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Hospitals Face Significant Reductions under Inpatient Proposed Rule

April 22, 2011—The Centers for Medicare and Medicaid Services (CMS) April 19 released the FY 2012 Medicare hospital inpatient prospective payment system (IPPS) proposed rule. The rule is scheduled to be published May 5 in the Federal Register and would take effect for discharges on or after Oct. 1. Comments on the proposed rule are due June 20.

Under the proposed rule, Medicare operating payments would decrease by a projected $498 million, or 0.5 percent, in FY 2012 compared to FY 2011. The AAMC issued an April 21 statement expressing deep concern about the proposed cut.

As mandated by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152), the payments reflect an update to the standardized base payment equal to the market basket projected increase of 2.8 percent, less a multi-factor productivity adjustment of 1.2 percent, less an additional 0.1 percent. In addition, the proposed rule would further reduce the standardized amount by 3.15 percent due to perceived documentation and coding impacts. CMS believes the documentation and coding adjustment is necessary to adjust the base payment going forward so it does not include “overpayments” made to hospitals due to changes in hospital coding practices that CMS does not believe reflect increases in patients' severity of illness. Finally, the update is increased by 1.1 percent in response to a decision in the case of Cape Cod Hospital vs. Sebelius; however, this decision remains under appeal.

CMS also is proposing to exclude inpatient hospice service bed days from the indirect medical education (IME) adjustment. Depending on the volume of inpatient hospice services a teaching hospital provides, IME payments may increase. Excluding inpatient hospice beds increases the resident-to-bed ratio, potentially increasing IME payments. The rule also proposes to exclude patient days and bed days for inpatient hospice services from the Medicare disproportionate share hospitals (DSH) adjustment. Under the proposed rule, a hospital’s DSH payment adjustment would vary depending upon the amount of hospice services a hospital offers to hospice patients; the exclusion of inpatient hospice service beds only will impact a hospital’s DSH payment should the hospital subsequently fall below the bed count threshold.

The proposed rule also would add new measures to the Hospital Inpatient Quality Reporting (IQR) Program in FYs 2014 and 2015. These includes three Hospital Acquired Infection (HAI) measures, one claims-based efficiency measure, one structural measure, and stroke and venous thromboembolism (VTE) measures sets. CMS also proposes to retire eight measures for FY 2014 that will not be included in the Hospital Value Based Purchasing (VBP) Program. Failure to report all of the quality measures would result in a 2 percent reduction to the hospital payment update.

Finally, the rule proposes methodology for determining the payment reductions associated with the excess readmission policy mandated by the ACA that will go into effect in FY 2013.


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