In the proposed Inpatient Prospective Payment System (“IPPS”) rule for FFY 2017, hospitals will benefit from the restoration of payments CMS has taken away from hospitals since FFY 2014, related 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.

While the court agreed that voiding of the rule was the normal remedy in such circumstances, the court declined to do so in this case. Instead, 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 in FFY 2017 Proposed Rule

On April 18, 2015, CMS published on its website the FFY 2017 IPPS proposed rule, which will appear in the April 27th Federal Register. These proposed rules indicated 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.

This payment restoration is still just in proposed form, and it will not be final until this August. While very unlikely, it is technically possible that CMS could change its approach in the final rule. For this reason, we will continue to file jurisdictional and other related documents with the PRRB to preserve hospital rights on this matter until finalization of the proposed rule. We will also submit comments to CMS in support of its proposed policy as it currently is written.

Practical Takeaways

This is another example where CMS and/or the federal courts have conceded on an inpatient PPS 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.