On August 31, 2012, the Centers for Medicare & Medicaid Services (CMS) is publishing 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 2013. Overall, CMS estimates that FY 2013 payments to general acute care hospitals for operating expenses will increase by $2 billion under the proposed rule considering all policy changes, the expiration of certain temporary payment increases, and projected utilization. CMS addresses a wide variety of policies in the extensive rule, including the following:

  • CMS is updating IPPS rates by 2.8% for FY 2013. This increase reflects a 2.6% market basket update that is reduced under the Affordable Care Act (ACA) by a multi-factor productivity adjustment of 0.7% and an additional 0.1% reduction, which is then increased by a 1.0% documentation and coding adjustment (CMS did not adopt its proposal to make a prospective documentation and coding adjustment to account for estimated overpayments in FY 2010, and as a result the overall update is higher than under the proposed rule). Payments also will be impacted by other policies, including an estimated 0.3% cut under a new readmissions reduction program (discussed below), and expiration of certain temporary increases to the Medicare-Dependent Hospital program and the low-volume hospital payment adjustment under the ACA.
  • The rule includes a number of hospital quality initiatives. CMS seeks to strengthen the Hospital Value-Based Purchasing Program (VBP Program) by adjusting hospital payments beginning in FY 2013 and annually thereafter based on how well a hospital performs or improves performance on a set of quality measures. Among other things, CMS finalized a risk-adjusted Medicare spending per beneficiary measure under the VBP Program, which will impact payments beginning in FY 2015. The rule also revises Inpatient Quality Reporting (IQR) program measures, resulting in a net reduction in measures from 72 to 59 for the FY 2015 payment determination, and 60 for the FY 2016 payment determination. Hospitals that do not successfully participate in the IQR program will have their market basket update reduced by two percentage points (to a 0.8% update). The rule also establishes the methodology to calculate the readmissions adjustment factor for the ACA Hospital Readmissions Reduction Program, which will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for heart attack, heart failure, and pneumonia. CMS estimates that readmission policy will reduce base operating DRG payments to 2,206 hospitals, resulting in 0.3% overall decrease in hospital payments. CMS also is adding Surgical Site Infection Following Cardiac Implantable Electronic Device and Iatrogenic Pneumothorax with Venous Catheterization to the list of hospital acquired conditions for FY 2013. In addition, the rule establishes new quality reporting requirements for cancer hospitals and inpatient psychiatric facilities, and finalizes several requirements pertaining to ambulatory surgical center (ASC) quality reporting, with various effective dates.
  • CMS adopted its proposal to postpone the effective date of a policy adopted in the FY 2012 IPPS rule that clarified that hospitals may provide only therapeutic and diagnostic services “under arrangements” with an outside entity. On the other hand, routine services, such as contracted nursing services, furnished outside the hospital may not be furnished “under arrangement” and covered by Medicare. In response to requests from hospitals for additional time to restructure arrangements and establish operational protocols, the final rule provides that this policy will be effective for hospital cost reports beginning on or after October 1, 2013.
  • The final rule also, among many other things: modifies Medicare severity diagnosis related group (MS-DRG) classifications for certain procedures; makes a variety of changes to graduate medical education policy (including changes relating to determining a hospital’s fulltime equivalent resident cap); announces the approval of three new technology add-on payment applications (glucarpidase (Voraxaze®), fidaxomicin (DIFICIDTM), and the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft); 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; and updates LTCH-PPS policies and rates, as discussed below.

The policies in the final rule generally are applicable to discharges occurring on or after October 1, 2012, with certain exceptions.