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Capital IME, -1.9 Percent Coding Offset in FY 2010 IPPS Proposed Rule

The Centers for Medicare and Medicaid Services (CMS) May 1 released the fiscal year (FY) 2010 Medicare hospital inpatient prospective payment system (IPPS) proposed rule. The rule is scheduled to be published in the Federal Register on May 22, and if finalized, will take effect for discharges on or after Oct. 1, 2009.

Under the rule, CMS proposes to update the IPPS market basket by 2.1 percent, but also to make a corresponding "documentation and coding" reduction of 1.9 percentage points. The agency believes this offset is necessary to remove the effect of increases in aggregate payments caused by changes in hospital coding and documentation practices under the MS-DRG system that do not reflect increases in illness severity. The 2.1 percent update for inflation is lower than in prior years, which CMS states reflects the slowing rate of inflation. CMS predicts that the net effect of the proposed rule will be to reduce operating and capital payments to acute care hospitals by $979 million in FY 2010.

The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) directed CMS to rescind the 50 percent reduction to capital IME payments during FY 2009 that had been finalized in the FY 2008 IPPS final rule. This proposed rule updates the regulations to reflect that ARRA requires the full capital IME adjustment to be paid in FY 2009. However, the proposed rule also states that the agency intends to move forward with its plans to eliminate the capital IPPS teaching adjustment in its entirety for FY 2010.

The proposed rule contains several provisions affecting DGME and IME payments. Most importantly, the proposed rule would "clarify" 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 now states that it will look beyond accreditation to factors including whether there is a new program director, new teaching staff, and new residents in the program.

Additionally, CMS proposes 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.

The proposed rule also contains several changes that would affect Medicare disproportionate share hospital (DSH) payments, including how the Medicare and Medicaid fractions that make up the disproportionate patient percentage are calculated.

In the quality area, there are no proposed 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 and the Centers for Disease Control and Prevention.

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

The proposed rule 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. The standards should be finalized by late 2009 and will be available for testing in the summer of 2010. Vendors and hospitals will be able to nominate themselves to participate in the testing process.

The proposed rule also contains provisions that affect long-term care hospitals, critical access hospitals, new technology payments, outlier payments, the labor related share, EMTALA waivers, and the wage index.

Comments on the proposed rule are due June 30.


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

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

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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