Here's how Medicare will change how it pays hospitals next fiscal year

The changes will take effect Oct. 1

CMS on Tuesday issued a final rule for its inpatient and long-term care hospital prospective payment systems for fiscal year (FY) 2017.

Register for our webconference on the final rule

The final rule—which will apply to about 3,330 acute care hospitals and about 430 long-term care hospitals—takes effect Oct. 1.

Inpatient Prospective Payment System changes

The rule will increase overall inpatient hospital payment rates by 0.95 percent in FY 2017, after accounting for inflation and various required adjustments. That increase includes a 2.7 percent market-basket update for facilities that were meaningful users of electronic health records in FY 2015 and submitted data on quality metrics, adjusted by a:

  • 1.5 percent payment cut to meet requirements under the American Taxpayer Relief Act of 2012;
  • 0.75 percent payment cut required under the Affordable Care Act (ACA); and
  • 0.3 percent productivity cut.

The final rule also eliminates a 0.2 percent reduction included in CMS' two-midnight rule. The cut was included to offset the regulation's costs.

In addition, CMS in the final rule said it will provide a one-time 0.6 percent payment increase to hospitals affected by the two-midnight rule cut to retroactively address the 0.2 percent reduction's effects in FYs 2014-2016. Those adjustments will increase FY 2017 payments by about 0.8 percent, according to CMS.

Overall, CMS projects that Medicare payments for inpatient hospital services will increase by about $746 million in FY 2017, compared with FY 2016.

Long-Term Care Hospital Prospective Payment System changes

The final rule also includes changes expected to decrease long-term care hospital prospective payments by 7.1 percent, or $363 million, in FY 2017.

Under the final rule, CMS will implement a 2.8 percent market-basket update, as well as a 0.3 percent productivity cut and 0.75 percent reduction required under the ACA.

The final rule also includes a 23 percent payment cut for long-term care hospital site-neutral cases. Under the site-neutral policy, which is set to take effect in January 2017, hospitals' off-campus outpatient departments will be paid under Medicare Part B rather than the outpatient prospective payment system.

Disproportionate Share Hospital cuts

In addition, CMS in the final rule said it will pay $6 billion in Medicare Disproportionate Share Hospital (DSH) uncompensated care funds in FY 2017, a decrease of about $400 million.

However, the agency delayed until FY 2021 proposed changes to the way it calculates DSH payments for safety-net hospitals. According to Modern Healthcare, CMS had proposed that, starting in FY 2018, it would base DSH payments largely on the amount of uncompensated care and charitable care hospitals claimed on their Medicare cost reports, rather than the number of Medicaid and dual-eligible beneficiaries and patients with disabilities treated.

Some stakeholders said the proposed formula was inaccurate and would have favored hospitals that treat large numbers of uninsured patients.

Quality program updates

The final rule also outlined changes to four quality reporting programs.

CMS said will update the Hospital-Acquired Condition Reduction Program, created under the ACA, by:

  • Adopting an updated version of the Patient Safety for Selected Indicators Composite Measure;
  • Changing the program's scoring methodology to one based on continuous scoring;
  • Establishing data submission requirements for new hospitals under CDC's National Healthcare Safety Network (NHSN); and
  • Establishing the program's performance periods for FY 2018 and FY 2019.

For the Hospital Readmissions Reduction Program, created under the ACA, CMS said it will update its public reporting policy to accelerate the process for posting hospitals' readmission rates to its Hospital Compare website.

For the Value-Based Purchasing Program, created under the ACA, CMS said:

  • Starting in FY 2019, it will expand the number of hospitals subject to NHSN quality measures;
  • Starting in FY 2021 it will expand the cohort it uses to calculate 30-day pneumonia mortality measures;
  • Starting in FY 2021, it will add payment measures for heart failure and acute myocardial infarction; and
  • Starting in FY 2022, it will add a 30-day mortality measure for coronary artery bypass grafting surgery.

In addition, the final rule makes changes to a policy that dictates whether hospitals can be excluded from VBP and whether they can be "cited for deficiencies that pose immediate jeopardy to the health and safety of patients."

Under the final rule, CMS also will alter its Hospital Inpatient Quality Reporting Program by:

  • Adding four new claims-based measures that will apply to FY 2019 payment determinations and subsequent years; and
  • Removing 15 quality measures, which also will take effect beginning with FY 2019 payment determinations (Byers, Healthcare DIVE, 8/2; AHA News [1], 8/2; AHA News [2], 8/2; CMS fact sheet, 8/2; Dickson, Modern Healthcare, 8/2).

Mark your calendar: Our webconference on the final rule

Join us for a webconference on Thursday, August 25, when we'll examine the details of the FY 2017 Inpatient Prospective Payment System final rule, including a full exploration of payment rate cuts and updates; changes for the inpatient quality reporting program; and key updates on pay-for-performance programs


Register now


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