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FY 2010 IPPS Final Rule Includes Minus 2.9 Percent Coding Offset

August 6, 2010—The Centers for Medicare and Medicaid Services (CMS) July 30 released the Medicare inpatient prospective payment system final rule for fiscal year (FY) 2011. The rule is scheduled to be published in the Aug. 16 Federal Register and will take effect for discharges on or after Oct. 1, 2010.

Under the final rule, CMS will update Medicare inpatient hospital payments by a market basket rate of 2.6 percent, minus a reduction of 0.25 percentage points required by the Affordable Care Act (P. L. 111-148), minus 2.9 percentage points to remove half of what CMS believes to be the overpayments made to hospitals in 2008 and 2009 due to changes in hospital coding practices that do not reflect increases in patients' severity of illness. The health reform and coding adjustments will result in an overall reduction of 0.55 percent to the standardized payment amount. CMS estimates that as a result of other factors, average teaching hospital operating payments per discharge in 2011 will be 0.5 percent less than in 2010.

The final rule also contains several provisions affecting DGME and IME payments. The final rule would clarify the definition of "approved medical residency programs" to distinguish between physicians, who should bill for their services under Medicare Part B, and residents and fellows, who should be included in the FTE count for DGME and IME purposes. Previously, CMS defined an approved program as one that is accredited by a national accrediting organization or that leads toward board certification by the American Board of Medical Specialties (ABMS). CMS now clarifies that:

  • effective for cost reporting periods beginning on or after Oct. 1, 2010, chief residents who have already completed an accredited program and have satisfied minimum requirements for board certification will no longer be considered residents for indirect medical education (IME) and direct graduate medical education (DGME) payment purposes;
  • effective for cost reporting periods beginning on or after Oct. 1, 2010, individuals training in residency programs that hospitals operate for a period longer than the minimum accredited program length will no longer be considered residents for DGME and IME payment purposes; and
  • hospitals may only receive Part B reasonable cost reimbursement for residents in unapproved programs if those residents are not fully licensed in the state where the residents are training.

CMS also finalizes the agency's proposal to permit the electronic submission of GME affiliation agreements to the CMS Central Office. If the electronic submission system is ready to receive affiliation agreements for the academic year beginning July 1, 2011, CMS will notify hospitals by May 2011 of the electronic submission process. CMS will continue to accept hard copies of affiliation agreements after the electronic process is in place.

In the rule, CMS finalizes its three-year plan for measure expansion in the pay for reporting quality program (RHQDAPU). The final rule includes measure requirements for FYs 2012-2014 and one modification for FY 2011. The three-year plan provides for the inclusion new types of measures such as hospital acquired conditions and infection rates as well as alternate data collection mechanisms such as the CDC National Healthcare Safety Network. As a result, the number of measures required for the annual payment update will be 45 in FY 2011, 55 in FY 2012, 57 in FY 2013, and 60 in FY 2014. CMS did not finalize the agency's proposal to require registry-derived measures and has deferred collection on all-patient volume data.

The final rule also contains provisions that affect long-term care hospitals, critical access hospitals, new technology payments, the approach for updating ICD-9-CM and ICD-10-CM/PCS codes, outlier payments, the labor related share, provider taxes, and the wage index.


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