WASHINGTON – Hospital officials won’t be pleased with the Centers for Medicare & Medicaid Services’ proposed 2010 payment rate updates for acute care and long-term care hospitals.

CMS plans to update acute care hospital payment rates by 2.1 percent for inflation, less an adjustment of 1.9 percentage points to remove the effect of increases in aggregate payments, "due to changes in hospital coding practices that do not reflect increases in patient's severity of illness."

CMS also intends to update long-term care hospital rates by 2.4 percent for inflation, less an adjustment of 1.8 percentage points.

The proposed changes apply to approximately 3,500 acute care hospitals paid under the Inpatient Prospective Payment System and 400 long-term care hospitals paid under the Long-Term Care Hospital Prospective Payment System, beginning with discharges occurring on or after Oct. 1, 2009.

"We understand hospitals will be concerned about lower than historical update amounts," said Charlene Frizzera, CMS’ acting administrator. "However, we are proposing an adjustment that minimizes the effects on FY 2010 payments while still meeting the requirements of the law, which may mean larger reductions in the next two years."

As Frizzera indicated, the projected 2.1 percent update for inflation for inpatient acute care payment rates is lower than the updates applied in recent years and reflects the slowing rate of inflation.

The inflation updates are specifically designed to measure the inflation in the costs of resources (the market basket) used by hospitals in delivering care to inpatients.
Hospital advocates are clearly unhappy with the new payment rates.

"We're extremely disappointed with the level of payment for FY 2010," said Tom Nickels, senior vice president for federal relations at the American Hospital Association. "The reductions go well beyond what is appropriate and fly in the face of data showing still-falling Medicare margins that are at an all-time low. Hospitals cannot sustain these additional cuts in an already exceptionally underfunded system."

CMS has already applied payment adjustments of -0.6 percent in FY 2008 and -0.9 percent in FY 2009 to the acute care hospital rates. However, the agency says that if its review of claims data shows that the adjustments required by law were too low to maintain budget neutrality under the new classification system, it must adjust payment rates to account for that difference in subsequent years.

This means CMS must adjust payment rates between FYs 2010 and 2012 as necessary to recapture any excess payments made to hospitals in FYs 2008 and 2009 that resulted from changes in hospitals' coding practices.
Based on current estimates, CMS estimates that total adjustments of approximately 8.5 percent would have to be made to the acute care hospital rates to address changes in hospitals' coding practices, including the increase in FY 2008 payments and the estimated increase in FY 2009 payments.

Thus, CMS is proposing a prospective adjustment of 1.9 percentage points for FY 2010, which means additional adjustments of approximately 6.6 percentage points, will be needed in FY 2011 and FY 2012.