Hospitals face inpatient Medicare payment cuts in FY 2011

The Centers for Medicare and Medicaid Services (CMS) projects that Medicare payments for inpatient services at general acute-care hospitals will decrease by 0.1 percent (a collective $142 million) in fiscal year (FY) 2011 effective with discharges on Oct. 1, 2010, according to a new proposed rule placed on display April 19 at the Federal Register. The American Hospital Association (AHA) in Chicago was swift to condemn the proposed rule, with President and CEO Rich Umbdenstock stating that "America's hospitals are deeply disappointed" and charging that "CMS' analysis is incomplete."

The proposed FY 2011 inpatient prospective payment system (IPPS) payments incorporate a 2.4 percent market basket update for inflation, which represents a modest increase over the FY 2010 inflation rate. However, CMS also will apply a negative adjustment of 2.9 percent, allowing Medicare to recoup FY 2008 and 2009 aggregate overpayments related to what CMS describes as "changes in hospital coding practices that did not reflect increases in patients' severity of illness." The agency notes that it is under a congressional mandate to recoup the full amount of FY 2008 and 2009 overpayments related to changes in hospital coding practices by FY 2012. These two adjustments, combined with adjustments for budget neutrality and outlier claims, will result in the overall 0.1 percent payment cut.

The AHA finds the negative adjustment for excess payments especially problematic. "We take issue with the coding offset that assumes inpatient payments have increased solely due to changes in coding--ignoring that hospital patients are getting sicker," says Umbdenstock.

The coding offset is related to the FY 2008 transition to the MS-DRG (Medicare Severity Diagnosis-Related Group) coding system, which was supposed to be budget-neutral. The proposed negative 2.9 percent adjustment for FY 2011 represents one-half of the total 5.8 percent recoupment adjustment that will be required by FY 2012, says CMS. The agency notes that it "is not proposing any prospective adjustment for FY 2011. Although CMS has the authority to make a much larger reduction to the FY 2011 rates, CMS believes it is prudent to phase in additional adjustments carefully over time."

Long-term care hospitals, also known as long-term acute-care hospitals or LTACs, fare slightly better in the proposed rule with a 0.8 percent payment increase (a collective $41 million) for FY 2011. The factors influencing this payment increase include a 2.4 percent market basket increase for inflation, a negative 2.5 percent adjustment for the coding offset, and other proposed changes.

This proposed rule is not the last word on pending payment changes for inpatient hospitals. CMS could use more recent data to revise the projected inflation updates in the final rule. In addition, the agency has yet to provide information on implementing health reform law provisions that affect FY 2010 and FY 2011 IPPS payments. (Those provisions are contained in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act.)

Hospitals have until June 18 to comment on the proposed rule, and CMS will issue a final rule by Aug. 1.

To learn more about the proposed rule:
- read the CMS press release
- read this CMS fact sheet on payment and policy updates
- read this CMS fact sheet on coding and documentation adjustments
- download the public inspection documents from the Federal Register
- visit the CMS Inpatient PPS webpage for impact files and other documentation
- read the AHA statement