October 1, 2014

CMS Issues Hospital Inpatient Payment Regulation

CMS Issues Hospital Inpatient Payment Regulation

Final rule strengthens tie between payment and quality improvement

The final rule issued on August 4 by CMS adopts improvements in the quality of care that limit payment for hospital acquired conditions (HACs) and readmissions. The rule, which updates Medicare payment policies and rates for inpatient stays at general acute care and long-term care hospitals (LTCHs) for FY 2015, builds on the administration’s efforts for better hospital patient outcomes and slowing the long-term health care cost growth.

The rule also supports price transparency by reminding hospitals of the Affordable Care Act requirement to post or otherwise make their charges available to patients and the public.
“Today’s policies further support our efforts to continue improving the care our Medicare beneficiaries receive while also cutting the growth of Medicare costs,” said CMS Administrator Marilyn Tavenner. “This final rule builds on our recent efforts to improve hospital performance while giving hospitals the clarity and resources they need to deliver the best possible patient care.”

CMS announced that the payment rate update to general acute care hospitals will be 1.4 percent in FY 2015. The rate update for long term care hospitals will be 0.9 percent. The difference in the update is accounted for by different statutory and regulatory provisions that apply to each system.

The final rule also summarizes ideas received from stakeholders on an alternative payment methodology for short stay inpatient cases that also may be treated on an outpatient basis.

Improving Patient Care

Hospital Value-Based Purchasing Program: The Hospital Value-Based Purchasing (VBP) Program, which was established by the Affordable Care Act, adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS) based on the quality of care they furnish to patients. For FY 2015, as directed by the law, CMS is increasing the applicable percent reduction, the portion of Medicare payments available to fund the value-based incentive payments under the program, to 1.5 percent of the base operating diagnosis-related group (DRG) payment amounts to all participating hospitals. CMS estimates that the total amount available for value-based incentive payments in FY 2015 will be approximately $1.4 billion.

Hospital Readmissions Reduction Program: The maximum reduction in payments under the Hospital Readmissions Reduction program will increase from 2 to 3 percent as required by law. For FY 2015, CMS will assess hospitals’ readmissions penalties using five readmissions measures endorsed by the National Quality Forum. CMS estimates that hospital readmissions in Medicare declined by a total of 150,000 from January 2012 through December 2013.

Hospital Acquired Condition Reduction Program: CMS is implementing the Affordable Care Act’s Hospital Acquired Condition Reduction Program. Beginning in FY 2015, hospitals scoring in the top quartile for the rate of HACs (i.e. those with the poorest performance) will have their Medicare inpatient payments reduced by one percent. This new program builds on the progress in this area achieved through the existing HAC program, which is currently saving approximately $30 million annually by not providing additional Medicare payment for treatment of certain conditions that are reasonably preventable when those conditions are acquired after the beneficiary has been admitted to the hospital for a different condition.

Quality Reporting Programs: The rule’s changes to Medicare quality incentive programs will continue to encourage high quality care while decreasing the time and effort it takes for providers to report the information. It will also align certain reporting requirements in both the Electronic Health Record (EHR) Incentive Program and the Hospital Inpatient Quality Reporting (IQR) Program. The final rule revises measures for the Hospital Inpatient Quality Reporting, LTCH Quality Reporting and PPS-Exempt Cancer Hospital Quality Reporting Programs.

Wage Index – Updated Labor Market Areas

The law requires that Medicare adjust its inpatient hospital payment for area differences in the cost of labor—an adjustment known as the wage index. CMS is revising the labor market areas used for the wage index based on the most recent Office of Management and Budget (OMB) Core-Based Statistical Area delineations that are based on 2010 Census data.In order to mitigate potential negative payment impacts due to the adoption of the new OMB delineations, CMS is adopting a one-year transition during FY 2015 that would be based on a 50/50 blend of the former wage index and the new wage index. The new wage index will take effect in full in FY 2016. This will be for all hospitals that would experience a decrease in their wage index exclusively due to the implementation of the new OMB delineations, and a three-year transition for the relatively few hospitals currently located in an urban county that would become rural under the new OMB delineations.

For more information:

  • Final Rule
  • Fact Sheet: FY 2015 Policy and Payment Changes for Inpatient Stays in Acute-Care Hospitals and Long-Term Care Hospitals
  • Fact Sheet: CMS to Improve Quality of Care during Hospital Inpatient Stays

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