Hospitals to Get $565M More From CMS in FY 2016

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By Michael D. Williamson

July 31 — Medicare payments to inpatient hospitals will increase by $565 million in fiscal year 2016, according to a final rule issued by the CMS July 31.

The final rule (CMS-1632-F; RIN-0938-AS41) is set for publication in the Aug. 17 Federal Register. It takes effect Oct. 1.

The Centers for Medicare & Medicaid Services said of that $565 million, $378 million is for an operating payments increase (or 0.4 percent change compared with FY 2015) and an estimated $187 million is for a capital payments increase (or 2.3 percent change compared with FY 2015).

Long-term care hospitals (LTCHs) paid under the inpatient prospective payment system (IPPS) will see their Medicare payments decrease by 4.6 percent, or approximately $250 million, in FY 2016, according to an agency fact sheet.

The final rule will apply to about 3,400 acute care hospitals and 435 LTCHs.

In April, the CMS issued a proposed rule that called for increasing payments to inpatient hospitals by 1.1 percent (or $120 million) for FY 2016. The proposed rule also projected that LTCH payments would decrease by 4.6 percent, or approximately $250 million, in FY 2016. Comments were due June 16.

However, provisions in the IPPS final rule that implement the extension of Medicare-dependent, small rural hospital (MDH) program and change the low-volume payment adjustment for hospitals through FY 2017 are considered an interim final rule by the agency. The CMS will take comments on the interim final rule provisions until Sept. 29.

Payment Adjustments 

Inpatient hospitals that participate in quality reporting and demonstrate meaningful adoption of electronic health records (EHRs) are eligible for additional Medicare payments under the IPPS.

For example, the increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in Medicare's Hospital Inpatient Quality Reporting (IQR) Program and demonstrate meaningful use of certified electronic health record technology is 0.9 percent, the fact sheet said.

“This reflects the hospital market basket update of 2.4 percent adjusted by -0.5 percentage points for multi-factor productivity and an additional adjustment of -0.2 percentage points in accordance with the Affordable Care Act; like last year, the rate is further decreased by 0.8 percentage points for a documentation and coding recoupment adjustment required by the American Taxpayer Relief Act of 2012,” according to the fact sheet.

However, the agency said hospitals that don't successfully participate in the Hospital IQR Program and fail to submit the required quality data will be subject to a one-fourth reduction of the 0.9 percent update. Also, statutory requirements mandate that the update for any hospital that isn't a meaningful user of EHRs will be reduced by one-half of the 0.9 percent update in fiscal 2016, the fact sheet said.

Other payment adjustments in the final rule include continued penalties for readmissions, a continued 1 percent penalty for hospitals in the worst performing quartile under the Hospital Acquired Condition Reduction Program and continued bonuses and penalties for hospital value-based purchasing programs, the agency said in the fact sheet.


The American Hospital Association (AHA) July 31 issued a statement expressing concern the CMS didn’t extend a partial enforcement delay of the two-midnight rule in the final rule. Under the current policy, which the CMS first adopted in 2013, Medicare doesn't fully reimburse hospitals for stays not expected to span at least two midnights. However, the CMS currently prohibits auditors from conducting admission status reviews for claims that would be subject to the two-midnight rule if the hospital has been paid. The partial enforcement delay is in effect until Sept. 30.

AHA's Ashley Thompson, the group’s vice president and deputy director of policy, said hospitals are “dismayed” the CMS decided not to include an extension of the partial enforcement delay of the two-midnight policy in the final rule.

“Hospitals need this delay because CMS’s currently proposed changes to the two-midnight policy would not take effect until Jan. 1,” Thompson said, adding, “We urge CMS to issue an extension of the delay quickly.”

The two-midnight policy changes Thompson referenced were included in outpatient hospital pay proposed rule, which the CMS released July 1. Under that proposed rule, certain stays for which the physician expects the patient to need less than two midnights of hospital care, an inpatient admission would be payable under Medicare Part A on a case-by-case basis.

“[W]e are pleased that, at AHA’s urging, CMS dropped its proposal to use inpatient discharge status codes to determine payment, which would have resulted in underpayments for the care of these patients,” Thompson said. In particular, she said, the agency’s decision not to move forward with its discharge status codes proposal is important, because it comes at a time when LTCHs are seeing payment reductions for one out of every two patients.

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Janey Cohen at

The rule is at

The fact sheet is at

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