CMS Proposed Rule for the Inpatient Prospective Payment System: Taking a Closer Look at the Numbers

Ken Perez
Ken Perez

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

On April 30, 2014, the Centers for Medicare & Medicaid Services issued its proposed rule for the Inpatient Prospective Payment System (IPPS), which pays about 3,400 acute care hospitals, and the Long-term Care Hospital Prospective Payment System (LTCH PPS), which pays about 435 LTCHs.

The issuance of this proposed rule is a significant event, as it discloses CMS’s intent regarding the average change (increase or decrease) to the IPPS reimbursement rate, what one might call an “annual inflation adjustment.”

While CMS projects that the payment rate update to general acute care hospitals will be 1.3 percent in FY 2015—which on the face of it doesn’t look too bad—it’s important to understand how CMS arrived at that figure, what is the projected overall impact on hospital payments because of other regulatory changes, and how the proposed update compares with the recommendation of the nonpartisan Medicare Payment Advisory Commission (MedPAC).

How did CMS arrive at the 1.3 percent update (adjustment)?

CMS started with a proposed annual market basket update (inflation projection) from research firm IHS of 2.7 percent. That starting point was then reduced, per the Affordable Care Act, by a multi-factor productivity adjustment of 0.4 percent and a specified reduction to the market basket update of 0.2 percent, yielding 2.1 percent. Then CMS reduced it by a documentation and coding recoupment adjustment (basically to correct for past, unintended documentation and coding over payments) of 0.8 percent, resulting in a net update of 1.3 percent.

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