Payments for Inpatient Hospitals Would Decrease Under Proposal

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Medicare operating payments to acute care hospitals for inpatient services in fiscal year 2012 would decrease by a projected $498 million under the proposed inpatient prospective payment system (IPPS) rule issued April 19 by the Centers for Medicare & Medicaid Services.

CMS will accept comments on the proposed rule until June 20 and will respond to them in a final rule to be issued by Aug. 1. The rule is scheduled to be published in the May 5 Federal Register.

The rule, which would apply to about 3,400 acute care hospitals and about 420 long-term care hospitals (LTCHs), would generally be effective for discharges on or after Oct. 1.

CMS said the proposed rule would support efforts to reform the health care delivery system by improving care quality and patient outcomes, addressing long-term health care cost growth, and supporting the goals of the recently announced Partnership for Patients.

According to CMS, the decrease relative to FY 2011 payment levels reflects a proposed hospital update of 1.5 percent (based on a projected increase of 2.8 percent for inflation in hospital costs, a reduced multifactor productivity adjustment of 1.2 percent, and an additional 0.1 percent in accordance with the Patient Protection and Affordable Care Act), increased by 1.1 percent in response to litigation, as well as a -3.15 percent documentation and coding adjustment.

Payments to LTCHs are expected to increase by $95 million, or 1.9 percent, CMS said.

Documentation and Coding Adjustment.

As a result of the FY 2008 change from diagnosis-related groups (DRGs) to Medicare-severity DRGs (MS-DRGs), CMS said hospitals have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in severity of patient illness.

The base payment rate for hospitals comprises a standardized amount that is divided into a labor-related share and a nonlabor-related share. Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year, CMS said.

Under legislation passed in 2007, CMS is required to recoup the entire amount of FYs 2008 and 2009 excess spending from changes in hospital coding practices by FY 2012 for acute care hospitals paid under the IPPS. In the FY 2011 final IPPS rule, CMS implemented a 2.9 percent cut--$3.7 billion--to recoup one-half of the payments that the agency said were made in FYs 2008 and 2009 due to documentation and coding changes that did not reflect increases in severity of patients' illness.

In the proposed rule, CMS said it would implement a -2.5 percent payment adjustment to the hospital-specific rate, and a -3.15 percent adjustment for documentation and coding changes to the IPPS standardized amounts.

“We believe that proposing the entire remaining prospective adjustment of -2.5 percent allows CMS to maintain, to the extent possible, similarity and consistency in payment rates for different IPPS hospitals paid using the MS-DRG,” CMS said in the rule.

Quality Provisions.

In addition to promoting accurate payment for inpatient services to Medicare beneficiaries, the proposed rule would strengthen the relationship between payment and quality of service in a number of ways, CMS said.

First, the rule includes proposals that are part of a new Hospital Readmissions Reduction Program required by PPACA. To provide hospitals with an incentive to improve care coordination, PPACA directs CMS to implement a Hospital Readmissions Reduction Program that will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. The proposed rule would include measures for rates of readmissions for three conditions--acute myocardial infarction (or heart attack), heart failure, and pneumonia.

CMS said it is also proposing a methodology that would be used to calculate excess readmission rates for the program. Additional conditions may be added in future rulemaking. The payment adjustments will apply to hospital payments in FY 2013, beginning with discharges on or after Oct. 1, 2012.

The rule also includes proposals aimed at encouraging improvements in the quality of care in hospital inpatient settings, and makes proposals that would align the existing inpatient quality reporting program with a proposed new hospital value-based purchasing program required by PPACA, CMS said.

The proposed rule also lays the groundwork for a quality reporting program under the LTCH PPS by proposing the first measure set for reporting in FY 2013, for payment determination in FY 2014, and discusses specific quality considerations for hospitals providing acute-level care to patients requiring longer stays. To be paid under the LTCH PPS, a hospital must have an average length of stay that exceeds 25 days for all patients it treats, CMS said.

Provider Opposition.

In a statement, the American Hospital Association said it was “deeply disappointed that today's proposal puts further stress on vital care on which seniors depend. Medicare already fails to cover the cost of hospital services and these reductions ultimately make hospitals' ability to care for patients and communities even more challenging.”

AHA said the proposal “further exacerbates the cost-shift, increasing health care costs to employers and other purchasers of private coverage. We remain concerned that CMS continues to move forward with the proposed coding offset, which is excessive and wrongly assumes spending on inpatient hospital care has increased solely due to changes in coding. Independent research confirms that CMS' methodology does not recognize that hospitals are caring for patients who are older and sicker.”

By Nathaniel Weixel

A prepublication copy of the proposed rule is at A fact sheet on proposed policy changes is at A fact sheet on proposed quality changes is at

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