated infection, and certain manifestations of poor glycemic control. 

The federal government has urged State Medicaid programs to adopt reimbursement practices that are similar to the Medicare non-payment rule created by the DRA.  In a 2008 letter to State Medicaid directors, CMS explained that as a result of the DRA, for dual eligibles, hospitals could attempt to bill Medicaid as a secondary payer for Medicare.  Many States responded by implementing Medicaid payment policies that coordinate with the DRA and prevent this unfavorable consequence.  Thus, Section 2702 effectively mandates what had been merely permissible; continued participation in the Medicaid entitlement program will require State Medicaid programs to adopt policies that are consistent with the regulations promulgated under Section 2702. 

A draft of the Section 2702 regulations having yet to be published, exactly what this will mean for providers is difficult to predict.  By its terms, Section 2702 does not specify the providers to whom it will apply.  Similarly, though Section 2702 defines HACs by reference to the DRA, the diagnoses that will be subject to its mandate will ultimately be provided in the regulations. 

Section 2702 does give the Secretary guidelines for drafting the regulations.  The Secretary is required to identify and examine current reimbursement practices of State Medicaid programs, and incorporate into the regulations those deemed to be appropriate.  Also, the HACs subject to Medicaid non-payment must be defined in a way that is consistent, to the extent appropriate for the Medicaid population, with the list of selected conditions subject to the DRA rule.

 Assuming the ACA is not repealed by the 112th Congress, one thing is reasonably certain – some of the cost of treating HACs will be shifted to providers.  Consequently, it is not too soon for providers, particularly those generally associated with HACs (e.g. hospitals and other acute care inpatient facilities), to prepare for potential ramifications of Section 2702. 
Specifically, providers should be familiar with the current reimbursement policies of applicable State Medicaid programs.  Given the prominent payers of your patient population, consider whether Section 2702 could significantly increase your cost liability for treating HACs.  Seek the assistance of counsel to identify and implement clinical and operational policies proven to reduce the occurrence of HACs.  Consider investing in staff education and training on infection prevention and patient safety measures. 
Opponents of the ACA contend that provisions such as Section 2702 will discourage providers from treating Medicaid patients.  Whether or not this prediction is accurate, providers should be mindful that one of the overarching goals of the ACA is to expand access to care for the poor and underinsured.  In fact, the regulations promulgated under Section 2702 must ensure that the prohibition on payment for HACs will not result in loss of access to care or services for Medicaid beneficiaries.  Consequently, in preparing to deal with the impact of Section 2702 providers should not adopt practices that might have this effect. 

Hannah is a member of the Corporate Department of the McLane Law Firm, one of New England’s premier full-service law firms with more than 90 attorneys in four offices spread throughout Massachusetts and New Hampshire.  She can be reached at 603-628-1473 or at Hannah.zaitlin@mclane.com.