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AAMC Concerned About Proposed Cuts to Doctor Training in FY 2014 IPPS Rule

May 3, 2013—The Centers for Medicare and Medicaid Services (CMS) April 26 issued the Inpatient Prospective Payment System (IPPS) proposed rule containing changes to the Medicare Hospital inpatient prospective payment system (IPPS) and the PPS payment update for federal fiscal year (FY) 2014.   Comments on the proposed rule are due June 25, 2013, and CMS expects to issue the final rule on Aug. 1, 2013.

CMS proposes to update the IPPS market basket by 2.5 percent, but also proposes a -0.8 percent recoupment cut to the standardized amount in FY 2014 to begin implementing the documentation and coding adjustment required under the American Taxpayer Relief Act of 2012 (ATRA). The payments also reflect a multi-factor productivity adjustment of -0.4 percent and a ‑0.3 percent reduction required by the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152). 

CMS is also proposing an additional 0.2 percent reduction to offset projected spending increases associated with proposed new admission and medical review criteria for inpatient services.  CMS predicts that the net effect of the proposed rule would result in a 0.8 percent update for FY 2014.  The proposed rule does not reflect any effects of sequestration. 

The proposed rule also contains several additional provisions of particular interest to teaching hospitals. First, CMS proposes to include labor and delivery days as inpatient days in the Medicare utilization calculation, effective for cost reporting periods beginning on or after Oct. 1, 2013.  This would mean that labor and delivery days would be considered inpatient days for purposes of determining the Medicare share for direct graduate medical education (DGME) payments.  CMS estimates this change would decrease DGME payments by $15 million in FY 2014. 

AAMC President and CEO Darrell G. Kirch, M.D., issued an April 26 statement expressing AAMC’s concern “about the administration’s proposed cuts to Medicare’s direct graduate medical education payments as the nation faces a growing shortage of physicians from primary care to general surgeons, oncologists, and specialists who treat children.”  CMS’s proposal also would impact other Medicare policies where either the number of inpatient days or a ratio of Medicare inpatient days to total inpatient days is used to determine eligibility or payment. 

Second, CMS proposes that a hospital may not claim the time FTE residents are training at a critical access hospital (CAH) for indirect medical education (IME) and/or direct GME purposes.  However, under policies that were applicable prior to Oct. 1, 2013, a CAH may incur the costs of training the FTE residents for the time that FTE residents rotate to the CAH, and receive payment based on 101 percent of its Medicare reasonable costs.

Third, CMS provides notice that the “freeze” for per resident amounts (PRAs) that exceed the ceiling expires in FY 2014, as required by statute.  This means that starting Oct. 1, 2013, the usual full CPI-U updates would apply to all PRAs for DGME payment purposes. 

Fourth, CMS used the proposed rule to notify the public of the closure of Peninsula Hospital Center, and to initiate the fourth round (“Round 4”) of the section 5506 application and selection process.  Hospitals that wish to apply for Peninsula Hospital Center’s slots have to make sure that their applications are received by the CMS Central Office by Aug. 8, 2013 (90 days after the expected May 10 Federal Register publication of the IPPS proposed rule).

CMS also includes proposals to implement Section 3133 of the ACA that will reduce and repurpose DSH payments.  In FY 2014, hospitals that are eligible for DSH payments would receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments.  CMS also will pay hospitals that are currently eligible for DSH payments an additional amount (the new “uncompensated care payment”).

To calculate and distribute the uncompensated care payment, CMS is starting with 75 percent of what otherwise would have been paid as Medicare DSH payments.  For FYs 2014-2017 this 75 percent pool will be reduced to reflect the changes in the percentage of individuals under age 65 who are uninsured.  Specifically, CMS proposes that 75 percent of what otherwise would have been paid for Medicare DSH payments be adjusted to 88.8 percent of that amount for changes in the percentage of individuals that are uninsured and additional statutory adjustments.  This means that Medicare DSH payments prior to the application of Sec. 3133 would be adjusted to 66.6 percent of what would have been paid. 

Then, under the proposal, CMS would distribute this reduced pool to each DSH-eligible hospital based on each hospital’s uncompensated care amount for a given time period relative to the uncompensated care amount for the same time period for all hospitals that receive Medicare DSH payments, expressed as a percent.  To do this, CMS proposes to use inpatient days of Medicaid patients plus inpatient days of Medicare SSI patients as a proxy for measuring the amount of uncompensated care a hospital provides.

Regarding the quality provisions in the proposed rule, CMS outlines the new hospital-acquired condition (HAC) reduction program, and provides updates to the readmissions reduction, VBP, and IQR programs. Starting in FY 2015, hospitals in the lowest performing quartile of HACs will see their inpatient Medicare payments for all discharges reduced by 1 percent.

To calculate the lowest performing hospitals, CMS proposes to implement a methodology consisting of two domains of HAC measures, equally weighted, to determine a total HAC score. As proposed, the first domain would consist of six Agency for Healthcare Research and Quality (AHRQ) patient safety indicators (PSIs) and the second domain would consist of two Centers for Disease Control and Prevention (CDC) infection measures for FY 2015.

CMS has proposed three new measures to the VBP program, along with the removal of three measures, for FY 2016. The agency also has proposed new baseline and reporting periods, along with an updated domain weighting scale for FY 2016. In addition, the proposed rule discusses a new VBP disaster/extraordinary circumstance waiver for hospitals experiencing such incidences. Approximately $1.1 billion will be available for VBP incentive payments in FY 2014.

For the readmissions reduction program, CMS has proposed two new readmission measures for FY 2015: hip/knee arthroplasty and chronic obstructive pulmonary disease. The proposed rule would also expand the list of planned readmission procedures for the three measures currently in the program. CMS expects that for FY 2014, payments to hospitals will be reduced by $175 million under the readmissions reduction program.

Finally, CMS proposes to adopt five new measures and remove five measures in the IQR program for FY 2016. The rule also proposes new regulations to streamline the IQR and the Meaningful Use reporting requirements for hospitals.


Allison M. Cohen, J.D., LL.M.
Senior Policy and Regulatory Specialist
Telephone: 202-862-6085

Scott Wetzel, M.P.P.
Lead, Quality Reporting
Telephone: 202-828-0495


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