On August 18, 2011, CMS is publishing its final rule updating Medicare long-term care hospital (LTCH) PPS policies and payment rates for FY 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 through September 30, 2012). Medicare payments to LTCHs are projected to increase by $126 million (2.5%) in FY 2012 relative to FY 2011, due to a 1.8% rate update together with other policies adopted in the final rule. Specifically, the final standard federal rate for FY 2012 is $40,222, an increase from $39,600 applicable during FY 2011. The increase is based on a market basket increase of 2.9% minus a productivity adjustment of 1.0% and minus an additional 0.1% as mandated by the ACA. Under the final rule, the fixed loss amount for high cost outlier cases is set at $17,931, down from $18,785 in FY 2011, and the labor-related share of the LTCH-PPS standard federal rate is decreased from 75.271% to 70.199%. In addition, the final rule requires that any updates to the area wage level adjustment be made in a budget-neutral manner. CMS also has updated how to determine if an LTCH meets the requirement that it have an average inpatient length of stay for Medicare patients (including both Medicare covered and non-covered days) of greater than 25 days. In the final rule, CMS has clarified that all data on all Medicare inpatient days, including Medicare Advantage days, must be included in the average length of stay calculation. Effective for cost reporting periods beginning on or after January 1, 2012, CMS will disqualify an LTCH for payment under LTCH-PPS if it fails to meet the average length of stay requirement when Medicare Advantage days are included. The final rule also implements a new quality reporting program for LTCHs mandated by the ACA that will impact payment determinations beginning in FY 2014. Under this program, LTCHs will be required to submit data from three quality measures in order to receive the full payment update in fiscal year 2014, including measures related to (1) catheter-associated urinary tract infections, (2) central line catheter-associated blood stream infection, and (3) pressure ulcers that are new or have worsened. If an LTCH fails to report on the selected quality measures, it will see its reimbursement reduced by 2% of the annual market basket update.