Fact Sheets

FY 2007 HOSPITAL INPATIENT PROSPECTIVE PAYMENT SYSTEM FINAL PAYMENT RATES

On September 29, 2006, the Centers for Medicare & Medicaid Services (CMS) announced final hospital inpatient prospective payment system (IPPS) rates for fiscal year (FY) 2007. Although CMS completed its FY 2007 IPPS final rule on August 1, the rates announced at that time were tentative. CMS could only make tentative IPPS rates available with the final rule because it was unable to calculate final occupational mix adjusted wage indices as a result of only recently completing the collection of new occupational mix survey data ordered by the 2^nd Circuit Court of Appeals in Bellevue Hospital Center v. Leavitt on April 3.

Consistent with the Court’s order, the final rates announced for FY 2007 fully adjust the wage indices for occupational mix. The revised wage indices affect other aspects of IPPS payments such as the DRG relative weights, the outlier threshold and geographic reclassification that, in turn, affect the calculation of the final IPPS rates. Compared to the tentative rates announced on August 1, the final rates announced on September 29 do the following:

• DRG Relative Weights - The use of occupational mix adjusted wage indices has little or no effect on the DRG relative weights that CMS announced on August 1. No DRG relative weight changed by more than 0.8 percent from the tentative ones earlier announced.

• Outlier Threshold – The use of the revised wage data has a negligible effect on the outlier threshold. The FY 2007 threshold increased $10 from the tentative one of $24,475 CMS announced on August 1 to $24,485.

• Final IPPS Rates – The final IPPS standardized amounts will be approximately $4 less (0.1 percent) than those we announced on August 1.

• The changes in the IPPS rates from using occupational mix data are budget neutral. Therefore, there is no change to our earlier estimates of the increase in operating and capital payments. CMS is continuing to estimate that payments to hospitals will increase by $3.4 billion or an average of 3.5 percent.

Occupational Mix Adjusted Wage Indices:

Overall, the effects of applying a new occupational mix adjustment in FY 2007 are similar to the effects on the wage index using the old occupational mix data for FYs 2005 and 2006. The wage indices of most rural CBSAs (70.2%) are increasing. Less than ½ of urban CBSAs (46.9%) will experience an increase in their wage index as a result of the occupational mix adjustment. Close to a third of rural CBSAs (29.8%) will experience a decrease in their wage indexes as a result of the occupational mix adjustment, although more rural CBSAs were experiencing a decrease using the old occupational mix data (36.2%), as compared to using the new data (29.8%).

Geographic Reclassification

Hospitals can reclassify in order to be paid using another area’s wage index if they believe that they compete for labor with a different area than the one in which they are located. The final notice includes procedures for hospitals to follow for making final decisions on FY 2007 reclassifications and applying to the Medicare Geographic Classification Review Board (MGCRB) for reclassifications beginning in FY 2008.

FY 2007. Generally, hospitals that have multiple reclassification options can select the one they would like to use for the following fiscal year based on information that is in the IPPS proposed rule. However, because the information upon which to make such a decision for FY 2007 was unavailable until final IPPS rates were announced on September 29, CMS made interim decisions on behalf of hospitals in the final notice. CMS’ interim decisions gave hospitals the highest possible wage index among their reclassification options. However, hospitals may consider other factors than just the wage index in making a decision about reclassification. Therefore, hospitals will now have 30 days (or until October 30) to inform CMS whether they wish to revise a decision made on their behalf. In addition, hospitals must reinstate a withdrawn reclassification by October 30 if they wish to continue an FY 2008 reclassification. CMS note that hospitals must reinstate the FY 2008 reclassification even if they agree with the decision CMS made on their behalf for FY 2007.

FY 2008. The statutory deadline for reclassification applications for FY 2008 – FY 2010 to the MGCRB was September 1, 2006. Due to the special circumstances related to litigation in the case of Bellevue Hospital v. Leavitt, some of the information necessary for the applications was unavailable by the September 1, 2006 reclassification application deadline. The final FY 2007 IPPS notice includes the information that hospitals need to supplement their FY 2008 geographic reclassification applications. Hospitals will have until October 30 to supplement their FY 2008 geographic reclassification applications with average hourly wage information that is included in the final FY 2007 IPPS notice.

Hospitals are encouraged to read the final notice for more information about the procedures for revising an FY 2007 reclassification and/or reinstating or applying for an FY 2008 reclassification.

For more information about the wage index notice, go to:

http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS

Click on “IPPS Regulations and Notices” and CMS 1488-N.