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Positive Hospital Payment Update in FY 2012 IPPS Final Rule

August 5, 2011—The Centers for Medicare and Medicaid Services (CMS) Aug. 1 released the Medicare inpatient prospective payment system (IPPS) final rule for fiscal year (FY) 2012. The rule is scheduled to be published in the Federal Register on Aug. 18 and will take effect for discharges on or after Oct. 1, 2011. 

Under the final rule, CMS will update hospital base payments by 1 percent, which reflects a market basket increase of 3.0 percent, less a 1.0 percentage point productivity adjustment and a 0.1 percentage point reduction required by the Patient Protection and Affordable Care Act (ACA, Pub. L. 111-148), less a prospective adjustment of 2.0 percentage points (down from 3.15 percentage points in the proposed rule) to account for what CMS asserts is the impact of documentation and coding changes, and plus an increase of 1.1 percent in response to a decision in the case of Cape Cod Hospital vs. Sebelius.  The 1 percent update is a significant change from the negative 0.55 percent update originally proposed.   As a result of other factors, CMS estimates that large teaching hospital operating payments per discharge in FY 2012 will increase by 1.4 percent compared to FY 2011.

In the rule, CMS finalizes the inclusion of the Medicare Spending per Beneficiary Measure in the inpatient quality reporting program as well as the Hospital Value-Based Purchasing (VBP) Program for FY 2014.  The episode of care for the Medicare Spending measure is reduced from 90 days post-discharge to 30 days, similar to the mortality and readmission measures.  CMS also finalizes the three quality measures (AMI, Heart Failure, and Pneumonia) that will be included in the Readmissions Payment Program, increasing the number of measures to be reported in the Inpatient Quality Reporting Program (IQR).

CMS finalizes without modification the agency’s proposals to exclude inpatient hospice service bed days from the indirect medical education (IME adjustment) and to exclude patient days and bed days for inpatient hospice services from the Medicare disproportionate share hospitals (DSH) adjustment. The final rule also contains provisions that affect long-term care hospitals, hospitals that treat large numbers of patients with end stage renal disease (ESRD), new technology payments, outlier payments, and pension costs for the wage index and for Medicare cost finding.

Additionally, CMS finalized without changes the March 14, 2011, interim final rule regarding how teaching hospitals that are members of the same affiliated group will be treated for purposes of the unused residency slot redistribution program required by Sec. 5503 of the ACA.


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