Medicare Program Final Rule for Acute Hospital Inpatient Prospective Payment System Policies and FY 2012 Payment Rates

On August 1, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that will, among other things, update payment policies and rates for acute care hospitals paid under the Inpatient Prospective Payment System (IPPS) in Fiscal Year (FY) 2012. The final rule will be published in the Federal Register on August 18, 2011. In its press release, CMS quoted CMS Administrator Donald M. Berwick, MD, as saying "[t]he final rule continues a payment approach that encourages hospitals to adopt practices that reduce errors and prevent patients from acquiring new illnesses or injuries during a hospital stay." Berwick is further quoted as saying, "[t]his approach is part of a comprehensive strategy being implemented across Medicare's payment systems that is intended to reduce overall costs by improving how care is delivered."

Among the highlights of the final rule are the following:

Increased Payments

According to CMS the total Medicare operating payments to acute care hospitals for inpatient services occurring in FY 2012 will increase by

$1.3 billion, or 1.1%, in FY 2012 compared with FY 2011, due to a 1% increase in payment rates, together with other policies adopted in the final rule. The FY 2012 rate-of-increase percentage to be applied to the target amount for entities excluded from the IPPS (cancer hospitals, children's hospitals, and religious nonmedical healthcare institutions) is 3.0%.

Hospital Inpatient Quality Reporting (IQR) Program

In the final rule, CMS reviewed and updated quality measures required to be submitted by hospitals. CMS retired four measures dealing with adult smoking cessation advice/counseling and timing of receipt of initial antibiotic following hospital arrival. CMS also suspended the collection for four other measures, including the provision of aspirin at arrival, beginning with January 1, 2012, discharges.

Additionally, CMS as required by the Affordable Care Act (ACA) adopted a Medicare spending beneficiary measure for both the IQR Program and the new Hospital Inpatient Value-Based Purchasing (VBP) Program. The new measure will monitor spending per beneficiary from the three days prior to an admission to thirty days post-discharge for both the IQR and VBP Programs. The Medicare spending per beneficiary episode will include Medicare payments for all Medicare Part A and B services rendered to Medicare beneficiaries during the episode with the exception of statistical outliers. The Medicare spending per beneficiary amount will be adjusted for beneficiary age and severity of illness, but will not be adjusted based on demographic or socioeconomic factors.

Hospital VBP Program

Pursuant to the final rule, a hospital will earn between one and ten achievement points on the Medicare spending per beneficiary measure if its individual Medicare spending per beneficiary ratio during the performance period falls at or between the achievement threshold and the achievement benchmark for the measure. The achievement threshold is the median Medicare spending per beneficiary ratio across all hospitals during the performance period. All hospitals will have the same nine-month performance period during which their Medicare spending per beneficiary ratios will be compared. The baseline period for the Medicare spending per beneficiary measure for FY 2013 is from May 15, 2010, through February 14, 2011.

Hospital Readmissions Reduction Program

CMS will reduce payments beginning in FY 2013 to certain hospitals that have excess readmissions for certain selected conditions for discharges on or after October 1, 2012. The final rule finalizes readmission measures for three conditions: acute myocardial infarction (or heart attack), heart failure, and pneumonia. The final rule sets forth a methodology that CMS will use to calculate excess readmission rates for these conditions as required by ACA.

Hospital Services Furnished Under Arrangements

The final rule effects a change in policy so as to preclude hospitals from furnishing routine services under arrangements with another entity unless the services are provided in the hospital in which the patient has been admitted as an inpatient. The change is effective for services provided on or after October 1, 2011. Under the changed policy, only therapeutic and diagnostic items and services may be furnished under arrangements outside of the hospital.

Hospital Full Time Equivalent (FTE) Resident Caps for Graduate Medical Education (GME) and Indirect Medical Education (IME) Payment Purposes

The final rule adopted the methodology for determining if and by how much the FTE resident caps of hospitals in Medicare GME affiliated groups are to be reduced as expressed in the interim final rule (76 FR 13515) issued on March 14, 2011.

Critical Access Hospital (CAH) Payment for Ambulance Services

The final rule revised 42 C.F.R. § 413.70(b)(5)(i) by adding a new subsection (C) to specify that for cost reporting periods beginning on or after October 1, 2011, payment for ambulance services furnished by a CAH or by a CAH-owned and operated entity is 101% of reasonable costs of the CAH or the entity furnishing those services, but only if the CAH or the entity is the only provider or supplier of ambulance services located within a thirty-five-mile drive of the CAH.

Additionally, the new subsection addresses a gap in the statutory language to cover situations where there is no provider or supplier of ambulance services located within a thirty-five-mile drive of the CAH, but there is a CAH-owned and operated entity furnishing ambulance services more than a thirty-five-mile drive from the CAH. For cost reporting periods beginning on or after October 1, 2011, if there is no provider or supplier of ambulance services located within a thirty-five-mile drive of the CAH and there is a CAH-owned and operated entity that is more than a thirty-five-mile drive from the CAH, the CAH-owned and operated entity will be paid at 101% of reasonable costs for ambulance services as long as the entity is the closest provider or supplier of ambulance services to the CAH. If there is another provider or supplier of ambulance services that is closer to the CAH, the CAH-owned and operated entity will be paid based on the ambulance fee schedule instead.

CMS has issued a press release to accompany the rule's release.