On April 14, 2008, the Centers for Medicare & Medicaid Services (CMS) released its proposed Medicare IPPS rule for fiscal year (FY) 2009, which begins October 1, 2008.  CMS estimates that the rate updates and other policies in the proposed rule would increase Medicare IPPS spending by approximately $4 billion in FY 2009, although the impact on particular procedures varies.  The following are highlights of the sweeping proposal.

  • Rate Update – CMS projects that the market basket update payments will be 3.0%.  Hospitals that successfully report specified quality measures in FY 2008 will receive the full update in FY 2009, while hospitals that do not report the quality measures will receive an update of market basket minus 2 percentage points, for a 1% update.  CMS also is proposing to reduce IPPS rates by -0.9% to adjust for changes in documentation and coding practices that do not reflect real changes in case mix.  In FY 2009, CMS also would complete the transition to cost-based relative weights, with relative weights based 100% on costs.
  • Value-Based Purchasing Program – CMS is proposing to expand the Hospital-Acquired Conditions policy, under which Medicare will not make higher payments to hospitals for care associated with certain reasonably-preventable conditions, such as specific types of infections, unless the condition were reported as present on admission.  In addition, CMS proposes adding 43 new quality measures for which hospitals will have to report data in FY 2009 in order to receive the full Medicare IPPS market basket update in FY 2010.  Both initiatives are designed to further the President’s Value-Driven Health Care agenda.
  • Hospital Ownership/Referrals – The proposed rule includes a number of hospital ownership and referral provisions.  Among other things, CMS seeks comments on alternative approaches to modifying the “stand in the shoes” provisions in the Stark Act definition of indirect compensation arrangement.  The rule also would revise the definitions of “physician” and “physician organization,” and clarify the period of time for which a physician would be prohibited from referring Medicare patients to an entity for DHS and for which the DHS entity would be prohibited from billing for such DHS where a financial relationship failed to satisfy a Stark Act exception.  CMS also is soliciting public comments on whether to establish a Stark Act exception for gainsharing arrangements and how such an exception would be structured.  The agency also is requesting comments on physician-owned implant and medical device companies, particularly the extent to which these arrangements pose a risk for substandard care or increased Medicare costs.  CMS also solicits public comments on a proposed mandatory “Disclosure of Financial Relationships Report” that will be used to collect information regarding financial relationships between hospitals and physicians.
  • Other Policies – Among many other things, the rule proposes:  limited revisions to the classifications of cases to Medicare severity diagnosis-related groups (MS-DRGs) and Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs); establishing separate cost centers for (1) medical supplies and (2) devices and durable medical equipment to help address “charge compression”; establishing a July 1 deadline for Food and Drug Administration (FDA) approval for technology considered for new technology add-on payments; wage index and geographic reclassification changes; an expansion of the postacute care transfer policy to transfers to home for the furnishing of home health services within 7 days (rather than 3 days) of hospital discharge; and revised requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA), including clarification for requirements pertaining to hospitals with specialized capabilities.  CMS is not proposing to adopt regression-based cost-to-charge ratios or a hospital-specific relative value cost center methodology at this time.

The rule is scheduled to be published in the Federal Register on April 30.  Comments will be accepted until June 13, 2008.