Moody's: Low Medicare Rate Increase Bad News for Nonprofit Hospitals

Medicare's 0.7 percent inpatient prospective payment system rate increase for 2014 isn't enough to cover expected costs and is a credit negative for nonprofit hospitals, according to a Moody's Investors Service report.

The $1.2 billion pay raise released earlier this month is a negative because it's lower than last year's 2.8 percent or $2 billion increase, according to the report. Additionally, the pay boost doesn't keep pace with hospitals' costs, which CMS expects to go up by 2.5 percent in 2014. Medicare pay rate increases have been equivalent to or below the rate of cost growth for several years.

The 2014 pay adjustment includes an initial 2.5 percent market basket update for hospitals that submit data on quality measures and a 0.5 percent update for those that don't submit quality measure data.

The rule also takes into account several reductions required by law, including a 0.3 percentage point cut under the Patient Protection and Affordable Care Act and a productivity cut of 0.5 percentage points. CMS will also reduce pay rates by 0.8 percentage points under the American Taxpayer Relief Act and 0.2 percentage points to offset the effect of the agency's inpatient admission and medical review criteria.

More Articles on Hospital Payments:
CMS Releases Final Rule on 2014 Inpatient Payments
New York Medicaid Overpaid Hospitals $31.1M for One-Day Inpatient Deaths
Georgia Hospitals Awaiting Provider Fee Approval

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