CMS' FY 2013 IPPS Final Rule: 9 Observations

In the final rule (pdf) for the fiscal year 2013 Inpatient Prospective Payment System and the Long-Term Care Hospital Prospective Payment System, CMS decided to increase Medicare's operating payment rates to acute-care hospitals by 2.8 percent — a significant change from the proposed rated of 0.9 percent.

This past April in the proposed rule, CMS said it would raise Medicare inpatient rates by 0.9 percent, or roughly $904 million next year. The payment rate hike in the final rule will increase total Medicare spending on inpatient hospital services by roughly $2 billion in FY 2013.

CMS said the final rule will allow Medicare payments to hospital to stay consistent with previous years as the healthcare system transitions to a state of reform. "Hospitals are at the forefront of our strategy to both save money and improve the quality and coordination of care," said CMS Acting Administrator Marilyn Tavenner in a news release. "This rule takes further important steps to ensure all patients receive the best possible care."

Rich Umbdenstock, president and CEO of the American Hospital Association, hailed the final rule, particularly regarding CMS' documentation and coding provision. In the proposed rule, CMS included a permanent documentation and coding cut of 1.9 percent to eliminate changes from FY 2007 to FY 2009 that CMS said did "not reflect real changes in case mix." It also added an additional cut of 0.8 percent with respect to FY 2010, something that did not sit well with providers.

"We commend CMS for recognizing that its proposed new cut of 0.8 percent, approximately $850 million, in Medicare payments to hospital care would have been detrimental for America's seniors," Mr. Umbdenstock said. "Hospitals care for patients with complex medical needs and [the final] rule reflects this reality."

Here are nine of the main provisions and observations from CMS' final rule on inpatient and long-term Medicare payments, which will affect roughly 3,400 acute-care hospitals and 440 LTAC hospitals in FY 2013.

•    Medicare payments to acute-care hospitals will increase by about 2.8 percent in FY 2013. The 2.8 percent is a net update after the market basket update, improvements in productivity, adjustments for hospital documentation and coding changes and other updates. Overall, CMS estimates the rate hike — combined with other policies in the final rule, such as expirations of some payment provisions and reforms under the Patient Protection and Affordable Care Act — will increase payments to acute-care hospitals by $2 billion next year, or 2.3 percent.

•    Medicare payments to LTAC hospitals in FY 2013 will increase 1.7 percent, which equates to $92 million.

•    The final documentation and coding adjustment looks as follows: a 1.9 percent decrease due to remaining FY 2008 and FY 2009 prospective adjustments and a 2.9 percent increase, representing a one-time 2012 recoupment adjustment, for a total 1 percent increase. This total is higher than the 0.2 percent documentation and coding adjustment in the proposed rule because CMS eliminated the 0.8 percent decrease adjustment for estimated overpayments in FY 2010.

•    The provisions that will expire at the end of FY 2012 are the Medicare-Dependent Hospital Program and the Low-Volume Hospital Payment Adjustment. Congress has until Sept. 30 to extend these provisions. Otherwise, hospitals affected by those programs will see reductions in Medicare payments.

•    Hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program — which authorizes CMS to pay hospitals to report certain quality measures to earn a higher update to their Medicare payments — would receive the maximum payment boost of 2.8 percent. Hospitals that do not submit quality measures would see a 2 percent decrease in Medicare payments but would still see a 0.8 percent update overall. This is, again, higher than the proposed rule, when it would have been 0.3 percent for hospitals that did not successfully participate in the IQR Program.

•    More on the IQR Program: CMS will reduce the number of care measures to be reported from 72 to 59 for FY 2015 because some of the measures are duplicative from the Hospital Compare website. A complete list can be found here at Appendix A.

CMS also finalized requirements for the Ambulatory Surgical Center Quality Reporting Program, which will mostly go into effect in 2014. ASCs that fail to report quality data or to comply with the requirements of the program will have their annual Medicare payment update slashed by 2 percent, starting in calendar year 2014.

•    As included in last year's final IPPS rule and this year's proposed rule, CMS will continue to implement measures within the Hospital Readmissions Reduction Program. These policies included a final definition of "readmission," which refers to a patient admission to an acute-care hospital paid under the IPPS that occurred within 30 days of discharge from the same or another acute-care hospital, and the use of three 30-day readmission measures (acute myocardial infarction, heart failure and pneumonia), among others.

This year's final rule completed the methodology to calculate the ratio of a hospital's aggregate dollars for excess readmissions to the hospital's aggregate dollars for all discharges. This methodology — the readmission adjustment factor — will result in a 0.3 percent Medicare payment decrease for hospitals as outlined in the proposed rule, or a $270 million decrease in overall payments to hospitals.

•    With regard to the PPACA's Value-Based Purchasing Program, many of the provisions in the proposed rule carried over into the final rule. These included many of the operational details for FY 2013, the first year of value-based incentive payments under the VBP Program, such as applying a 1 percent decrease in hospital Medicare payments to fund the program. Finalized domains, weights, performance and baseline periods for FY 2015 measures in the VBP Program can be found here at Appendix B.

•    Several other provisions from the proposed rule carried over into the final rule. Some include: CMS adding two new conditions (surgical site infection following cardiac implantable electronic device procedures and pneumothorax with venous catheterization) to the hospital-acquired condition payment provision list; increasing the timeframe for new teaching hospitals to establish their caps for new graduate medical education and indirect medical education programs from three to five years; and many more.

More Articles on Hospital Medicare Payments:

AHA "Extremely Troubled" Over Proposed IPPS Rule

Study Identifies "Break Even" Scores for Hospitals Under Value-Based Purchasing

CMS Releases FY 2013 IPPS Proposed Rule: 12 Points to Know

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