CMS has released its proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and LTCH payment and other policies for FY 2011, which will be published in the Federal Register on May 4, 2010. Overall, CMS estimates that payments to general acute care hospitals for operating expenses under the proposed rule will decrease by 0.1%, or $142 million, in FY 2011 compared with FY 2010 rates. The following are highlights of the lengthy proposal.

• CMS is proposing a 2.4% market basket update for IPPS rates in FY 2011. However, the market basket update would be more than offset by a 2.9% reduction to partially account for spending in FY 2008 and 2009 resulting from hospital coding practices that CMS asserts did not reflect increases in patients’ severity of illness.  CMS points out that the -2.9% adjustment is only half of the total recoupment adjustment of 5.8% that would be necessary to fully recover excess payments for FYs 2008 and 2009. CMS is not proposing a prospective adjustment for FY 2011.  While CMS notes that it “has the authority to make a much larger reduction to the FY 2011 rates,” the agency “believes it is prudent to phase-in additional adjustments carefully over time.” CMS is soliciting comments on this proposal. Note that CMS is not addressing inpatient hospital provisions in the recently-enacted PPACA and Reconciliation Act in the proposed rule.
• CMS is proposing to add 45 new measures for which hospitals must submit data under the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program for 2011 to receive the full market basket update.  Hospitals that do not participate in the RHQDAPU quality reporting program will have their market basket update reduced by two percentage points.
• The rule would update the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.
• With regard to LTCHs, the rule proposes that LTCHs receive a 2.4% inflation update, offset by an adjustment of -2.5% for the estimated increase in spending in FYs 2008 and 2009 due to documentation and coding that, according to CMS, did not reflect increases in patients’ severity of illness.  Despite this 0.1% decrease in the standard federal rate, CMS estimates that the proposed rule will result in an overall increase in estimated payments of approximately $41 million (or about 0.8%). The increase is attributable to proposed changes to the area wage adjustment and estimated increases in high-cost outlier and short-stay outlier payments. Again, the rule does not reflect payment policies mandated by the PPACA and Reconciliation Act.
• In addition to these payment policies, the rule also would revise the Medicare conditions of participation for hospitals relating to the types of practitioners who may provide rehabilitation services and respiratory care services. CMS also is proposing to offer psychiatric hospitals, hospitals with inpatient psychiatric programs, and psychiatric facilities that are not hospitals increased flexibility. Moreover, CMS is proposing changes affecting the determination of the effective date of Medicare provider agreements and supplier approvals under Medicare.

Comments on the rule will be accepted until June 18, 2010. CMS has issued a press release and fact sheets on the proposed rule.