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CMS releases final 2010 hospital inpatient payment rule

The Centers for Medicare and Medicaid Services announced in late July that acute care hospitals would receive a 2.1 percent inflation update in their payment rates in fiscal year 2010.

Earlier this year, CMS had proposed reducing payments to account for the effect of increases in aggregate payments due to changes in hospital coding practices that do not reflect increases in a patient's severity of illness.
The update was included in a final rule making policy changes and setting payment rates for inpatient services in general acute care hospitals paid under the Inpatient Prospective Payment System (IPPS), as well as long-term care hospitals (LTCHs), paid under the LTCH PPS.

"The policies and payment rates in this final rule will ensure that Medicare beneficiaries continue to have access to high quality inpatient care in both short-stay acute care and long-term care hospitals," said Jonathan Blum, director of the CMS Center for Medicare Management.

The rule will apply to approximately 3,500 acute care hospitals paid under the IPPS and 400 long-term care hospitals paid under the LTCH PPS. The changes will be effective beginning with discharges on or after Oct. 1, 2009.

In fiscal 2008, CMS adopted Medicare severity diagnosis related groups (MS-DRGs) that better account for the severity of patient illnesses and cost of treating Medicare patients. CMS said hospitals were likely to change their coding practices as they adopted the new classifications, however, causing Medicare spending to increase.

In the IPPS final rule for fiscal 2008, CMS adopted adjustments to hospital rates in fiscal 2008 through fiscal 2010 to ensure spending neither increased nor decreased, as authorized by statute.

In the proposed IPPS rule for fiscal 2010, CMS initially proposed to reduce future payment rates based on the observed increase in spending due to documentation and coding that occurred in fiscal 2008.

But, because information on the extent of documentation and coding effects on 2009 spending is not yet known, CMS decided not to implement an adjustment for fiscal 2010 until it has a full year of fiscal 2009 data. The agency says it will consider phasing in future adjustments over an extended period beginning in fiscal 2011 after an analysis of fiscal 2008 and fiscal 2009 data.

"The (American Hospital Association) is pleased that CMS has taken the prudent approach and decided to wait until it has complete data from FY 2008 and FY 2009 before implementing a cut," said Rich Umbdenstock, AHA president and CEO.

CMS will also continue to apply the capital indirect medical education (IME) adjustment to payment rates for teaching hospitals and decided, based on updated analysis of hospital capital margins, not to go forward with a full phase-out next year, as previously planned. Teaching hospitals will continue to receive the full capital IME adjustment in fiscal 2010.

The final rule also provides for an inflation update of 2.5 percent to payment rates for inpatient services furnished by long-term care hospitals (LTCHs). To qualify for the higher payment rates under the LTCH PPS, the hospital's average length of stay, taking into account all patients, must be greater than 25 days.

However, CMS is finalizing its proposal to adjust the RY 2010 LTCH rates by -0.5 percentage points to account for the effect of changes in documentation and coding that occurred in fiscal 2007.

“Finalizing this regulation will undoubtedly weaken the long-term care workforce and threaten care quality,” said Bruce Yarwood, president and CEO of American Health Care Association, which represents 11,000 long-term care facilities. “We are alarmed by the magnitude of these cumulative cuts, which will be especially damaging to the care of America’s seniors as these reductions in Medicare funding must be viewed in the context of the growing number of states that are either freezing or reducing Medicaid funding for nursing facility care.”

CMS is also finalizing the expansion of hospital quality measures. Under current law, IPPS hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for Annual Payment Update program will receive the full market basket update in 2011.

Hospitals that do not participate in the quality reporting program will receive the update less two percentage points. The final rule adds four new measures for which hospitals must submit data under the RHQDAPU program to receive the full market basket update.

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