Fact Sheets

FINAL PAYMENT AND POLICY CHANGES FOR INPATIENT STAYS IN

OVERVIEW:  On July 30, 2010, the Centers for Medicare & Medicaid Services (CMS) issued a final rule establishing payment rates and policies for inpatient services in acute care hospitals under the Inpatient Prospective Payment System (IPPS) for fiscal year (FY) 2011, beginning Oct. 1, 2010.  The final rule also establishes payment rates and policy changes for inpatient stays in long-term care hospitals (LTCHs) under the LTCH Prospective Payment System (LTCH PPS).   It also updates the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.  The updated rate-of-increase limits are effective for cost reporting periods beginning on or after October 1, 2010.

Due to the timing of the passage of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), CMS issued a FY 2011 IPPS/LTCH proposed rule, as well as a supplemental proposed rule that addressed certain changes made by the Affordable Care Act, which appeared in the May 4 and June 2 issues of the Federal Register, respectively. 

The final rule, which would apply to more than 3,500 acute care hospitals and approximately 420 LTCHs, will generally be effective for discharges occurring on or after Oct. 1, 2010.  Under the final rule, Medicare operating payments to acute care hospitals for inpatient services occurring in FY 2011 are projected to decrease by $440 million, while payments to LTCHs in FY 2011 are projected to increase by $22 million.

This fact sheet discusses major provisions of the final rule, other than the final documentation and coding adjustment for FY 2011 and the provisions in the final rule to improve Medicare’s 

hospital quality initiatives.  These issues are addressed in separate 7/30/10 fact sheets which will be posted on the CMS Web page at: 

            www.cms.gov/apps/media/fact_sheets.asp.

BACKGROUND:  By law, CMS pays acute care hospitals for inpatient stays under the IPPS and long-term care hospitals under the LTCH PPS.  These prospective payment systems establish prospectively set rates based on the patient’s diagnosis and the severity of the patient’s medical condition.  Under the IPPS and the LTCH PPS, a hospital receives a single payment for the case based on the payment classification assigned at discharge.  Until FY 2008, discharges from acute care hospitals were classified into one of 538 CMS-diagnosis-related groups (DRGs). 

In FY 2008, CMS replaced the 538 DRGs with 745 Medicare-Severity DRGs (MS-DRGs) which generally provide higher payment for more severely ill or injured patients and lower payment for other cases.  In FY 2009, Medicare created an additional MS-DRG bringing the total to 746.

The LTCH PPS was implemented in FY 2003.  Medicare payments under the LTCH PPS utilize the same DRG system as the IPPS, but payment weights associated with the LTCH patient classifications are calculated based on treatment costs at LTCHs.  In conjunction with the IPPS, in FY 2008, the LTCH PPS adopted Medicare-Severity Long-Term Care DRGs (MS-LTC-DRGs).

CHANGES TO IPPS TO IMPLEMENT THE AFFORDABLE CARE ACT:

Additional Payments For Hospitals With Low Per Enrollee Medicare Spending:  The Affordable Care Act provides for additional payments totaling $400 million to “qualifying hospitals” for FYs 2011 and 2012.  A “qualifying hospital” is a “subsection (d) hospital” (a hospital paid under the IPPS methodology) that is located in a county that ranks, based upon its per enrollee Medicare spending under parts A and B, adjusted for age, sex, and race, within the lowest quartile of counties in the United States.  CMS is finalizing the methodology it set forth in the supplemental proposed rule and will distribute $150 million in FY 2011 to qualifying hospitals.  In the final rule, CMS identified two additional eligible counties but did not identify any hospitals located in those counties.  CMS is seeking public input via email by August 30, 2010 on the issue of whether there are any qualifying hospitals located in those two counties.

Temporary Improvements To The Low-Volume Hospital Adjustment:  The Affordable Care Act expands eligibility for the low-volume payment adjustment during FYs 2011 and 2012 to hospitals that are more than 15 miles from other hospitals (instead of the current statutory  requirement of being more than 25 miles apart) and with less than 1,600 discharges of individuals entitled to, or enrolled for, benefits under Part A (instead of the current statutory requirement of 800 total discharges).  The law requires the Secretary to create a sliding payment scale, ranging from a 25 percent adjustment for hospitals with 200 or fewer discharges of individuals entitled to, or enrolled for, part A, to no payment adjustment for hospitals with 1,600 or greater discharges of individuals entitled to, or enrolled for, part A.  In response to comments, CMS has modified the formula it is using to determine these payments.

Protection For Hospitals In Frontier States:  The Affordable Care Act requires CMS to adopt a hospital wage index that is not less than 1.0 for hospitals located in frontier states, beginning in FY 2011.  Frontier states are defined in the law as states where at least 50 percent of the counties have a population density of less than six people per square mile.  In the final rule, CMS is basing the frontier county and state determinations on the most recently available Annual Population Estimates from the U.S. Census.  As a result, 51 IPPS hospitals in five states– Montana , Nevada , North Dakota , South Dakota , and Wyoming – will benefit from this provision in FY 2011.  CMS will update this determination of frontier state status periodically as more recent data – such as data from the 2010 Census ‑ become available. 

Other Affordable Care Act Provisions Included In The IPPS/LTCH FY 2011 Final Rule:  The final rule implements a number of other changes to the IPPS/LTCH including:

• Adopting national budget neutrality in the calculation of the rural and imputed floors for the hospital wage index.

• Extending the Medicare Dependent Hospital (MDH) program through Oct. 1, 2012.

·       Implementing a technical correction to the payment methodology for critical access hospitals (CAHs) which elect the optional billing method allowing them to receive 101 percent (rather than 100 percent) of reasonable costs for outpatient facility services and ambulance services.

• Implementing provisions of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), as amended by the American Recovery and Reinvestment Act of 2009 (ARRA), as further amended by the Affordable Care Act, extending for an additional two years the delay in application of certain payment adjustments for certain LTCHs and LTCH satellite facilities whose admissions from co-located or non co-located hospitals exceed a certain percent, and a moratorium on establishing new LTCHs and LTCH satellite facilities or increasing hospital beds in existing LTCHs and LTCH satellite facilities.  The MMSEA, as amended by ARRA, and as further amended by the Affordable Care Act, also delays for an additional two-year period a specific payment   adjustment for short stay outlier discharges from LTCHs and LTCH satellite facilities, as well as the application of a one-time budget neutrality adjustment to the LTCH PPS rates.

• Noting with respect to the Rural Community Hospital Demonstration Program a five year extension period, an expansion of number of eligible sites to additional states, and additional rural hospitals, and an adjustment in the payment levels provided within the demonstration program.  It also implements a budget neutrality adjustment to the IPPS payment amount for certain time periods.

OTHER FINAL IPPS CHANGES FOR FY 2011:  Among other key changes in the IPPS for FY 2011 are the following:

FY 2011 Inpatient Hospital Update:  The market basket update for FY 2011 for hospitals paid under the IPPS is 2.6 percent.  As required by the Deficit Reduction Act of 2005 (DRA), hospitals that do not participate successfully in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program would receive the market basket update less 2.0 percentage points, or 0.6 percent.  This update amount will be further reduced by 0.25 percentage points, as required by the Affordable Care Act.  Therefore, the applicable percentage increase to the standardized amount for FY 2011 is 2.35 percent for hospitals that submit quality data in accordance with the RHQDAPU requirements and 0.35 percent for hospitals that do not submit quality data.  In FY 2011, the standardized amount will also be adjusted by -2.9 percent for documentation and coding, as discussed in a separate fact sheet in more detail.

Outlier Threshold:  CMS estimates that the total outlier payments in FY 2010 will be 4.7 percent of total payments under the IPPS.  CMS is lowering the outlier threshold in FY 2011 to $23,075 to maintain projected outlier payments at 5.1 percent.

Partial Freeze to ICD-9-CM and ICD-10-CM/PCS Code Updates:  The ICD-10 coding system will be implemented on Oct. 1, 2013.  CMS is considering whether to establish a partial freeze in the annual updates to both ICD-9-CM and ICD-10-CM/PCS code changes to alleviate concerns that any instructional or coding software programs would require frequent, significant updates.  The discussion of a partial code freeze was included in the IPPS proposed rule in order to obtain additional comments on this subject.  No final decision was made in the final rule.  A final decision on whether to establish a partial freeze is expected to be announced at the Sept. 2010 ICD-9-CM Coordination and Maintenance Committee meeting.  Information on meeting can be found at:

www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp

Information on ICD-10 can be found on CMS's website at: www.cms.gov/ICD10 

New Medical Services and Technology:  In order for technology to qualify for an additional payment to the IPPS payment amount, the applicant must demonstrate that the medical service or technology:

1)     is new – that is, generally, that it has been commercially available for no more that 2-3 years prior to the year for which the additional payment is sought;

2)     is high cost relative to other cases in the relevant MS-DRG(s); and

3)     offers substantial clinical improvement over existing services or technologies for the Medicare patient population.

The proposed rule discussed three applications for new technology add-on payments in FY 2011.  In the final rule, CMS is approving a new technology add-on payment in FY 2011 for one of these technologies ‑ the Auto Laser Interstitial Thermal Therapy (AutoLITT™) System (Monteris), which is a minimally invasive method for delivering a heat source to destroy a tumor or a portion of a tumor in a patient’s brain using magnetic resonance imaging (MRI) guidance. 

            Graduate Medical Education (GME):  CMS is clarifying that a physician who is not training in an approved medical residency program should bill for his/her services under the Part B Physician Fee Schedule and should not be included in the full-time equivalent (FTE) resident count for Indirect Graduate Medical Education (IME) and Direct GME purposes.  CMS has received questions about this policy in the context of physicians who have already completed medical residency training but continue to remain at the teaching hospital to refine their skills. 

The final rule will allow hospitals to submit their Medicare GME affiliation agreements to the CMS Central Office by 11:59 p.m. on July 1 of each academic year through an electronic process to be established in the near future that will enable CMS to more effectively track these affiliations and reduce the paperwork burden on hospitals. 

            Clarification on Determining Provider/Supplier Agreement Effective Dates:  CMS is clarifying that the effective date of a Medicare provider/supplier agreement with health care facilities that are subject to survey and certification is the date that the provider/supplier meets all Federal Medicare requirements, including the date CMS determines that it has met enrollment requirements.  The date when all Federal requirements have been met may or may not be the date the survey was completed.

            Provisions Affecting Critical Access Hospitals (CAHs):

            Reimbursement for Services of Certified Registered Nurse Anesthetists (CRNAs):  The final rule allows hospitals and CAHs that are geographically urban but have applied for and been  granted rural status under a specific provision of the Medicare law to receive reimbursement for anesthesia and related care furnished by qualified CRNAs on reasonable cost basis, if the hospital or CAH meets all of the other statutory requirements for those reasonable cost payments.

            Removal of the Annual Election Requirement on Maintaining Method II Payment:  The final rule provides that a CAH’s election of the optional or “Method II” payment method for outpatient services remains in place until the CAH terminates it.

            Clarification of Which Provider Taxes May Be Allowable Costs:  CMS regulations currently permit certain provider taxes to be treated as allowable costs if they are related to the reasonable and necessary cost of providing patient care and they are actually incurred.  The final rule clarifies the extent to which these taxes may be allowable costs and states that Medicare contractors – that is, Medicare Administrative Contractors (MAC) or fiscal intermediaries (FIs) ‑ will determine the extent to which provider taxes are allowable on a case-by-case basis, based on reasonable cost principles.

Three-Day Payment Window:  The Medicare law requires hospitals to include diagnostic services and most admission-related non-diagnostic services provided in the hospital outpatient department on the day of admission or 3 calendar days prior to admission (one day for hospital not paid under the IPPS) as part of the inpatient stay.  The policy protects Medicare and the beneficiary from paying separately under Medicare Part B for services that should be included in the Part A payment for the inpatient stay. 

Congress recently clarified the situations in which these non-diagnostic services should be considered part of a beneficiary’s inpatient stay.  The clarification, which was included in the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (“Preservation of Access to Care Act”), is consistent with how we understand hospitals have largely billed Medicare in the past.  This provision was effective for services furnished on or after June 25, 2010, and CMS is implementing this provision through an interim final rule.  The comment period for this interim final rule closes on Sept. 28, 2010. 

FINAL LTCH PPS CHANGES FOR FY 2011: 

In general, to qualify for payment under the LTCH PPS, the hospital’s average length of stay, taking into account all Medicare patients, must be greater than 25 days.  Changes to LTCH PPS payment rates and policies are now made on a fiscal year basis, at the same time as changes to the IPPS rates and policies.

            LTCH PPS Market Basket:   The market basket update for LTCHs for FY 2011 is 2.5 percent.  The market basket update is being reduced by 0.50 percentage points as required by the Affordable Care Act.  The FY 2011 LTCH standard Federal rate will also be adjusted by -2.5 percentage points for documentation and coding practices for FY 2008 and 2009, as discussed in a separate Fact Sheet.

            Outlier Threshold:   CMS is projecting that the total estimated outlier payments in RY 2010 will be approximately 7.42 percent of total estimated LTCH PPS payments, 0.58 percentage points lower than the target rate of 8 percent.  Even though RY 2010 payments are projected to be less than the 8 percent removed from the rates using current data, CMS is adopting a slight increase to the LTCH outlier threshold for FY 2011.  CMS’s payment models indicate the outlier threshold must be raised slightly to keep projected estimated LTCH outlier payments at 8 percent of total estimated payments under the LTCH PPS.  The outlier threshold for FY 2011 will be $18,785.

            Because both policies and payment weights for LTCHs are now being revised on a fiscal year basis, CMS is replacing the term “rate year” for LTCHs with “fiscal year.”

The final rule with comment period went on display today at the Office of the Federal Register’s Public Inspection Desk and will be available as a special filing at:

            www.ofr.gov/inspection.aspx#special.

For more information, please see:

www.cms.gov/AcuteInpatientPPS/01_overview.asp.