CMS Issues Final IPPS Rules; Interim Final Rule on Three-Day Payment Window

04 August 2010 Publication
Authors: Chris E. Rossman

American Health Lawyers Association

On July 30, 2010, the Centers for Medicare & Medicaid Services (CMS) issued final rules implementing changes to the Hospital Inpatient Prospective Payment System (IPPS) for acute-care hospitals and the Prospective Payment System for long term care hospitals (LTCHs) (collectively, the rule). The rule also sets forth the Fiscal Year (FY) 2011 rates. The rule includes and implements changes made by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (Affordable Care Act), but CMS notes that it could not address all changes required by the new law, so there will be more regulatory changes in the near future. In addition, CMS included an interim final rule with respect to the three-day payment window.

The rule, which is scheduled to be published in the August 16, 2010, edition of the Federal Register, was placed on display at the Office of Federal Register and can be viewed online. As indicated, the rule includes final rules and an interim final rule with comment period, with comments due by September 28, 2010.

The following are some of the many provisions of the rule that are applicable, for the most part, for federal FY 2011.

Acute-Care Hospital Payment Decreases

The rule will decrease Medicare IPPS payments to acute-care hospitals by approximately 0.4%, or $440 million. This is a result of the combination of: a market basket increase of 2.6%; a reduction of this update by 0.25%, as required by the Affordable Care Act; and a "documentation and coding" adjustment, which is intended to account for hospital changes in coding practices, that reduces the payment rate by 2.9%.

LTCH Payment Increases

Payments to LTCHs will increase by approximately 0.2% or $22 million. This is a result of the combination of: a market basket increase of 2.5%; a reduction of this update by 0.5%, as required by the Affordable Care Act; and a "documentation and coding" adjustment that reduces the payment rate by 2.5%.

Hospitals Exempt from PPS

The rule 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.

Hospital Quality Reporting

The rule adds twelve quality measures to the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, and retires one current measure. In order to obtain the full market basket update for IPPS for the applicable year, the hospital must participate in the RHQDAPU program and submit the quality information by the applicable deadlines. However, only ten of the new measures will be considered in determining a hospital's FY 2012 IPPS update. The remaining two measures to be reported in 2011 will be considered in determining the hospital's FY 2013 update.

Three-Day Payment Window

The interim final rule implements a change to the "three-day payment window" rule, which pertains to certain diagnostic and therapeutic services provided by an acute-care hospital (or an entity that is wholly owned or wholly operated by the hospital) on the day of or during the three days prior to the date of a patient's admission to the hospital. For hospitals that are excluded from IPPS, the payment window pertains to such services provided by the hospital (or an entity that is wholly owned or wholly operated by the hospital) on the day of or during the day prior to the date of a patient's admission to the hospital.

The rule does not make any change with respect to outpatient diagnostic services provided during the payment window. All diagnostic services provided to a Medicare beneficiary by a hospital (or an entity wholly owned or operated by the hospital) on the date of the beneficiary's inpatient admission and during the three calendar days (one calendar day for a hospital that is excluded from IPPS) immediately preceding the date of admission will continue to be required to be included on the hospital's bill for the inpatient stay.

The rule implements a change with respect to therapeutic services provided during the payment window. Such services must be included on the hospital's bill for the inpatient stay if they are related to the admission, which CMS has interpreted as services that are clinically associated with the reason for a patient's inpatient admission. In the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, enacted on June 25, 2010, Congress provided that all non-diagnostic services provided during the payment window will be deemed related to the admission, and therefore must be billed with the inpatient stay, unless the hospital attests that the services are unrelated to the hospital claim (that is, the pre-admission services are clinically distinct or independent from the reason for the beneficiary's admission). In the final rule, CMS stated that it intends to establish a process for hospitals to attest to non-diagnostic services as being unrelated to the hospital claim when a hospital submits an outpatient claim. This provision is effective for services provided on or after June 25, 2010.

Hospital Wage Index

The rule includes many revisions to the upcoming year's wage index as required by existing provisions of the Medicare Act. The preamble to the rule also makes extensive comments regarding a congressionally mandated study of the wage index, and MedPac's study of the wage index. CMS indicated that it will continue to evaluate the comments.

Payment Adjustment for Medicare DSHs: SSI Fraction

The most common method used for qualifying for a Disproportionate Share Hospital (DSH) payment adjustment is based on a complex statutory formula under which the DSH payment adjustment is based on the hospital's geographic location, the number of beds in the hospital, and the level of the hospital's disproportionate patient percentage (DPP). Litigation over CMS' calculation of the DPP resulted in a finding by a district court, in the Baystate Medical Center case,1 that, in certain respects, CMS' calculation process relating to the Supplemental Security Income (SSI) fraction of the DPP (as described in great detail in this rule) did not use the "best available data." CMS acknowledges that it did not appeal the Baystate decision, and although it does not state that it agrees with the decision, it is implementing the court's decision through this rule. CMS also states that because it believes that the revised match process that CMS is using to implement the Baystate decision addresses all of the concerns found by the court, CMS will use the same revised data matching process for calculating hospitals' SSI fractions for FY 2011 and subsequent FYs.

The rule also notes that on April 28, 2010, the CMS administrator issued a CMS Ruling, CMS-1498-R (Ruling), that addresses three Medicare DSH issues, including CMS' process for matching Medicare and SSI eligibility data and calculating hospitals' SSI fractions. With respect to the data matching process issue, the Ruling requires the CMS administrator, PRRB, fiscal intermediary, hearing officer, or the CMS reviewing official to remand each qualifying appeal to the appropriate Medicare contractor. The Ruling also explains how, on remand, CMS and the contractor will recalculate the provider's DSH payment adjustment and make any payment deemed owing.

As to effective dates, CMS indicated that the data matching provisions of the Ruling would apply to properly pending appeals and open cost reports for cost reporting periods beginning prior to October 1, 2010 (that is, those preceding the effective date of the FY 2011 IPPS final rule).

Effective Date of Provider Agreements and Supplier Approvals

The rule also clarifies CMS' intent and practice that it is only CMS that determines whether healthcare facilities have satisfied the requirements for participation in the Medicare program, not state survey agencies or national accreditation organizations. CMS also confirmed that CMS makes the determination on whether a provider or supplier is eligible to participate in or be covered by the Medicare program, based on the state survey agency's recommendation or on the facility's accreditation. CMS also makes it explicit that the effective date of a provider agreement or supplier approval may not be earlier than the latest of the dates on which each applicable federal requirement is determined to be met.


Copyright 2010 American Health Lawyers Association, Washington, DC. Reprint permission granted. Further reprint requests should be directed to:

American Health Lawyers Association
1620 Eye Street, NW, 6th Floor
Washington, DC, 20006
(202) 833-1100

For more information on Health Lawyers content, visit us at

Related Services