Final inpatient rule offers slight pay bump for hospitals

FY 2014 IPPS includes updates to readmissions penalties

Topics: Finance, Access to Care, Quality, Performance Improvement, Readmissions, ACO, Market Trends, Strategy, Health Policy

August 5, 2013

CMS on Friday issued the final rule for next year's Medicare payment system, increasing rates for inpatient services at acute-care hospitals by 0.7%, making key changes to its readmissions penalty program, and cutting payments to safety-net hospitals.

The final rule for the fiscal year (FY) 2014 Inpatient Prospective Payment System (IPPS) —which will start on Oct. 1—revises a proposal released in April.

Final rule: FY 2014 payment updates

The FY 2014 IPPS will increase inflation-adjusted payments for inpatient admissions at about 3,400 acute-care hospitals by 0.7%, or $1.2 billion overall.

Click to expand our break down of the payment updates in the final IPPS for FY 2014.

Starting FY 2014, the maximum penalties for Medicare's readmission reduction program will increase to 2%. In FY 2013, the first year of the program, the maximum penalty for excess readmissions from heart attack, pneumonia, and heart failure patients was 1%. (In FY 2015, the program will also include readmissions after hip and knee surgery and chronic obstructive pulmonary disease, per the final rule.)

In addition, the FY 2014 final rule expands the number and types of planned readmissions that will not be considered as "excess" readmissions in the penalty program. 

Meanwhile, about 440 long-term care facilities in FY 2014 will receive an additional $72 million under the final rule, a net increase of 1.3% over FY 2013. 

Final rule outlines plan to reduce observation stays

The new rule finalizes a proposal to let hospitals receive payment under Medicare Part B for inpatient admissions deemed not medically necessary under Part A. According to the rule, a "hospital also can bill and be paid for these inpatient services under Part B if—after the patient has been discharged—it determines through self-audit (utilization review) that the patient should have not been admitted as an inpatient," according to a CMS fact sheet.

Under the final rule, an admission is assumed to be appropriate for a Part A payment if a physician expects a beneficiary's treatment to require a two-night hospital stay and admits the patient under that assumption.

"This rule helps improve hospital care and establishes clearer guidance to hospitals for when we will consider inpatient care to be appropriate so the system works better for patients and providers," CMS Administrator Marilyn Tavenner said in a statement.

Final rule reduces DSH pay—and other ACA changes

The new rule also finalizes FY 2014 changes to various Affordable Care Act (ACA) programs:
  • Reduction in DSH payments. The final rule outlines about $550 million in cuts to the Medicare Disproportion Share Hospital (DSH) program in FY 2014. It also changes the methodology for the distribution of those payments, as outlined in the ACA.

  • Safety program updates. The final rule outlines new measures for the Hospital Inpatient Quality Reporting Program and the Hospital Value-Based Purchasing Program.

  • A new hospital-acquired condition program. Starting in FY 2015, the Hospital-Acquired Condition Reduction Program will pay base 1% of Medicare payments on medical errors and serious infections (Conn, Modern Healthcare, 8/2 [subscription required]; AHA News, 8/2; CMS release, 8/2).

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