CMS has issued the final Inpatient Prospective Payment System ("IPPS") rule for FFY 2017, restoring payments CMS has taken away from hospitals since FFY 2014, which relates to implementation of the Two-Midnight Rule that redefined the definition of inpatient admissions. Not only will there be no 0.2 percent decrease in IPPS payments in FFY 2017, but CMS will make a one-time increase in IPPS payments of 0.6 percent for FFY 2017 to make up for the past three years of 0.2 percent decreases. Hospitals will not receive a lump sum settlement for this matter but will simply receive DRG payments throughout FFY 2017 that will be 0.6 percent higher than they would have received without this victory. All acute care hospitals will benefit from this payment restoration, but this restoration would not have occurred without hundreds of hospitals challenging CMS's 0.2 percent payment reduction via numerous PRRB appeals and federal court cases.


Starting in FFY 2014, CMS changed the definition of an inpatient admission from one where it was appropriate if the reasonable expectation of the admitting physician was that it would require 24 hours of care to one where the admission was presumptively deemed a proper inpatient admission if the patient actually remained in the hospital through two midnights (the Two-Midnight Rule). Our appeal did not challenge this substantive aspect of the rule. However, CMS also claimed that it expected implementation of the rule to paradoxically increase inpatient utilization and therefore Part A Medicare costs. Claiming that it wanted the changed definition of "inpatient" to be "budget neutral," CMS decreased IPPS payments by 0.2 percent for three years in 2014, 2015 and 2016 and seemed to have every intent to lock this payment reduction in perpetuity.

Hall Render filed appeals on behalf of hundreds of hospitals, asserting that CMS had not provided adequate notice when proposing the reduction because its failure to "show its math" as to how it arrived at a 0.2 percent decrease deprived hospitals of the ability to make informed and meaningful comment regarding the proposed rule. The AHA also filed appeals, and Hall Render stayed in contact with the AHA from the beginning of the respective appeal initiatives. The AHA's lead case came to a District Court for the District of Columbia decision in September of last year in Shands Jacksonville Medical Center v. Burwell. The court agreed that the notice provided by CMS was inadequate to provide the industry with a meaningful and informed opportunity to comment on the proposed rule. The court remanded the matter back to CMS to provide adequate notice and opportunity for the industry to comment. CMS provided expanded notice in December 2015, and Hall Render filed comments on behalf of the appeal participants that the 0.2 percent decrease should be eliminated and the payments restored.

CMS Concedes the Issue

In April of this year, CMS published on its website the FFY 2017 IPPS proposed rule indicating CMS would completely capitulate on this issue. Not only will hospitals not be subject to a 0.2 percent decrease in FFY 2017 payments, but FFY 2017 payments will be increased by 0.6 percent to make up for the three years of 0.2 percent decreases. Every FFY 2017 DRG payment will be 0.6 percent higher than it would have been without hundreds of other hospitals appealing CMS's actions.

Hall Render commented on the proposed rule, advising CMS that we regarded it a fair and appropriate resolution of the dispute and indicating that we would drop our appeals related to this issue if CMS formalized the rule in final form.

On August 2, 2016, CMS issued the Final Rule for IPPS payments that formally implemented the proposed rule as originally written. This brings the issue to a close, and we intend to dismiss our appeals related to this issue in short order.

Practical Takeaways

This is another success story where CMS and/or the federal courts have conceded on an IPPS payment policy issue after the hospital community joins forces and appeals to both CMS and the federal courts. As these issues present themselves, hospitals should continue to perfect appeal rights to make their voices heard at CMS and in the federal courts.