On August 1, 2012, CMS issued the final rule on Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals for FY 2013.  Under the final rule, payment rates to general acute care hospitals will increase by 2.8 percent in FY 2013.  The 2.8 percent is a net update after the market basket update, improvements in productivity, a statutory adjustment factor, and adjustments for hospital documentation and coding changes.

The significant changes in the final rule, include among others things:

  • Market Basket Update - The net market basket update is 1.8 percent.  The most recent estimate of the IPPS market basket is 2.6 percent.  The net market basket update incorporates an Affordable Care Act reduction (ACA) of 0.1 percent and a productivity adjustment reduction of 0.7 percent.
  • Provisions Promoting Improved Patient Care - The final rule implements significant elements of the ACA’s hospital value-based purchasing (VBP) and hospital readmissions reductions programs.  The VBP program will adjust hospital payments beginning in FY 2013 and annually thereafter based on how well hospitals perform or improve their performance on a set of quality measures.  The Inpatient Quality Reporting (IQR) program is also strengthened under the final rule.  In particular, CMS includes measures related to whether a hospital uses surgery checklists and measures associated with perinatal care and readmissions, incorporating overall readmissions and readmissions relating to hip and knee replacement procedures.  The final rule also increases the number of quality measures hospitals would need to report to 59 in FY 2013.
  • Documentation and Coding - CMS is completing the documentation and coding adjustments for FY 2008 and FY 2009 as required by the Transitional Medical Assistance, Abstinence Education, and Qualifying Individuals Programs Extension Act of 2007.  The final documentation and coding adjustments net effect for FY 2013 is an aggregate increase of 1.0 percent, a 0.8 percentage point increase from the proposed rule.
  • Labor and Delivery Bed Days Included in DSH and IME -  Labor and delivery days will be included in the count of available beds for purposes of both the Medicare disproportionate share hospital (DSH) and indirect medical education adjustments.  This provision of the final rule was adopted without modification from the proposed rule, which raised significant questions.  CMS asserts that the final rule will align the CMS policy adopted in FY 2010 to include labor and delivery days in the patient count for the Medicare DSH adjustment.
  • GME/IME Payments - CMS is implementing changes relating to determining a hospital’s full-time equivalent (FTE) resident cap in connection with graduate medical education (GME) and indirect medical education (IME) payments.  In particular, with respect to GME, CMS is finalizing the proposal to increase the cap-building period from three years to five years and also sets forth the factors for adjusting a cap for new teaching hospitals.
  • Low-Volume Hospital Adjustment - Under the final rule, the preexisting low-volume hospital qualifying criteria and payment adjustment, as implemented in FY 2005, will resume.  As such, in order to qualify for the adjustment, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have fewer than 200 discharges.  The modified definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals, effective only for discharges occurring during FYs 2011 and 2012, will no longer be applied to payments for a hospital’s discharges beginning on or after October 1, 2012.  By September 1, 2012, a hospital must make its request in writing to its MAC or fiscal intermediary for low-volume hospital status in order to receive the 25 percent low-volume add-on payment.

The final rule applies to discharges occurring on or after October 1, 2012, and the financial impact is projected to expand overall Medicare operating payments to hospitals by 2.3 percent or $2 billion in FY 2013 as compared with FY 2012 payments.

The final rule is scheduled to be published in the August 31, 2012 Federal Register and is available here.  CMS’s press release discussing the final rule is available here