Skip to Content

Filter by:

Washington Highlights

FY 2013 IPPS Proposed Rule Presents Challenges for Teaching Hospitals

April 27, 2012—AAMC President and CEO Darrell G. Kirch, M.D., issued an April 25 statement urging the Centers for Medicare and Medicaid Services (CMS) to “reconsider … proposed cuts to teaching hospitals and the communities they serve” included in the fiscal year (FY) 2013 Medicare hospital inpatient prospective payment system (IPPS) proposed rule.  The rule, released April 24, is scheduled to be published in the Federal Register on May 11, and would take effect for discharges on or after Oct. 1, 2013.  Comments on the proposed rule are due June 25.

CMS proposes to update the IPPS market basket by 3.0 percent but also to make corresponding “documentation and coding” reductions of -1.9 percent for FYs 2008 and 2009 and -0.8 percent for FY 2010. The agency believes these reductions are required to avoid making “overpayments” to hospitals due to changes in hospital coding practices that CMS does not believe reflect increases in patients’ severity of illness.  The payments also reflect a multi-factor productivity adjustment of -0.8 percent and a ‑0.1 percent reduction required by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152).  CMS predicts that the net effect of the proposed rule would be to increase operating payments by $904 million or 0.9 percent in FY 2013 compared to FY 2012.   

There are two important caveats to these estimates, however.  First, the estimated 0.9 percent increase does not take into account either the negative effect on Indirect Medical Education (IME) payments of the proposed change to counting labor and delivery beds (described below) or the expiration of ACA temporary increases.  With these proposed changes, CMS projects that total Medicare spending on hospital inpatient services would increase by only $175 million in FY 2013.  Second, the proposed rule does not reflect any effects of sequestration scheduled to take effect in January 2013.  The 2 percent across-the-board cuts as a result of sequestration would take effect independently of the changes made in the FY 2013 final rule.

The proposed rule provides additional information regarding the implementation of the hospital readmission program including the payment methodology and adjustment factors, as well as future plans for the inpatient quality reporting (IQR), hospital-acquired conditions (HAC) and value-based purchasing (VBP) programs.  CMS outlines key details for the FY 2013 VBP program, including a plan for collecting the 1 percent DRG-payment reduction and distribution of the incentive payments, which would result in both the reduction and potential incentive payment occurring simultaneously with the re-processing of FY 2013 claims starting in January 2013.

Measures for the FY 2015 VBP also are included (e.g., Medicare spending per beneficiary, hospital acquired infections, and patient safety), as are new domains and domain weighting for FYs 2015-16.  The IQR program would reduce the number of required measures by 17 and include five additional measures in care coordination, perinatal care, hip and knee complications, and readmissions.  CMS also has proposed two additional conditions to be included in the HAC program.

The proposed rule also contains several provisions of particular interest to teaching hospitals.  First, CMS proposes to include labor and delivery beds in the available bed count for the IME and disproportionate share hospital (DSH) adjustment.  Because this increase in available beds would lead to a decrease in many teaching hospitals’ IRB ratios, CMS estimates this change would decrease IME payments by $170 million in FY 2013.

Second, CMS proposes to increase from 3 years to 5 years the amount of time that a new teaching hospital has to build its residency programs before the agency sets the direct graduate medical education (DGME) and IME caps.  CMS also proposes an apportionment plan for instances when residents in new programs train in more than one hospital during the cap-building period.

Third, with respect to the timing of filing claims for Medicare Advantage (MA) patients, CMS proposes to “clarify”  that the timely filing rules for claims submission apply to no-pay (“shadow”) claims that hospitals submit to receive IME, DGME, and nursing/allied health education payments.  CMS also proposes to apply the timely filing requirements to no-pay bills submitted for purposes of calculating the DSH adjustment.

Fourth, CMS proposes that a hospital that was awarded slots under the ACA Section 5503 residency slot redistribution program must use half of its awarded slots during at least one of the first three full cost reporting periods of the 5-year evaluation period and all of its awarded slots in the hospital’s final cost reporting period of the evaluation period, or risk losing its entire slot award. 

Finally, with respect to future slot redistributions from closed hospitals under Section 5506 of the ACA, CMS proposes to shorten the application time frame from 4 months to 60 days.  CMS also proposes changes to the ranking criteria for future applications, the determination of slot effective dates, and the application form for slots under this program.

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


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


envelope on a green background

Subscribe to Washington Highlights

RSS icon

Subscribe to RSS

Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

Past Issues

For More Information

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