CMS published a proposed rule on May 8, 2013 that would update Medicare inpatient rehabilitation facility (IRF) prospective payment system (PPS) rates for FY 2014. CMS proposes a 1.8% payment update for FY 2014, reflecting a 2.5% market basket increase factor, reduced by a 0.4% multi-factor productivity adjustment and an additional 0.3 percentage point reduction required by the ACA. The update would establish a standard payment conversion factor of $14,865 for discharges occurring in FY 2014, which is an increase from the FY 2013 standard payment conversion factor of $14,343. CMS also is proposing to update the outlier threshold, which would increase IRF PPS payments by an estimated 0.2%, for a total estimated increase of 2%. In addition, the proposed rule would revise and update quality measures and reporting requirements under the IRF quality reporting program. Beginning in FY 2014, CMS will apply a 2 percentage point reduction to the applicable market basket increase factor for IRFs that fail to comply with the quality data submission requirements. In the rule, CMS also proposes to revise the list of diagnosis codes that are used to determine presumptive compliance under the “60 percent rule” for a facility to be excluded from the IPPS and be paid under the IRF PPS. Under the proposed rule, CMS would remove from the “presumptive compliance” list certain non-specific diagnosis codes, arthritis diagnosis codes, unilateral upper extremity diagnosis, some congenital anomalies diagnosis codes, and other miscellaneous diagnosis codes. In addition, CMS proposes revisions to the conditions of payment for IRF units of acute care hospitals to specify a minimum number of hospital beds that the IPPS hospital must have to meet the regulatory standard for having an IRF unit. Under the rule, the institution of which the IRF unit is a part would be required to have at least 10 staffed and maintained hospital beds that are not excluded from the IPPS, or at least 1 staffed and maintained hospital bed for every 10 certified IRF beds, whichever number is greater. If the institution does not meet this threshold, CMS proposes that the IRF unit should instead be classified as an IRF hospital. CAHs that have IRF units would be excluded from these requirements because they already have specific bed size restrictions. The proposed rule also would, among other things: update the IRF facility-level adjustment factors; revise the Inpatient Rehabilitation Facility-Patient Assessment Instrument; and clarify various regulatory provisions. CMS will accept comments on the rule until July 1, 2013.