CMS has released its final 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 2012.   The official version of the rule will be published on August 18, 2011. Overall, CMS estimates that FY 2012 payments to general acute care hospitals for operating expenses would increase by $1.13 billion, or 1.1%, compared to 2012 (and compared to a projected decrease of $498 million under the proposed rule). The following are the highlights of the sweeping rule (the advance version is almost 1500 pages):

• The higher final 1.1% update to payments reflects a 3% market basket update (compared to 2.8% in the proposed rule), which is reduced by a multi-factor productivity adjustment of 1.0% (compared to the proposed 1.2%) and an additional 0.1% reduction mandated by the ACA). This amount is further adjusted by a 2% reduction to account for changes in hospital documentation and coding practices that did not reflect actual increases in patients’ severity of illness (CMS initially proposed a 3.15% documentation and coding adjustment), along with an additional 1.1% increase in response to litigation involving the calculation of budget neutrality for the rural floor. Hospitals that do not successfully participate in the Inpatient Quality Reporting (IQR) program (formerly called the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) will have their market basket update reduced by two percentage points.
• The final rule includes a number of hospital quality initiatives. The rule expands the measures to be reported under the IQR program for the FY 2014 and FY 2015 payment determinations (there are a total of 76 measures for the FY 2015 payment determination), but streamlines reporting requirements in an effort to reduce the burden on participating hospitals. CMS also is implementing the ACA’s Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions. CMS is finalizing measures regarding rates of readmissions for acute myocardial infarction, heart failure, and pneumonia, along with a methodology for calculating excess readmission rates. In addition, the rule builds on CMS’s January 13, 2011 separate proposed rule to implement the ACA’s Hospital Value-Based Purchasing program, which will tie Medicare payments to the quality of hospital services beginning in FY 2013, by adding a measure on Medicare Spending Per Beneficiary (this measure will also be used in the Hospital IQR Program). CMS did not adopt its proposal to add Acute Renal Failure after Contrast Administration to the list of hospital-acquired conditions in FY 2012.
• The final rule also, among many other things: modifies Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; implements ACA policies providing additional payments to certain low-volume hospitals and to qualifying hospitals in certain geographic areas with low per-beneficiary Medicare spending; clarifies the payment policy for replacement of recalled devices to address partial credits; excludes hospice discharges from the disproportionate share hospital and indirect medical education adjustments; further clarifies that the “3-day payment window” policy applies to preadmission diagnostic and non-diagnostic services furnished at physicians’ practices that are wholly owned or wholly operated by the admitting hospital, revises how pension contributions are reported for wage index and cost finding purposes; discusses its decision to deny three applications for new technology add-on payments; modifies add-on payments for hospitals treating patients with end-stage renal disease; finalizes redistribution of graduate medical education caps; and updates the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The final rule also modifies Medicare “under arrangements” requirements to clarify that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity; routine services, such as contracted nursing services, furnished outside the hospital can no longer be furnished “under arrangement” and covered by Medicare. Hospitals that cannot provide routine services directly (rather than under arrangement) to Medicare inpatients would be required to discharge the inpatient and transfer the patient to another hospital.  The final rule also includes numerous changes impacting LTCHs.

The official version of the rule will be published on August 18, 2011.