Hospital IPPS and LTCH Final Rule Policy and Payment Changes for Fiscal Year 2017

cms-twitter-200The Following is communication from the CMS.

The Centers for Medicare & Medicaid Services (@CMSgovissued a final rule to update fiscal year (FY) 2017 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS). The final rule, which would apply to approximately 3,330 acute care hospitals and approximately 430 LTCHs, would affect discharges occurring on or after October 1, 2016.

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 the cost of hospital labor in the hospital’s geographic area.

This rule finalizes 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 health care system at large, toward paying providers based on the quality, rather than the quantity of care they give patients. The final rule includes policies that advance that vision and is one of several final rules that reflect a broader Administration-wide strategy to create a health care system that results in better care, smarter spending, and healthier people.

This fact sheet discusses major provisions of the final 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 stay 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.” Payment rates to LTCHs are typically updated annually according to a separate market basket based on LTCH-specific goods and services.

Changes and Updates in FY 2017 Policies

Changes to Payment Rates under IPPS
The final 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 approximately 0.95 percent. This reflects the projected hospital market basket update of 2.7 percent adjusted by -0.3 percentage point for multi-factor productivity and an additional adjustment of -0.75 percentage point in accordance with the Affordable Care Act. This also reflects a 1.5 percentage point reduction for documentation and coding required by the American Taxpayer Relief Act of 2012 and an increase of approximately 0.8 percentage points to remove the adjustment to offset the estimated costs of the Two Midnight policy and address its effects in FYs 2014, 2015, and 2016.

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 any hospital that is not a meaningful EHR user will be subject to a three-fourths reduction of the market basket update in FY 2017.

CMS projects that the rate increase, together with other final changes to IPPS payment policies, will increase IPPS operating payments by approximately 1.0 percent and that changes in uncompensated care payments will decrease IPPS operating payments by 0.4 percent. Other continued additional payment adjustments will include: a 1.0 percent reduction for hospitals in the lowest performing quartile under the Hospital Acquired Condition Reduction Program; payment adjustments for excess readmissions under the Hospital Readmissions Reduction Program; and incentive payments and reductions under the Hospital-Value Based Purchasing Program. In sum, CMS projects that total Medicare spending on inpatient hospital services, including capital, will increase by about $746 million in FY 2017.

This projected increase in spending includes an estimated $350,000 increase in FY 2017 payments to hospitals located in Puerto Rico under the final policy to make IPPS payments for capital-related costs based solely on the national capital Federal rate (rather than the current blend of the national capital Federal rate and Puerto Rico-specific capital rate), consistent with the recent statutory change in the payment methodology for operating IPPS payments to those hospitals.

IPPS Rate Adjustments for Documentation and Coding and Two Midnight Policy
In the FY 2017 IPPS final rule, CMS is finalizing two adjustments in addition to its annual rate update for inpatient hospital payments.

First, CMS is finalizing the last year of recoupment adjustments required by the American Taxpayer Relief Act of 2012 (ATRA). Section 631 of ATRA requires CMS to recover $11 billion by FY 2017 to fully recoup documentation and coding overpayments related to the transition to the MS-DRGs that began in FY 2008. For FYs 2014, 2015, and 2016, CMS implemented a series of cumulative -0.8 percent adjustments. For FY 2017, CMS calculates that $5.05 billion of the $11 billion requirement remains to be addressed. Therefore, CMS is finalizing a -1.5 percent adjustment to complete the statutorily-specified recoupment.

Second, CMS is taking action regarding the -0.2 percent adjustment it implemented in the FY 2014 IPPS/LTCH PPS final rule to account for an estimated increase in Medicare expenditures due to the Two Midnight Policy. Specifically, in the FY 2014 IPPS/LTCH PPS final rule, CMS estimated that this policy would increase expenditures and accordingly made an adjustment of -0.2 percent to the payment rates. CMS believes the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made. Additionally, CMS does not generally believe it is appropriate in a prospective payment system to retrospectively adjust rates. However, in light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is permanently removing this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates. This will increase FY 2017 payments by approximately 0.8 percent.

See the complete press release.