On August 22, 2014, CMS is publishing a final rule to update the Medicare acute hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2015, which begins October 1, 2014.  The following are highlights of the sweeping regulations.

With regard to the IPPS, the final rule provides for a 1.4% operating payment rate update for hospitals that submit quality data and are meaningful Electronic Health Record (EHR) users. This update reflects a 2.9% market basket update, adjusted by a -0.5 percentage point multi-factor productivity (MFP) cut and an additional -0.2 percentage point cut (both mandated by the Affordable Care Act), with an additional -0.8 percentage point documentation and coding recoupment adjustment. Despite the positive operating rate update, total IPPS payments (capital and operating payments) are projected to decrease by about $756 million in FY 2015 as a result of reductions under the Hospital Readmissions Reduction Program, the Hospital Acquired Condition (HAC) Reduction Program, Medicare disproportionate share hospital (DSH) payment changes, and other policy changes. Moreover, CMS is revising the labor market areas used in the wage index, but adopting a 1-year transition policy for FY 2015 to mitigate potential negative payment impacts.

The rule makes numerous changes to hospital quality programs, including updating measures aligning certain reporting requirements in both the EHR Incentive Program and the Hospital Inpatient Quality Reporting Program. In addition, the rule modifies the Hospital Value-Based Purchasing Program to increase the applicable percent reduction (the portion of Medicare payments available to fund incentive payments under the program) to 1.5% of the base operating DRG payment amounts to all participating hospitals, which will generate approximately $1.4 billion for value-based incentive payments in FY 2015. In addition, the rule increases the maximum reduction in payments under the Hospital Readmissions Reduction program from 2% to 3%. The rule also implements the ACA HAC Reduction Program, which will reduce by 1% Medicare inpatient payments to hospitals with the highest rates of certain conditions that are reasonably preventable when those conditions are acquired after the beneficiary has been admitted to the hospital for a different condition.

Other IPPS policies in the rule address, among other things, the low-volume hospital payment adjustment and the Medicare Dependent Hospital program, graduate medical education funding, and critical access hospital payments. CMS also reminds hospitals of their statutory obligation to establish and make public a list of its standard charges for items and services.

With regard to the LTCH PPS, CMS estimates that estimated payments per discharge will rise by 0.8% in FY 2015, and total payments will increase by 1.1%, or approximately $62 million. This increase is attributable to several factors, including a 2.2% rate update, which is based on a market basket update of 2.9% adjusted by a -0.5 percentage point MPF adjustment and an additional adjustment of -0.2 percentage points. CMS is also applying a “one-time” prospective budget neutrality adjustment to standard federal rate of approximately -1.3% under the last year of a three-year phase-in. For 2015, the standard federal rate will be $40,240.51 (compared to the FY 2014 rate of $40,607.31), and the fixed-loss amount for high cost outlier cases will be $14,972 (compared to the FY 2014 amount of $13,314). Note that LTCHs are subject to a 2.0 percentage point reduction for failure to submit required quality data for FY 2015.

The final rule also eliminates the 5 percent readmissions policy for LTCH patients discharged on or after October 1, 2014. Under this policy readmissions from co-located providers in excess of 5 percent are paid a single LTCH payment instead of separate admission and readmission payments. CMS indicated that this policy is not needed in light of recent statutory changes establishing clinical criteria for standard LTCH-PPS payments that will be implemented for discharges beginning on or after October 1, 2015. CMS did not finalize an earlier proposal to change the fixed-day threshold under the LTCH PPS greater than 3-day interrupted stay policy.

Separately, CMS has published corrections to the August 19, 2013 FY 2014 IPPS/LTCH final rule to restore regulatory text related to the administration of pneumococcal vaccines that had been inadvertently removed.