On July 31, 2015, the Centers for Medicare & Medicaid Services (“CMS”) issued final Medicare payment rules for federal fiscal year 2016 (the “Rules”). The Rules affect hospitals, hospices, psychiatric facilities, and rehabilitation facilities. 

Hospital Inpatient Prospective Payment System (“IPPS”). The Rules finalized a 0.9 percent increase in payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (“IQR”) Program and demonstrate meaningful use of certified electronic health record (“EHR") technology. This increase is lower than the 1.1 percent increase that CMS proposed in April. The 0.9 percent increase consists of:

  • a 2.4 percent market basket increase;
  • a 0.2 percent reduction as mandated by the Affordable Care Act (“ACA”);
  • a 0.5 percent ACA-mandated reduction for productivity; and
  • a 0.8 percent reduction for the documentation and coding adjustment as part of the American Taxpayer Relief Act of 2012.

Hospitals that do not successfully report required quality data through the IQR Program will be subject to a one-quarter reduction of the market basket update. Hospitals that have not attested as meaningful users of EHR technology will be subject to a one-half reduction of the market basket update. Other payment adjustments will be made based on a hospital’s performance in the Value-Based Purchasing (“VBP”), Excess Readmissions and Hospital-Acquired Conditions (“HACs”) programs.

The Rules provide that overall disproportionate share hospital (“DSH”) payments will be cut by $1.2 billion in FY 2016. According to CMS, this decrease is primarily attributable to a decline in the number of uninsured individuals since the passage of the ACA.

The Rules relating to IPPS payments are available here.

Hospice. The Rules will increase payments hospice payments by 1.1 percent, or $160 million, in FY 2016.

The Rules also finalize a new two-tiered system for routine hospice care per diem rates that are intended to discourage longer and inappropriate stays. The changes will result in a higher base payment rate for the first 60 days of hospice care and a reduced base payment rate for 61 or more days of hospice care. The Rules also provide for a Service Intensity Add On (“SIA”) payment for services provided to patients in their last 7 days of life when certain criteria are met. The two-tiered payment system and SIA provisions will not take effect until Jan. 1, 2016. All other hospice-related changes will take effect Oct. 1, 2015.

The Rules relating to Hospices are available here

Inpatient rehabilitation services. The Rules reflect an overall increase of 1.8 percent in Medicare payments for inpatient rehabilitation facility (“IRF”) services in FY 2016.

The Rules adopted an IRF-specific market basket to replace the Rehabilitation, Psychiatric and Long-Term Care (“RPL”) market basket. The IRF market basket is based on 2012 Medicare cost report data for both freestanding and hospital-based IRFs.

The Rules also require IRFs to report data on additional quality measures. Failure to submit the required quality data will subject an IRF to a 2 percentage point reduction to their applicable FY annual increase factor.

The Rules relating to IRFs are available here.

Inpatient psychiatric facilities. Payment rates for inpatient psychiatric facilities (“IPFs”) will increase by 1.5 percent (or $75 million) in FY 2016.

CMS adopted an IPF-specific market basket to replace RPL market basket. Like the IRF-specific market basket, the final IPF market basket is based on both freestanding and hospital-based IPFs’ Medicare cost report data for 2012.

CMS also added five new IPF quality reporting measures and removed three measures. The added measures relate to tobacco treatment, substance use treatment, care transitions and screening for metabolic disorders.

The Rules relating to IPFs are available here

The Rules will generally become effective on Oct. 1, 2015, unless provided otherwise.