CMS Proposed 0.55% Pay Cut to Hospitals Includes Withholding Payments for Performance

Earlier this week, CMS issued a proposed rule that would revise the Medicare hospital inpatient prospective payment system for operating and capital-related costs of acute-care hospitals in fiscal year 2012.

In the proposed rule, the government agency seeks to reduce average inpatient payments for hospitals by 0.55 percent for fiscal year 2012. The cut was calculated based on the 3.15 percent coding or classification offset and other payment increases, including a 1.1 percent increase to correct a technical error linked to the rural floor budget neutrality adjustment and increases for reporting quality measures.

Hospitals submitting the quality data would get an initial market-basket update of 2.8 percent while those not submitting data would get a 0.8 percent update. In addition, the rule makes a productivity cut of 1.2 percent and a market basket cut of 0.1 percent, as required by the healthcare reform law.

The proposed rule also includes proposed changes to MS-DRG classification to better severity of illnesses, the hospital wage index for acute-care hospitals and the e-prescribing incentive program.

Another notable change stems from CMS' proposed value-based purchasing program. CMS has proposed that Medicare begin withholding 1 percent of its payments to hospitals starting Oct. 2012. The money pool, estimated to clock in at $850 million in the first year, will be distributed as bonuses to hospitals that perform well on various quality measures, including patient experience. CMS has proposed a weighting scheme — consisting of 70 percent clinical process of care and 30 percent patient experience of care (based on HCAHPS) — for its FY 2013 value-based purchasing program. 

CMS' proposed IPPS and value-based purchasing program are scheduled to be published in the Federal Register on May 5 and May 6, respectively.

Related Articles on Hospital Payments:
Vermont Senate Passes Legislation That Moves State Toward Single-Payor Health System
CMS Proposes 0.5% Cut in Medicare Payments to Hospitals for FY12
MedPAC Considers Full "Market Basket" Update for Hospitals to Adjust for Inflation

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