FY12 IPPS Final Rule Overview

CMS issued a final rule updating payment rates under the Medicare inpatient prospective payment system (IPPS) for operating and capital-related costs of acute care hospitals in fiscal year 2012 (FY12). It also updates annual payment rates for inpatient hospital services provided by long-term care hospitals (LTCHs) and implements certain statutory changes made by the Affordable Care Act (ACA). These changes are applicable to discharges occurring on or after October 1, 2011. The table below reflects the impact of the overall percentage change in FY12 IPPS payment rates on the operating costs of different providers.

 

FY12 IPPS Update Impact Table
	All FY12 Changes (%)
All Hospitals	1.1
Urban Hospitals	1.2
Rural Hospitals	0.2
Teaching Status
Non-Teaching	1.0
Fewer than 100 Residents	1.0
100 or More Residents	1.4
Special Hospital Types
Rural Referral Centers	0.6
Sole Community Hospitals	-0.7
Medicare-dependent, Small Rural Hospitals	0.5

 

FY12 Inpatient Hospital Update Overview

The final payment rates adopt a higher market basket than was projected in the proposed rule (using more recent data) (3.0 percent versus 2.8 percent), a lower multifactor productivity adjustment based on more recent data (1.0 percent vs. 1.2 percent), and the adoption of a prospective documentation and coding adjustment of minus 2.0 percent rather than the negative 3.15 percent adjustment in the proposed rule. The negative 2.0 percent prospective documentation and coding adjustment is intended to counteract increased aggregate inpatient hospital payments in FY12 due to changes in hospital coding practices under new Medicare severity-diagnosis related groups (MS-DRGs) that do not reflect actual increases in patients’ severity of illness.

CMS projects that the rate increase, together with other policies in the final rule and projected utilization of inpatient services, will increase Medicare’s operating payments to acute care hospitals by $1.13 billion, or 1.1 percent, in FY12 compared with FY11. As required by the Medicare statute, hospitals that do not successfully participate in the Hospital Inpatient Quality Reporting Program will receive a 2.0 percent reduction from the market basket, yielding a final payment update of minus 1.0 percent.

FY12 Acute Care Hospital Changes

• Payment rates. The final rule will update IPPS payment rates by the 1.0 percent update to the IPPS payments, reflecting an update of 1.9 percent (based on a 3.0 percent market basket update, reduced by a multi-factor productivity adjustment of -1.0 percent, and an additional -0.1 percent mandated by the Affordable Care Act (ACA); increased by 1.1 percent in light of the Cape Cod Hospital v. Sebelius court case; and a -2.0 percent prospective documentation and coding adjustment.
• Documentation and coding adjustment. CMS applied an adjustment of minus 2.9 percent in FY11 to recoup one-half of the 5.8 percent increase in FY 08 and 09 aggregate payments it calculated due to changes in hospital coding practices that did not reflect increases in patients’ severity of illness. CMS is completing the recoupment adjustment by applying the remaining minus 2.9 percent adjustment, but is at the same time restoring the negative 2.9 percent adjustment finalized for FY11 (by adding 2.9 percent back on the rates). These adjustments will, in effect, offset each other, and there will be no year-to-year change in the standardized amount due to this recoupment adjustment. Additionally, CMS is adopting a prospective adjustment of minus 2.0 percent in FY12. This adjustment is to ensure that increases in hospital payments due to documentation and coding are not incorporated into payments made in FY12 and future years.

Outlier Payments

CMS says the outlier fixed-loss cost threshold for FY12 will be equal to the prospective payment rate for the diagnosis-related group (DRG), plus any indirect medical education and disproportionate share hospitals payments, and any add-on payments for new technology, plus $22,385. The proposed amount was $23,375. The FY11 threshold is $23,075. CMS says its current estimate, using available FY10 claims data, is that actual outlier payments for FY10 were approximately 4.7 percent of actual total DRG payments, 0.4 percent less than assumed. Actual outlier payments for FY11 are estimated to be approximately 4.8 percent of actual total DRG payments, approximately 0.3 percent lower than the 5.1 percent projected amount when setting the outlier policies for FY11.

Changes to Inpatient Capital-Related Costs for FY12

CMS will increase the capital payment amount by an update of 1.5 percent in determining the FY12 capital federal rate for all hospitals. However, CMS is also reducing the update by -2.0 percent for coding and documentation changes. The FY12 capital rate is $421.42. The current rate is $420.01.

Standardized Payment Rates

In addition to the various payment adjustments for FY12, CMS will continue to use a labor-related share of 68.8 percent for discharges occurring on or after October 1, 2011, for hospitals whose wage index is greater than 1.0000. CMS is applying the wage index to a labor-related share of 62 percent for all IPPS hospitals whose wage index values are less than or equal to 1.0000.

The following tables displays the FY12 payment rates:

Table 1A – National Adjusted Operating Standardized Amounts (68.8 Percent Labor Share/31.2 Percent Non-Labor Share if Wage Index is Greater Than 1)

Full Update (1.90 Percent)	Reduced Update (-0.10 Percent)
Labor-related	Non-labor-related	Labor-related	Non-labor-related
$3,584.30	$1,625.44	$3,513.95	$1,593.54

 

  Table 1B – National Adjusted Operating Standardized Amounts (62 Percent Labor Share/38 Percent Non-Labor Share if Wage Index is Less Than or Equal to 1)  

Full Update (1.90 Percent)	Reduced Update (-0.10 Percent)
Labor-related	Non-labor-related	Labor-related	Non-labor-related
$3,230.04	$1,979.70	$3,1664.64	$1,940.85

 

ACA Provisions

The final rule continues to implement the ACA changes listed below:

• Hospital quality initiatives. CMS is adopting certain policies related to the upcoming Hospital Readmissions Reduction Program, the Hospital IQR Program, and the Hospital Inpatient Value-Based Purchasing Program.
• Inpatient Quality Reporting (IQR) Measure Set. The final rule also makes changes to the measures to be reported for the FY14 and FY15 payment updates. Specifically, the final rule will:
  • Retire four measures beginning with January 1, 2012, discharges
  • Suspend data collection for four measures starting with January 1, 2012, discharges
  • Add four healthcare-associated infection measures over a two-year period (one for FY14, three for FY15)
  • Add one claims-based Medicare spending per beneficiary measure
  • Add one structural measure of participation in a registry for general surgery for FY14
  • Add stroke and venous thromboembolism chart-abstracted measures for FY15

   

CMS says these changes will increase the IQR measure set to 76 measures, streamline the IQR processes, and make the IQR process less burdensome and more transparent to hospitals.

• Payments for hospitals in counties with lowest per beneficiary spending. ACA Section 1109 provides for additional payments in FYs 2011 and 2012 totaling $400 million for qualifying hospitals that are located in counties that rank in the lowest quartile nationally (risk-adjusted for age, sex, and race) for Medicare spending per enrollee. Last year, in the FY11 IPPS final rule, CMS finalized a policy to distribute $150 million to qualifying hospitals that year, and $250 million in FY12 through an annual one-time payment made by Medicare contractors. The final rule provides for CMS to distribute the remaining $250 million to qualifying hospitals in FY12. The list of qualifying hospitals and their share of these payments is on the CMS website.
• Low-volume hospital payment adjustment. ACA sections 3125 and 10314 amended the low-volume hospital payment adjustment by allowing hospitals, for FYs 2011 and 2012, to qualify for this adjustment if they are located more than 15 (rather than 25) miles from another hospital and have less than 1,600 (as opposed to 800) annual discharges of individuals entitled to benefits under Medicare Part A. In the FY11 IPPS final rule, CMS used FY09 MedPAR data (the most current data then available) to determine the FY11 low-volume payment adjustment. CMS is basing the FY12 low-volume payment adjustment on FY10 MedPAR data, the most recent data currently available.

Hospital IQR Program Quality Measures

• FY14 payment determination. CMS is finalizing the retirement of 4 measures from the FY14 measure set that was finalized in the FY11 IPPS/LTCH PPS final rule, suspending collection for 4 measures beginning with January 1, 2012, discharges, and adding the following 3 new measures for the FY14 payment determination:

1. 1 HAI measure (CAUTI) collected through the National Healthcare Safety Network (NHSN)
2. 1 claims-based measure (Medicare Spending Per Beneficiary)
3. 1 structural measure (Participation in a Systematic Clinical Database Registry for General Surgery)

As a result, there will be a total of 59 measures in the FY14 Hospital IQR measure set, but CMS will only be collecting data on 55 of those measures for purposes of the FY14 payment determination. The four measures for which CMS will not be collecting data are designated with the word “SUSPENDED.” View the quality measures for FY14.

• FY15 payment determination. CMS will retain all 59 of the measures for the FY14 payment determination for the FY15 payment determination, and add 17 new measures, which include the stroke measure set (eight measures), the venous thromboembolism (VTE) measure set (six measures), and three healthcare-associated infection measures that are currently collected by the Centers for Disease control via the National Center for Health Statistics. These measures are:

1. Methicillin-resistant Staphylococcus Aureus (MRSA) Bacteremia measure;
2. C. Difficile SIR; and
3. Healthcare Personnel (HCP) Influenza Vaccination.

As a result, there will be a total of 76 measures in the FY15 Hospital IQR measure set, but CMS will only be collecting data on 72 of the measures for purposes of the FY15 payment determination. The four measures for which CMS will not be collecting data are designated with the word “SUSPENDED.” View the quality measures for FY15.

Hospital Wage Index

• Payments for hospitals in counties with lowest per beneficiary spending. ACA Section 1109 provides for additional payments in FY11 and FY12 totaling $400 million for qualifying hospitals that are located in counties that rank in the lowest quartile nationally (risk-adjusted for age, sex, and race) for Medicare spending per enrollee. In last year’s IPPS final rule, CMS finalized a policy to distribute $150 million to qualifying hospitals in FY11 and $250 million in FY12 through an annual one-time payment made by Medicare contractors. The final rule provides for CMS to distribute the remaining $250 million to qualifying hospitals in FY12. The list of qualifying hospitals and their share of these payments is on the CMS website.
   
• Low-volume hospital payment adjustment. ACA sections 3125 and 10314 amended the low-volume hospital payment adjustment by allowing hospitals, for FYs 2011 and 2012, to qualify for this adjustment if they are located more than 15 (rather than 25) miles from another hospital and have less than 1,600 (as opposed to 800) annual discharges of individuals entitled to benefits under Medicare Part A. In the FY11 IPPS final rule, CMS used FY09 MedPAR data (the most current data then available) to determine the FY11 low-volume payment adjustment. CMS is basing the FY12 low-volume payment adjustment on FY10 MedPAR data, the most recent data currently available.

Changes to MS-DRG Classifications

CMS is finalizing the following four changes to the Medicare severity diagnosis-related group (MS-DRG) classifications:

• Excisional debridement. CMS is removing these cases from their current MS-DRG and assigning them to three new MS-DRGs that would still be classified as operating room procedures but would provide for a lower payment that is “better aligned” with costs.
• Autologous bone marrow transplant. Autologous bone marrow transplants are currently assigned to MS-DRG 015, with no “severity” adjustment to account for complications or comorbidities. CMS is creating two new MS-DRGs, one for autologous bone marrow transplants with complications or comorbidities (CC), and one for these transplants in the absence of any CC.
• Rechargeable dual array deep brain stimulation system. CMS is moving the codes for rechargeable dual array deep brain stimulation to MS-DRGs 023 and 024 (craniotomy with major device implant/acute complex CNS PDX with complications or comorbidities [MS-DRG 023] and without complications or comorbidities [MS-DRG-024]).
• Thoracic aneurysm repair. CMS is moving two codes that either repair a thoracic aneurysm or place a stent from MS-DRGs 237 and 238 (major cardiovascular procedures with major CC (MCC) or thoracic aortic aneurysm repair and without MCC to the higher paying MS-DRGs 219 and 221 (cardiac valve and other major cardiothoracic procedure without cardiac catheterization with MCC or CC, and without CC).

The table below compares the current MS-DRG (FY11) weights to those for FY12 for all MS-DRGs having 100,000 or more discharges.

MS-DRG	Description	FY11 Weight	FY Final 2012 Weights	Percent Difference
65	Intracranial hemorrhage or cerebral infarction w CC	1.1667	1.1485	-1.56
190	Chronic obstructive pulmonary disease w MCC	1.1924	1.1684	-2.01
191	Chronic obstructive pulmonary disease w CC	0.9735	0.9628	-1.10
192	Chronic obstructive pulmonary disease w/o CC/MCC	0.7220	0.7081	-1.93
193	Simple pneumonia & pleurisy w/MCC	1.4796	1.4948	1.03
194	Simple pneumonia & pleurisy w/CC	1.0152	1.0026	-1.24
247	Perc cardiovasc proc w drug-eluting stent w/o MCC	1.9691	1.9828	.070
287	Circulatory disorders except AMI, w card cath w/o MCC	1.0879	1.0743	-1.25
291	Heart failure & shock w/MCC	1.4943	1.5010	0.45
292	Heart failure & shock w/CC	1.0302	1.0214	-0.85
293	Heart failure & shock w/o CC/MCC	0.6853	0.6756	-1.42
309	Cardiac arrhythmia & conduction disorders w/CC	0.8387	0.8155	-2.77
310	Cardiac arrhythmia & conduction disorders w/o CC/MCC	0.5709	0.5608	-1.77
312	Syncope & collapse	0.7172	0.7139	-0.46
313	Chest pain	0.5499	0.5434	-1.18
378	G.I. hemorrhage w/CC	1.0274	1.0238	-0.35
392	Esophagitis, gastroent, & misc digest disorders w/o MCC	0.7173	0.7421	3.46
470	Major joint replacement or reattachment of lower extremity w/o MCC	2.1039	2.0866	-0.82
603	Cellulitis w/o MCC	0.8377	0.8444	0.80
641	Nutritional & misc metabolic disorders w/o MCC	0.6916	0.6988	1.04
682	Renal Failure w/MCC	1.6407	1.6410	0.02
683	Renal Failure w/CC	1.0243	1.0183	-0.59
690	Kidney & urinary tract infections w/o MCC	0.7864	0.7870	0.08
871	Septicemia or severe sepsis w/o MV 96+ hours w MCC	1.9074	1.9090	0.08
872	Septicemia or severe sepsis w/o MV 96+ hours w/o MCC	1.545	1.1339	-1.78

 

New Technology Add-On Payments

CMS is not approving any applications for new technology add-on payments this year because the agency found that the applicants did not meet the statutory newness, cost, and substantial clinical improvement criteria. However, CMS is extending through FY12, the new technology add-on payment for the AutoLITT™, an MRI guided treatment for the removal of brain tumors.

Other Provisions

• Excluding hospice discharges from the disproportionate share hospital (DSH) adjustment and indirect medical education adjustment. Medicare beneficiaries can receive inpatient hospice care in a hospital under certain circumstances, such as hospitalization for pain control and symptom management and respite care needed to provide temporary relief to family members or other caretakers. The final rule excludes from the Medicare DSH adjustment patient days and bed days for inpatient hospice services because these patients are not receiving acute care services payable under the IPPS. For the same reason, the final rule excludes such bed days from the calculation of available bed days for the indirect medical education adjustment.
• Clarifying payment policy for replacement of recalled devices. CMS reduces payment under both the IPPS and the Outpatient Prospective Payment System (OPPS) for replacing an implanted device that has been recalled if the hospital receives a credit from the device manufacturer equal to 50 percent or more of the cost of the device. The final rule clarifies that, as in the OPPS “partial credit” policy, the relevant device cost is the cost of the replacement device, not the cost of the original device.
• Finalizing redistribution of graduate medical education (GME) caps. In the CY11 hospital outpatient PPS final rule, CMS implemented ACA section 5503, which provides for reductions in the statutory full time equivalent (FTE) resident caps for purposes of determining direct and indirect GME payments under Medicare for certain hospitals, and authorizes a “redistribution” to hospitals of the estimated number of FTE resident slots resulting from the reductions. Section 203 of the Medicare and Medicaid Extenders Act of 2010 further amended section 1886(h)(8) of the Act to provide for FTE resident cap reduction determinations based on the aggregate experience of hospitals that are part of a Medicare GME affiliated group. CMS issued an interim final rule with comment on March 14, 2011, to implement section 203, and is finalizing the interim final rule with comment in the final rule.
• IME multiplier. The IME formula multiplier for FY12 to be used in the calculation of the IME adjustment will be 1.35, which CMS estimates will result in an increase in IPPS payments of 5.5 percent for every approximately 10 percent increase in the hospital’s resident-to-bed ratio.

Long-Term Care Hospital Updates for FY12

Medicare payments to long-term care hospitals (LTCHs) in FY12 are projected to increase by $126 million or 2.5 percent.

Changes to the MS-LTC-DRGs for FY12

The FY11 market basket estimate for the LTCH PPS is 2.9 percent. Like the IPPS rates, the final LTCH rates are reduced by a productivity factor of 1.0 percent, and an ACA reduction of 0.1 percent. The net update is 1.8 percent. The standardized federal rate for FY12 is $40,222.05 versus the current rate of $39,599.95. The fixed-loss outlier amount is $17,931 for FY12. The current amount is $18,785. The labor-related share in FY12 will be 70.199 percent. The current labor-related share is 75.271 percent. The FY12 LTCH wage index values are presented in Table 12A (for urban areas) and Table 12B (for rural areas) in the Addendum.

New Quality Reporting Program for LTCHs

CMS is establishing the framework for a new quality reporting program for LTCHs that will affect payment determinations beginning in FY14, as required by the ACA.

Clarifying Average Length of Stay Requirements

LTCHs are defined generally as hospitals that have an average length of stay (ALOS) greater than 25 days. The final rule clarifies two existing policies related to the calculation of ALOS. First, it clarifies that both traditional Medicare fee-for-service program stays and beneficiary days paid for under Medicare Advantage are included in the determination of whether an LTCH meets the greater than 25 days ALOS requirement. Second, the final rule clarifies CMS policy regarding the evaluation of whether an LTCH (either an LTCH under formation or an existing LTCH) meets the greater than 25 days ALOS requirement when a change of ownership occurs. The policy generally precludes a hospital with less than a 25 day ALOS from gaining or retaining LTCH status through repeated changes of hospital ownership.

Extension of Moratoria on Establishing LTCHs or Increasing Number of Beds

The Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) imposed a moratorium on the establishment or classification of new LTCHs and LTCH satellite facilities, as well as a moratorium on increasing the number of beds in existing LTCHs and LTCH satellite facilities subject to specific exceptions. The ACA extended both moratoria for an additional two-year period. CMS is clarifying that the moratorium extends to bed increases in LTCHs and LTCH satellite facilities that were exempted from the original MMSEA moratorium, because, at that time, they had expansions already underway.

Tables

CMS is no longer providing the tables in the published version. Tables are now available only on the CMS web site at:
https://www.cms.gov/AcuteInpatientPPS/FR2012/itemdetail.asp?filterType=none&filterByDID=99&sortByDID=1&sortOrder=ascending&itemID=CMS1250520&intNumPerPage=10.’

More Information

The proposed rule will be published in the August 18, 2011, Federal Register.

View the final rule, on display at the Federal Register web site.

http://www.ofr.gov/OFRUpload/OFRData/2011-19719_PI.pdf