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CMS Announces Minus 2.9 Percent Coding Offset in FY 2011 IPPS Proposed Rule

April 23, 2010

The Centers for Medicare and Medicaid Services (CMS) April 19 released the FY 2011 Medicare hospital inpatient prospective payment system (IPPS) proposed rule. The rule is scheduled to be published in the Federal Register on May 4, and would take effect for discharges on or after October 1, 2010. Under the rule, CMS proposes to update the IPPS market basket by 2.4 percent, but also to make a corresponding "documentation and coding" reduction of 2.9 percentage points. The agency believes this offset is necessary to remove one-half of what CMS believes to be the overpayments made to hospitals in FYs 2008 and 2009 due to changes in hospital coding practices that do not reflect increases in patients' severity of illness. CMS plans to remove the other half of these increases-an additional 2.9 percentage points-in FY 2012. This proposed coding adjustment will result in a negative overall update to hospital payment rates. CMS predicts that the net effect of the proposed rule would be to reduce operating and capital payments to acute care hospitals by $162 million in FY 2011.

Importantly, the proposed rule does not contain any provisions related to the recently-enacted Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), including a proposed 0.25 percentage point reduction to the FY 2011 update. Rather, CMS plans to issue separate regulations in the near future to implement provisions of the health reform legislation that affect inpatient hospitals.

The proposed rule contains two provisions affecting DGME and IME payments. First, the proposed rule would "clarify" the definition of "approved medical residency programs" to distinguish between residents and fellows who should be included in the FTE count for DGME and IME purposes and physicians who should bill for their services under Medicare Part B. Previously, CMS has 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 states that the agency also will look beyond these criteria to whether the individual "actually needs the training in order to meet board certification requires in that specialty" (emphasis in original) and to whether the individual is formally participating in an "organized, standardized, structured course of study." Second, CMS proposes to permit the electronic submission of GME affiliation agreements to the CMS Central Office.

Additionally, CMS is proposing to add new RHQDAPU quality measures for reporting in FY 2012, including two Agency for Healthcare Research and Quality (AHRQ) patient safety indicators and eight hospital acquired condition (HAC) measures. Failure to report all of the quality measures would result in a 2.0 percentage point reduction to the hospital payment update.

The proposed 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.

Comments on the proposed rule are due June 18, 2010.


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