On August 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published a final rule updating FY 2014 Medicare payment policies and rates under the acute inpatient prospective payment system (IPPS) and the long-term care hospital (LTCH) prospective payment system (PPS). The following are highlights of the lengthy rule:

  • The final rule increases IPPS operating payment rates by 0.7% for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program (for hospitals that do not successfully, the update is reduced by 2.0 percentage points). This reflects the hospital market basket of 2.5%, which is reduced by 0.5 percentage points for multi-factor productivity and an additional reduction of 0.3 percentage points under the Affordable Care Act (ACA). The rate is further decreased by 0.8% for a documentation and coding recoupment adjustment required by the American Taxpayer Relief Act of 2012 and by a 0.2% adjustment to offset the effect of the policy on inpatient admission and medical review criteria for hospital inpatient services (discussed below).
  • The final rule addresses a number of hospital quality initiatives. For instance, CMS is implementing the ACA’s Hospital-Acquired Condition (HAC) Reduction Program, under which hospitals that rank among the lowest-performing 25% with regard to HACs will be paid 99% of the IPPS payment that otherwise would be made, effective beginning in FY 2015. The rule finalizes the quality measures and scoring methodology for the HAC Reduction Program, along with the process for hospitals to review and correct data. In addition, the rule updates the Hospital Readmissions Reduction Program to, among other things, increase the maximum payment reduction to up to 2% and add hip and knee surgery and chronic obstructive pulmonary disease to the list of conditions used to determine the reduction, effective in FY 2015. CMS also has revised the methodology to better account for planned readmissions. Further, CMS has updated the Hospital Value-Based Purchasing (VBP) Program, which adjusts IPPS payments based on how well a hospital performs or improves performance on a set of quality measures. For FY 2014, CMS is adding new measures to the program, and increasing the applicable reduction to base operating DRG payment amounts to 1.25%, which increases the total estimated amount available for value-based incentive payments to approximately $1.1 billion. The rule also revises Inpatient Quality Reporting program measures.
  • CMS is finalizing (with modifications) its proposed changes in criteria for determining the appropriateness of inpatient admissions. In brief, under this policy, CMS will provide that, in addition to services designated by CMS as “inpatient only,” surgical procedures, diagnostic tests, and other treatments will be presumed to be appropriate for Medicare Part A inpatient hospital payment when the physician admits a patient based on the expectation that the patient will require a stay of at least two midnights. As noted, CMS adopted its proposed 0.2% rate cut to offset the expected effect of the policy on inpatient admissions.
  • CMS finalized its proposal to use cost-to-charge ratios (CCRs) for Implantable Devices, MRIs, CT scans, and cardiac catheterization for rate-setting purposes, which increases the total number of CCRs used to calculate FY 2014 relative weights from 15 to 19. The additional CCRs generally increase relative weight values for surgical Medicare severity diagnosis related group (MS–DRGs) and decrease values for medical MS–DRGs.
  • The rule implements an ACA provision that provides that distribution of Medicare disproportionate share hospital (DSH) payments will be based in part on an estimate of how much uncompensated care hospitals provide relative to other hospitals.
  • The rule addresses a number of other policy issues, including: MS-DRG classifications for certain procedures; applications for new technology add-on payments; the timeframe for hospital billing of Medicare Part B services inappropriately billed under Part A; the calculation of graduate medical education payments; a revised/rebased market basket; critical access hospital (CAH) conditions of participation; the expiration of the Medicare-Dependent Hospital program, the expiration of changes to low volume hospital policy; and revised measures under the Inpatient Psychiatric Facility (IPF) Quality Reporting, LTCH QRP, and PPS-Exempt Cancer Hospital Quality Reporting programs.
  • The rule also updates LTCH PPS rates and policies for FY 2014. Under the final rule, the standard federal rate will equal $40,607.31, compared to a standard rate of $40,397.96 applicable from December 29, 2012 through September 30, 2013. The FY 2014 standard federal rate reflects a 1.7% update for LTCHs that submit the requisite quality data under the LTCH Quality Reporting Program (LTCH QRP), based on a market basket update of 2.5% reduced by a multi-factor productivity adjustment of 0.5 percentage point and an additional 0.3 percentage point reduction as mandated by the ACA. The LTCH PPS standard federal rate will be of -0.3% for LTCHs that fail to submit data under the LTCH QRP. The rule also provides a budget neutrality adjustment (under the second year of a 3-year phase-in of a onetime prospective adjustment) and an area wage level budget neutrality factor. In addition, the final rule sets the fixed-loss amount for high cost outlier cases at $13,314, down from the FY 2013 fixed-loss amount of $15,408. Moreover, the final rule allows the current moratorium on the full implementation of the so-called “25% rule” to expire at the end of FY 2013 (at which time, if an LTCH admits more than a specified percentage of its patients from a single acute care hospital during a fiscal year, it will be paid at a rate comparable to the IPPS rate for patients above the specified percentage threshold).