On May 10, 2013, the Centers for Medicare & Medicaid Services (CMS) published its proposed rule updating Medicare inpatient prospective payment system (IPPS) and long-term acute care hospital prospective payment system (LTCH PPS) rates and policies for fiscal year (FY) 2014, which begins October 1, 2013. Comments on the proposed rule will be accepted until June 25, 2013. Highlights of the sweeping rule include the following: 

  • The proposed rule would increase IPPS operating rates by 0.8% after accounting for all adjustments (if a hospital does not successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program, this update is reduced by 2.0 percentage points). The 0.8% update reflects the hospital market basket of 2.5% reduced by a -0.4 percentage point multi-factor productivity adjustment and an additional -0.3 percentage point reduction in accordance with the Affordable Care Act (ACA). The rate is further decreased by 0.8% for a proposed documentation and coding recoupment adjustment required by the American Tax Relief Act of 2012 and by a 0.2% proposed adjustment to offset the cost of a proposal addressing its inpatient medical review criteria. Specifically, CMS proposes to clarify its medical review criteria to presume that Part A hospital inpatient status is appropriate if the beneficiary is admitted to the hospital pursuant to a physician order and receives care for at least two midnights. On the other hand, hospital inpatient admissions spanning less than two midnights will presumptively be inappropriate under Part A. Appropriate documentation could rebut the presumption.
  • The proposed rule includes a number of hospital quality initiatives. For instance, CMS is proposing to implement the ACA’s Hospital-Acquired Condition (HAC) Reduction Program. Under this provision, effective beginning in FY 2015, hospitals that rank among the lowest-performing 25% with regard to HACs will be paid 99% of the IPPS payment that otherwise would be made. The proposed rule addresses, among other things, the payment adjustment, measure selection, risk-adjustment and scoring methodology; performance scoring; public availability of hospital-specific performance information; and limitation of administrative and judicial review. CMS also proposes to update the Hospital Value-Based Purchasing (VBP) Program, which adjusts IPPS payments based on how well a hospital performs or improves performance on a set of quality measures. For FY 2014, CMS proposes increasing the applicable percent reduction to base operating DRG payment amounts to 1.25%, increasing the total estimated amount available for value-based incentive payments (approximately $1.1 billion), and adding new measures to the program. In addition, the proposed rule would expand the Hospital Readmissions Reduction Program, under which CMS currently assesses hospitals’ penalties using three readmissions measures (heart attack, heart failure, and pneumonia). The maximum payment reduction will increase from 1% to 2% in FY 2014, as mandated by the ACA. For FY 2014, CMS also proposes to add two new measures to calculate readmission penalties effective for FY 2015: readmissions for hip/knee arthroplasty and chronic obstructive pulmonary disease. CMS also proposes a revised methodology to take into account planned readmissions for the existing readmissions measures. The proposed rule also would revise IQR program measures.
  • CMS proposes to implement new cost centers for Implantable Devices, MRIs, CT scans, and cardiac catheterization for FY 2014, which would increase the total number of cost-to-charge ratios (CCRs) used to calculate the FY 2014 proposed relative weights from 15 to 19. The additional CCRs generally increase the relative weight values for surgical Medicare severity diagnosis related group (MS-DRGs) and decrease the relative weight values for medical MS-DRGs.
  • CMS proposes to implement an ACA provision revising how Medicare disproportionate share hospital (DSH) payments are paid. Under the proposed rule, hospitals will receive 25% of the payment they otherwise would receive, and the remaining 75% percent will be adjusted for decreases in the national rate of uninsured individuals and distributed to hospitals payments based on the hospital’s share of uncompensated care relative to all Medicare DSH hospitals.
  • The proposed rule also addresses, among many other things: MS-DRG classifications for certain procedures; applications for new technology add-on payments; direct graduate medical education and indirect medical education payments; and the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. In addition, CMS proposes to revise the conditions of participation (CoPs) for hospitals relating to the administration of vaccines by nursing staff, and the CoPs for critical access hospitals relating to the provision of acute care inpatient services.
  • With regard to the LTCH PPS, CMS proposes a 1.8% annual update for LTCHs, which would increase the standard federal rate to $40,622.06. The rule also includes a number of other LTCH PPS payment and policy provisions, including a proposal to allow the regulatory moratorium on the full application of the “25% Rule” to lapse, new quality measures, and solicitation of comments on patient criteria-based payment adjustments. Reed Smith has prepared a Client Alert with additional details on the LTCH PPS provisions.