CMS Proposes Changes to Inpatient and Long-term Care Hospital Policy and Payments

On Apr. 17, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to update fiscal year (FY) 2016 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS). The proposed rule, which would apply to approximately 3,400 acute care hospitals and approximately 435 LTCHs, would affect discharges occurring on or after Oct.1, 2015.

The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and market conditions to the hospital’s geographic area.

The proposed rule proposes policies that continue a commitment to increasingly shift Medicare payments from volume to value. The administration has set measurable goals and a timeline to move the Medicare program, and the healthcare system at large, toward paying providers based on the quality, rather than the quantity of care they give patients.

This fact sheet discusses major provisions of the proposed rule.


CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS and long-term care hospitals under the LTCH PPS. Under these two payment systems, CMS generally sets payment rates prospectively for inpatient stays based on the patient’s diagnosis and severity of illness. A hospital receives a single payment for the case based on the payment classification – MS-DRGs under the IPPS and MS-LTC-DRGs under the LTCH PPS – assigned at discharge.

By law, CMS is required to update payment rates for IPPS hospitals annually, and to account for changes in the costs of goods and services used by these hospitals in treating Medicare patients, as well as for other factors. This is known as the hospital “market basket.” LTCHs are paid according to a separate market basket based on LTCH-specific goods and services.

Changes and Updates in FY 2016 Policies

Proposed Changes to Payment Rates under IPPS

The proposed increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users is 1.1 percent. This reflects the projected hospital market basket update of 2.7 percent adjusted by -0.6 percentage point for multi-factor productivity and an additional adjustment of -0.2 percentage point in accordance with the Affordable Care Act; like last year, the rate is further decreased by a proposed 0.8 percent for a documentation and coding recoupment adjustment required by the American Taxpayer Relief Act of 2012.

Hospitals that do not successfully participate in the Hospital IQR Program and do not submit the required quality data will be subject to a one-fourth reduction of the market basket update. Also, the law requires that the update for any hospital that is not a meaningful EHR user will be reduced by one-half of the market basket update in FY 2016.

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HHS’ Vision Casting and the Private Sector’s Positive Response

Guest post by Ken Perez, vice president of healthcare policy, Omnicell.

Ken Perez
Ken Perez

We’ve often seen the U.S. federal government announce its intent to drive major changes in the way the healthcare system is run, only to have the private sector respond in a tepid or negative manner.

That was not the case at a January 26 Department of Health and Human Services meeting, at which HHS Secretary Sylvia M. Burwell announced concrete goals and an aggressive timeline for moving Medicare payments from fee for service to fee for value. Nearly two dozen leaders representing consumers, insurers, providers and business leaders were in attendance and clearly supportive of the vision cast by Burwell. Notably, high-ranking representatives from the American Academy of Family Physicians, the American Medical Association, the American Hospital Association, and America’s Health Insurance Plans (AHIP) were among the participants.

The announcement was a landmark one. For the first time in the history of the Medicare program, HHS has communicated quantified goals for pushing a significantly greater share of Medicare payments through alternative payment models, such as accountable care organizations (ACOs) and bundled payments. Such payments will rise from 20 percent ($72.4 billion) of Medicare payments in 2014 to 30 percent ($113 billion) in 2016 and 50 percent ($213 billion) in 2018—a compound annual growth rate of 31 percent over the five-year period.

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CMS Issues Proposed Hospital Inpatient Payment Regulation

Today, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would update fiscal year (FY) 2015 Medicare payment policies and rates for inpatient stays at general acute care and long-term care hospitals (LTCHs). This rule builds on the Obama administration’s efforts through the Affordable Care Act to promote improvements in hospital care that will lead to better patient outcomes while slowing the long-term health care cost growth.

CMS projects that the payment rate update to general acute care hospitals will be 1.3 percent in FY 2015. The rate update for long term care hospitals will be 0.8 percent.  The difference in the update is accounted for by different statutory and regulatory provisions that apply to each system.

The rule’s most significant changes are payment provisions intended to improve the quality of hospital care that reduce payment for readmissions, and hospital acquired conditions (HACs). The rule also includes proposed changes to the Hospital Inpatient Quality Reporting (IQR) Program. The rule also describes how hospitals can comply with the Affordable Care Act’s requirements to disclose charges for their services online or in response to a request, supporting price transparency for patients and the public.

“The policies announced today will assist the highly committed professionals working around the clock to deliver the best possible care to Medicare beneficiaries,” said CMS administrator Marilyn Tavenner. “This proposed rule is geared toward improving hospital performance while creating an environment for improved Medicare beneficiary care and satisfaction.”

The proposed rule asks for public input on an alternative payment methodology for short stay inpatient cases that also may be treated on an outpatient basis, including how to define short stays. In addition, the proposed rule reminds stakeholders of the existing process for requesting additional exceptions to the two-midnight benchmark.

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