On May 1, 2009, the Centers for Medicare & Medicaid Services (CMS) released its proposed FY 2010 Medicare policies and payment rates for acute inpatient prospective payment system (IPPS) hospitals. CMS proposes a 2.1% market basket update, derived using a proposed rebased and revised market basket update based on data from FY 2006 (rather than FY 2002). However, that inflation increase would be offset largely by a negative 1.9% across-the-board budget neutrality adjustment to compensate for higher aggregate payments resulting from changes in hospital coding practices associated with the new Medicare Severity Diagnosis-Related Groups (MS-DRGs) patient classification system that do not, in CMS' view, reflect increases in patient acuity. Overall, the policy and payment changes in the rule is expected to decrease average IPPS payments by 0.5%. CMS notes that the proposed 1.9% budget neutrality reduction does not fully offset higher payments since the MS-DRG system was adopted in FY 2008. Based on current estimates, CMS expects that total adjustments of approximately 8.5% eventually will need to be made, which would require additional cuts totaling approximately 6.6% in FY 2011 and FY 2012. CMS is requesting public comment on the magnitude of the adjustment for FY 2010. In other provisions of the rule, CMS continues to link the inflation update to the reporting of quality measures. Specifically, hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program will get the full market basket update, while hospitals that do not participate in the quality reporting program will get the update less 2 percentage points. The proposed rule adds four new measures for reporting under the RHQDAPU program. Moreover, the proposed rule increases the outlier threshold to $24,240, includes payment adjustments affecting teaching hospitals and disproportionate share hospitals, clarifies the Emergency Medical Treatment and Labor Act (EMTALA) regulations, and discusses five applications for new technology add-on payments. The IPPS rule also includes changes to the long-term care hospital (LTCH) payment policies. The rule is scheduled to be published in the Federal Register on May 22, 2009. Comments on the proposed rule are due by June 30, 2009.