CMS' 2015 IPPS Proposed Rule: 10 Points to Know

Many hospitals face further decreased Medicare reimbursements next year, as CMS released its proposed rule for the fiscal year 2015 Medicare inpatient prospective payment system.

The 1,688-page proposed rule also includes proposed rates for long-term care hospitals. Overall, the proposed rules would apply to about 3,400 acute-care hospitals (it excludes critical access hospitals, which are paid a separate, cost-based reimbursement) and 435 long-term care hospitals. CMS expects total payments to acute-care hospitals would decrease by $241 million, which would put hospitals in one of the most dramatic years of cuts for Medicare pay.

NewCMSlogoHere are 10 of the most important points to know from CMS' proposed IPPS rule for FY 2015, which would go into effect this October.

1. Hospital payments. CMS recommended acute-care hospitals that report quality data and that also are meaningful users of electronic health records receive a 1.3 percent increase in Medicare operating rates. Hospitals that do not submit quality data would lose a quarter of the market basket update (2.7 percent), and hospitals that are not meaningful users of EHRs would lose another quarter of the market basket update. CMS said if these proposals went into effect, total Medicare payments to hospitals would decrease by $241 million. Long-term care hospitals would receive a 0.8 percent boost in Medicare pay.

2. Calculation of the payments. CMS arrived to its proposed rate of 1.3 percent (again, which only would apply to hospitals that report quality data and pass meaningful use with EHRs) through the following updates: a positive 2.7 percent market basket update, a negative 0.4 percent update for a productivity adjustment, a negative 0.2 percent update for cuts under the Patient Protection and Affordable Care Act and a negative 0.8 percent documentation and coding adjustment. CMS included the 0.8 percent documentation and coding adjustment as part of the American Taxpayer Relief Act of 2012, better known as the fiscal cliff deal. Legislators included $11 billion in MS-DRG documentation and coding adjustments in that bill. This meant hospitals and other providers would lose $11 billion in Medicare payments between FY 2014 and FY 2017 due to past overpayments the government made to hospitals as the country transitioned to MS-DRGs. In FY 2014, about $1 billion was recovered, and in FY 2015, about $2 billion would be recouped, leaving another $8 billion to be recovered by FY 2017.

3. Medicare disproportionate share hospitals payments. As part of the PPACA, Medicare DSH payments will be reduced 75 percent by 2019, or $49.9 billion. The 2015 proposed rule would cut overall Medicare DSH payments by 1.1 percent in FY 2015, compared with FY 2014. Medicare DSH payments would continue to be distributed under the new policy, which is based on hospitals' uncompensated care amounts.

4. Two-midnight rule. The two-midnight rule — a policy established in last year's IPPS rule — has been under fire from many within the hospital community, and the rule still lies in a dormant state. According to the policy, inpatient stays lasting fewer than two midnights must be treated and billed as outpatient services. CMS introduced the policy to better monitor Medicare reimbursement for short inpatient stays and ensure inpatient admissions are medically necessary. The American Hospital Association and several health systems have sued CMS, arguing the rule is "arbitrary" and "capricious." In the proposed rule, CMS called for public comments to find an alternative payment system for Medicare short inpatient stays. Specifically, CMS asked providers to further define short inpatient stays and determine what appropriate payments for them should be.

5. Hospital Value-Based Purchasing program. The VBP program was established by the PPACA. In FY 2014, CMS took back 1.25 percent of Medicare reimbursements at hospitals paid under the IPPS. The resulting $1.1 billion was dispersed to hospitals based on how well they performed on healthcare quality measures, like treatment of heart attack and congestive heart failure, as well as patient satisfaction. In FY 2014, 778 hospitals lost more than 0.2 percent of their Medicare pay, while 630 hospitals received a bonus of more than 0.2 percent. For 2015, CMS will keep 1.5 percent of Medicare reimbursements, resulting in about $1.4 billion in value-based incentives.

6. Hospital Readmissions Reduction program. Similar to the VBP program, the HRR program looks to align Medicare pay with better quality healthcare. The HRR program penalizes hospitals for heart attack, heart failure and pneumonia 30-day readmission rates for Medicare patients that are greater than predicted, after adjusting for patients' illness severity. In 2015, by law, CMS will increase the maximum penalty from 2 percent to 3 percent, and it will also include total hip/total knee arthroplasty and chronic obstructive pulmonary disease as new measures. CMS expects 2,623 hospitals will see their Medicare payments cut, more than last year due to the added readmissions measures, totaling $422 million in decreased payments. The government estimated Medicare hospital readmissions have declined by 150,000 from January 2012 through this past December due in part to the program.

7. Hospital-Acquired Condition Reduction program. CMS proposed to start implementing the HAC Reduction program, part of the PPACA. Starting in October, hospitals with the poorest performance in reducing HACs, specifically those in the lowest quartile, would have their Medicare pay docked by 1 percent. CMS estimated about 753 hospitals would lose that 1 percent, and overall payments would decrease $330 million, or more than $438,000 per affected hospital.

8. Price transparency. CMS reinforced to hospitals they have an obligation, under the PPACA, to improve the transparency of their charges. Every year, hospitals are required to establish, update and publish their prices for all items and services provided by the organization, and CMS plans to ramp up oversight of this process. Last year, HHS and CMS released troves of price data on the top 100 most frequently billed inpatient discharges and the 30 most common outpatient cases.

9. Provisions related to recent legislation. In April, President Obama signed the Protecting Access to Medicare Act of 2014. This law effectively delayed Medicare's sustainable growth rate for physician pay, the two-midnight rule and the implementation of ICD-10. In addition, the law extended provisions that add higher payments to hospitals that have low-volumes of Medicare and hospitals that are heavily dependent on Medicare patients. Those provisions are extended through March 31, 2015. CMS did not issue any further guidance on ICD-10, which was pushed back until Oct. 1, 2015, although the agency has continued to update diagnosis codes.

10. Other miscellaneous proposed changes. The Office of Management and Budget recently updated labor market areas, and CMS proposed using those updates for Medicare's wage indices. However, some critical access hospitals that are now located in "urban" areas instead of "rural" areas would be given two years to reclassify as "rural" and keep their CAH status. CMS also proposed changes to how hospitals file cost reports, how new teaching hospitals can establish new residency programs and how rural teaching hospitals are paid for new programs.

CMS will accept comments on the proposed rule through June 30 and will issue a final rule in August.

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