The Centers for Medicare & Medicaid Services (CMS) recently released some 2,000 pages of final rules updating Medicare payment policies and rates for fiscal year 2012 for acute care hospitals under the inpatient hospital prospective payment system (IPPS), long-term care hospitals (LTCH), skilled nursing facilities (SNFs) and inpatient rehabilitation facilities (IRF). An overview and highlights of the respective final rules follow below.

IPPS Hospitals and LTCHs

Generally effective for inpatient hospital discharges occurring on or after October 1, 2011, the IPPS final rule, which applies to acute care hospitals and LTCHs, is slated for publication in the August 18 Federal Register.

IPPS Payment Rate

Payments for inpatient stays in acute care hospitals will increase by 1.0 percent in FY 2012. This compares favorably to the proposed rule’s 0.5 percent rate reduction. The increase in reimbursement, as compared to the proposed rule, is due largely to CMS’s adoption of a 1.15 percent lower documentation and coding adjustment. The adjustment is designed to offset diagnosis-related group (DRG) creep resulting from better documentation rather than from actual increases in patients’ illness severity. Hospitals not providing quality data to CMS, however, will see a rate reduction of 1.0 percent.

Wage Index

In response to comments, CMS reversed its position from the proposed rule and will extend the “imputed” wage index floor policy that creates a rural hospital wage index floor in states that do not have any rural hospitals. The final rule also changed how pension costs are reported to Medicare for wage index and cost-finding purposes.

Add-On Payments

CMS did not approve any new, temporary add-on payments for the inpatient use of new technologies, but is extending the new technology add-on payment for a focused laser interstitial thermal therapy for brain tumors.

Medicare provides an add-on payment to hospitals that provide inpatient dialysis treatment to a high proportion of end-stage renal disease (ESRD) beneficiaries. The final rule clarifies that for purposes of ascertaining ESRD add-on payments, discharges of all Medicare Part A beneficiaries, including Medicare Advantage patients, will be used to determine the proportion of beneficiaries with ESRD.

Three-Day Window

CMS “clarified” that the three-day payment window (one-day payment window for LTCHs and certain other PPS-exempt hospitals) requires the bundling of certain preadmission services furnished to a patient at physicians’ practices that are wholly owned or wholly operated by the admitting hospital, into the DRG payment.

Under Arrangements

Hospitals may bill and receive payment for certain inpatient services provided “under arrangements” with third parties. Under the final rule, routine services such as room and board, nursing services and ICU services may be provided under arrangements only on the hospital’s premises where the patient is being treated. A hospital, however, may contract with an outside entity to provide therapeutic and diagnostic services under arrangements.

In the hospital within a hospital (HwH) context, CMS permits the furnishing of certain services (e.g., food and dietetic services, housekeeping and maintenance and other physical environment services) to be provided under arrangements to an HwH by the host hospital or by an entity that controls both hospitals. Such services, however, will be disallowed by CMS if the HwH inpatient is moved to another hospital.

Disproportionate Share Hospital and Indirect Medical Education Payments

Hospice bed days will be excluded from the calculation of patient days and beds to compute disproportionate share hospital and indirect medical education payments under the final rule. CMS’s rationale for the change is that hospice patients do not receive acute care services.

Readmission Reduction Program

The final rule implements the Hospital Readmissions Reduction Program (RRP) required by the Patient Protection and Affordable Care Act (PPACA). RRP was designed to provide hospitals with an incentive to improve care coordination. Beginning with discharges on or after October 1, 2012, CMS will reduce payments to hospitals that have excessive readmissions within 30 days of discharge for selected conditions. The final rule adopts measures for rates of readmissions for acute myocardial infarction, heart failure and pneumonia.

Global Per Admission Spending Performance Measure

CMS adopts a global per admission spending performance measure for use in both the hospital inpatient quality reporting program and the hospital value-based purchasing program in the final rule. The new measure, which will affect payments beginning in October 2013, will assess Part A and Part B beneficiary spending during a period that begins three days prior to a hospital admission and ends 30 days after discharge. The final rule is an improvement for hospitals as CMS had originally proposed ending the period 90 days after discharge.

Inpatient Quality Reporting

The agency also has made a number of changes to the Hospital Inpatient Quality Reporting Program in the final rule. CMS (1) retired four measures beginning with January 1, 2012, discharges (three adult smoking cessation counseling measures and a measure related to the timing of receipt of the initial antibiotic dose following arrival at the hospital); (2) suspended data collection for four measures, starting with January 1, 2012, discharges (aspirin upon arrival, ACEI/ARB for left ventricular systolic dysfunction, beta-blocker prescribed at discharge and appropriate hair removal); (3) added four healthcare-associated infection measures—one for FY 2014 and three for FY 2015 (catheter-associated urinary tract infection for 2014 and influenza vaccination coverage among healthcare personnel, methicillin-resistant Staphylococcus Aureus (MRSA) bacteremia and C. difficile standardized infection ratio for 2015); (4) added a measure for participation in a registry for general surgery for FY 2014; and (5) added a series of stroke and venous thromboembolism measures for FY 2015.

Hospital-Acquired Conditions

CMS decided not to follow its proposal to add a new hospital-acquired condition (HAC) in FY 2012 for contrast-induced acute kidney injury. The agency also added two new ICD-9-CM diagnosis codes to the falls and trauma HAC category, two new codes to the surgical site infection following certain bariatric procedures HAC category and one new code to the deep vein thrombosis and pulmonary embolism following certain orthopedic procedures HAC category.

LTCH Payment Rate

For FY 2012, LTCH payments will be updated by a net increase of 2.5 percent due to a 1.8 percent payment rate increase and other policy changes. The final rule also implements a LTCH pay-for-reporting program beginning in October 2012 and a 2.0 percent payment penalty for nonreporting beginning in October 2013 for three quality measures: catheter-associated urinary tract infection, central line catheter-associated bloodstream infections and new or worsening pressure ulcers.


Under the final SNF rule, scheduled for publication in the August 8 Federal Register, SNFs will sustain a 12 percent payment reduction. Largely due to a recalibration of case-mix levels, the decrease in SNF payments for FY 2012 is specifically comprised of an 11.1 percent reduction for the recalibration, a 2.7 percent market-basket increase and a 1.0 percent productivity cut required under PPACA. The therapy reporting rules also were enhanced by CMS in the final SNF rule to more accurately link therapy and payment levels. Finally, group therapy payment now will be allocated based on the number of patients in the group, with group size limited to four patients.


Due for publication in the August 5 Federal Register, the IRF final rule includes a net payment increase of 2.2 percent above FY 2011 levels. A quality reporting system that requires IRFs to submit data on catheter-associated urinary tract infections and new or worsening pressure ulcers also will be implemented by the final IRF rule. Beginning in FY 2014, IRFs that do not submit the quality measure data will receive a 2.0 percent payment reduction. In a change from the proposed IRF rule, CMS froze the facility-level adjustments at FY 2011 levels for one additional year to study the current methodologies.