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Capital IME Payments Restored, No Coding Offset in FY 2010 IPPS Final Rule

August 7, 2009—The Centers for Medicare and Medicaid Services (CMS) July 31 released the fiscal year (FY) 2010 Medicare hospital inpatient prospective payment system (IPPS) final rule, which reflects several recommendations made by the AAMC. The rule is scheduled to be published in the Aug. 27 Federal Register and will take effect for discharges on or after Oct.1, 2009.

Of particular importance to the academic medicine community, the final rule restores the capital indirect medical education (IME) adjustment to payment rates for teaching hospitals effective for FY 2010. Although these payments were scheduled by CMS to be eliminated entirely beginning Oct. 1, 2009, CMS states that in response to public comments and based on an updated analysis of hospital capital margins, the agency decided that teaching hospitals will continue to receive the full capital IME adjustment in FY 2010.

The final rule implements a 2.1 percent market basket update. CMS declined to implement a corresponding 1.9 percentage point "documentation and coding" offset. The agency had proposed this offset to remove the effect of increases in aggregate payments caused by changes in hospital documentation and coding practices under the MS-DRG system that do not reflect increases in severity. The final rule states that CMS will wait until it has all the FY 2009 data before considering whether to phase in future adjustments beginning in 2011. The agency predicts that the net effect of the proposed rule will be to increase operating payments by $1.73 billion and capital payments by $171 million in FY 2010.

The final rule also contains several provisions affecting DGME and IME payments. Most importantly, the proposed rule adopts the proposed "clarification" of the definition of "new medical residency training program" when a new teaching hospital is attempting to establish its resident cap for IME and DGME payments. Many hospitals have relied solely on accreditation of a new program by the appropriate accrediting body for purposes of determining whether the program's residents could be included in the resident cap. CMS "clarifies" that the agency will look beyond accreditation to factors, including whether there is a new program director, new teaching staff, and new residents in the program; the relationship between the hospitals; and the degree to which the hospital with the original program continues to operate its own program in the same specialty. In the final rule, CMS also added that it will consider whether the new program was relocated from a hospital that closed and whether the program is part of any existing hospital's FTE cap determination.

Additionally, CMS finalized its proposals to increase flexibility in submission deadlines for new hospitals joining Medicare GME affiliated groups, and to exclude all observation beds from the available bed count used to determine the intern and resident-to-bed (IRB) ratio for IME payment purposes.

In the quality area, CMS made no additions or deletions to the list of conditions included in the Hospital-Acquired Conditions (HAC) program. In the interim, CMS will evaluate the impact of the HAC program in conjunction with the Agency for Healthcare Research and Quality (AHRQ) and the Centers for Disease Control and Prevention (CDC).

The final rule outlines changes to the measures required for reporting under the Reporting of Hospital Quality Data for Annual Hospital Payment Update (RHQDAPU) program. CMS adopted the four additional measures the agency proposed for FY 2011: two surgical infection prevention measures and two structural measures focused on participation in stroke and nursing care registries.

This rule also reiterates CMS's plans to build the infrastructure and develop the measure standards necessary to report quality measures through electronic health records (EHR). CMS currently is working with the Office of the National Coordinator for Health Information Technology (ONC) to identify and harmonize standards for submission of emergency department, stroke, and venous thromboembolism measures through EHR submission.

Furthermore, the final rule lowered the outlier threshold from what was proposed (from $24,240 proposed, to $23,140 final) and reduced the decrease in the labor-related share (proposed decrease from 69.7 percent to 67.1 percent; final decrease to 68.8 percent). The final rule also contains provisions that affect long-term care hospitals, critical access hospitals, new technology payments, EMTALA waivers, and the wage index.


Karen Fisher, JD
Chief Public Policy Officer
Telephone: 202-828-0412

Jennifer Faerberg, MHSA
Director, Clinical Transformation Unit
Telephone: 202-862-6221

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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Jason Kleinman
Senior Legislative Analyst, Govt. Relations
Telephone: 202-903-0806