On May 11, 2012, the Centers for Medicare & Medicaid Services (CMS) published its proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for FY 2013. Overall, CMS estimates that FY 2013 payments to general acute care hospitals for operating expenses would increase by $175 million under the proposed rule considering all policy changes, the expiration of certain temporary payment increases, and projected utilization. CMS addresses a wide variety of policies in the sweeping rule, which are summarized below.

  • CMS proposes updating IPPS rates by 2.3%, which reflects a projected market basket update of 3.0%, which is reduced by a multi-factor productivity adjustment of 0.8% and an additional 0.1% reduction mandated by the Affordable Care Act (ACA), increased by 0.2% documentation & coding adjustment. Note that this rate increase would be offset by other reductions, including a -1.3% documentation/coding adjustment to hospital-specific rates, a 0.3% cut under a readmissions reduction program (discussed below), and expiration of certain temporary increases to the Medicare-Dependent Hospital program and the low-volume hospital payment adjustment under the ACA.
  • The proposed rule includes a number of hospital quality initiatives. The rule would strengthen the Hospital Value-Based Purchasing Program (VBP Program) to adjust hospital payments beginning in FY 2013 and annually thereafter based on how well a hospital performs or improves performance on a set of quality measures. Among other things, CMS would add a risk-adjusted Medicare spending per beneficiary measure to the VBP Program, which would affect payments beginning in FY 2015. The rule also would revise the Inpatient Quality Reporting (IQR) program measures, resulting in a net reduction in measures from 72 to 59 for the FY 2015 payment determination. Hospitals that do not successfully participate in the IQR program will have their market basket update reduced by two percentage points. The proposed rule also would establish the methodology and payment adjustment factor for the ACA Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for heart attack, heart failure, and pneumonia. CMS estimates that readmission policy will reduce base operating DRG payments to 2,210 hospitals, resulting in 0.3% overall decrease in hospital payments. CMS also proposes adding Surgical Site Infection Following Cardiac Implantable Electronic Device and Iatrogenic Pneumothorax with Venous Catheterization to the list of hospital acquired conditions for FY 2013. In addition, the also would establish new or revised requirements for quality reporting by other types of Medicare providers, including cancer hospitals, inpatient psychiatric facilities, and ambulatory surgical centers.
  • CMS proposes to postpone the effective date of a policy adopted in the FY 2012 IPPS rule that clarified that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity. On the other hand, routine services, such as contracted nursing services, furnished outside the hospital may not be furnished “under arrangement” and covered by Medicare. In response to requests from hospitals for additional time to restructure arrangements and establish operational protocols, CMS now proposes that this policy be effective for hospital cost reports beginning on or after FY 2014.
  • The proposed rule would, among many other things: modify Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; make a variety of changes to graduate medical education policy, including changes relating to determining a hospital’s fulltime equivalent resident cap; address applications for new technology add-on payments; 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; and update LTCH-PPS policies and rates, as discussed in a separate entry.

Comments will be accepted until June 25, 2012.