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CMS Issues Final Rule for 2017 Medicare Payment Changes

August 3, 2016
by Rajiv Leventhal
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According to a final rule issued late yesterday afternoon from the Centers for Medicare & Medicaid Services (CMS), hospitals paid under the Inpatient Prospective Payment System (IPPS) that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users will see a 0.95 percent bump in their Medicare payments next year.

The federal agency’s final rule, which would apply to approximately 3,330 acute care hospitals and approximately 430 long-term care hospitals (LTCHs), serves as an update to fiscal year (FY) 2017 Medicare payment policies and rates, and would affect discharges occurring on or after October 1, 2016. The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area.

According to CMS, the changes also reflect a 1.5 percentage point reduction for documentation and coding required by the American Taxpayer Relief Act (ATRA) of 2012 and an increase of approximately 0.8 percentage points to remove the adjustment to offset the estimated costs of the Two Midnight policy and address its effects in FYs 2014, 2015, and 2016. Indeed, the ATRA requires CMS to recover $11 billion by 2017 to fully recoup documentation and coding overpayments on the part of hospitals. From 2014 through 2016, CMS implemented a series of cumulative -0.8 percent adjustments.  For FY 2017, however, CMS calculates that $5.05 billion of the $11 billion requirement remains to be addressed.  Therefore, CMS is finalizing a -1.5 percent adjustment to complete the statutorily-specified recoupment.

The final rule says that hospitals that do not successfully participate in the Hospital IQR Program and do not submit the required quality data will be subject to a one-fourth reduction of the market basket update. Also, the law requires that any hospital that is not a meaningful EHR user will be subject to a three-fourths reduction of the market basket update in FY 2017.

CMS projects that the rate increase, together with other final changes to IPPS payment policies, will increase IPPS operating payments by approximately 1 percent and that changes in uncompensated care payments will decrease IPPS operating payments by 0.4 percent.  Other continued additional payment adjustments will include: a 1 percent reduction for hospitals in the lowest performing quartile under the Hospital Acquired Condition Reduction Program; payment adjustments for excess readmissions under the Hospital Readmissions Reduction Program; and incentive payments and reductions under the Hospital-Value Based Purchasing Program.  In sum, CMS projects that total Medicare spending on inpatient hospital services, including capital, will increase by about $746 million in FY 2017.

This rule finalizes policies that continue a commitment to increasingly shift Medicare payments from volume to value, the agency said. “The Administration has set measurable goals and a timeline to move the Medicare program, and the healthcare system at large, toward paying providers based on the quality, rather than the quantity of care they give patients. The final rule includes policies that advance that vision and is one of several final rules that reflect a broader Administration-wide strategy to create a healthcare system that results in better care, smarter spending, and healthier people.”




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