On April 18, 2016, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2017 proposed rule updating the Inpatient Prospective Payment System (IPPS) and the Long Term Acute Care Hospital Prospective Payment System (LTCH PPS). The proposed rule will affect discharges occurring on or after October 1, 2016, and comments on the rule will be due June 17, 2016.

A more detailed Dentons analysis of the rule is forthcoming. However, several highlights are worthy of immediate note, including CMS' proposals to:

  • Increase inpatient payment rates by approximately 0.4 percent
  • Complete a series of documentation and coding recoupments by implementing a final -1.5 percent adjustment to complete the recoupment required by the American Taxpayer Relief Act (ATRA)
  • Permanently remove the -0.2 percent offset implemented in the FY 2014 IPPS/LTCH PPS final rule to account for an estimated increase in Medicare expenditures due to the Two Midnight policy, by removing the adjustment itself and also removing its effects for FYs 2014, 2015 and 2016 (with a one-time payment boost of 0.6 percent), which would result in an increase in FY 2017 payment rates of approximately 0.8 percent
  • Decrease uncompensated care payments by US$400 million from the FY 2016 amount
  • Change the methodology for calculating uncompensated care payments by using data from three cost-reporting periods instead of a single cost-reporting period, and by applying a proxy to estimate Medicare Supplementary Security Income (SSI) inpatient days for hospitals in Puerto Rico
  • Phase in, over a three-year period (beginning FY 2018), the use of uncompensated care cost data from Worksheet S-10 of the Medicare Cost report into the uncompensated care payment methodology
  • Increase from three years to five years the cap-setting window for urban hospitals with rural training track graduate medical education (GME) programs
  • Promulgate new regulations related to the Medicare Outpatient Observation Notice (MOON), a notice required by the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) to be delivered to provide patients receiving observation services as outpatients for more than 24 hours

The proposed rule also contains provisions related to programs including the Hospital-Acquired Condition (HAC) Reduction Program, the Hospital Readmissions Reduction Program (HRRP), the Electronic Health Record (EHR) Incentive Programs, the Hospital Inpatient Quality Reporting (IQR) Program and the Hospital Value-Based Purchasing (VBP) Program.