The Centers for Medicare & Medicaid Services (CMS) today issued a rule for fiscal year 2004 that includes a 3.4 percent increase in payment rates beginning October 1, 2003, to hospitals for inpatient services furnished to individuals with Medicare coverage. This is only the second time since the inpatient prospective payment system (IPPS) went into effect in 1983 that hospitals have received the full hospital market basket increase - the measure of inflation in goods and services used by acute care hospitals.
Overall Medicare is expected to pay approximately $98 billion to about 4,087 acute care hospitals in fiscal year 2004, an increase of $4.1 billion over FY 2003. Of the total payments, approximately $1.8 billion is due to payment rate and other policy changes, and the remaining $2.3 billion is due to anticipated increases in inpatient services and increases in the case mix.
Nearly all classes of hospitals will receive an increase in total payments in 2004. When outlier overpayments in fiscal year 2003 are disregarded, urban hospitals are expected to receive a 2.8 percent increase in payments for inpatient services, while rural hospital payments should increase 5.4 percent.
Under the IPPS, Medicare bases the payment rate for a beneficiary's stay on the Diagnosis Related Group (DRG), which reflects the patient's diagnosis and the procedure performed. CMS has defined over 500 DRGs, ranging from relatively simple, low cost hospitalizations to complex and expensive surgical procedures like heart transplants. Medicare law requires CMS to update the inpatient PPS annually to reflect changes in the hospital market basket, to revise the weights assigned to individual DRGs - and therefore the payment for those services - as well as to establish payment rates for any new procedures and technologies.
The final rule also establishes an outlier threshold for FY 2004 of $31,000, down from $50,645 in the proposed rule. The decrease was made possible by recent revisions to the Medicare outlier regulations, designed to curb abuses of the outlier payment system.
"We now project that we can lower the threshold from the level in the proposed rule and still limit outlier payments to 5.1 percent of total payments under the IPPS," said Scully. "This is good news
for the hospitals that weren't abusing the outlier system over the past several years and will compensate those hospitals that have truly high-cost cases." CMS estimates outlier spending was 6.5 percent of total payments during the first three months of fiscal year 2003 and was 7.8 percent of total payments during fiscal year 2002.
Other payment provisions in the final rule include:
- Lowering the high-cost threshold for add-on payments for new technologies that offer a significant clinical improvement over existing technologies, but are sufficiently costly that beneficiary access to the technology might be jeopardized absent the additional payments. The lower threshold would apply to applications for new technology add-on payments for fiscal year 2005.
- Approving an additional new technology for add-on payments for FY 2004. The technology, when placed at a spinal fusion site, promotes bone growth, offering a less invasive alternative to a traditional bone graft.
- Expanding the post-acute care transfer policy, which now applies to 10 DRGs, to an additional 21 DRGs, beginning October 1. At the same time, the rule removes two of the original DRGs from the post-acute care transfer list. The post-acute care transfer policy treats discharges involving the designated DRGs from an acute care hospital to a post-acute setting as a transfer. As a result, the transferring hospital is paid a per diem rate, not to exceed the full payment for the DRG.
- Limiting payment for nursing and allied health education to approved educational programs that lead to the ability to practice and begin employment in a specialty, but recognizes that in some instances training requirements for pharmacists and pastoral counselors may meet these requirements.
The final rule was published in the August 1, 2003 Federal Register, and will become effective for hospital discharges on or after October 1, 2003.