CMS presents payment changes for acute care facilities

May 1, 2006

Proposed changes by CMS relating to payment rates for inpatientstays would base the weights assigned to diagnosis-related groups(DRGs) on hospital costs rather than on charges and adjust the DRGsfor patient severity. CMS issued a notice of proposed rulemakingthat would begin the transition to the first significant revisionof the Inpatient Prospective Payment System (IPPS) since itsimplementation in 1983.

Proposed changes by CMS relating to payment rates for inpatient stays would base the weights assigned to diagnosis-related groups (DRGs) on hospital costs rather than on charges and adjust the DRGs for patient severity. CMS issued a notice of proposed rulemaking that would begin the transition to the first significant revision of the Inpatient Prospective Payment System (IPPS) since its implementation in 1983. The new payment system is expected to be fully implemented by fiscal year 2008. According to CMS, the estimated market basket increase of 3.4% in FY 2007 would increase payments to acute care hospitals by $3.3 billion. More than 1,000 hospitals in rural areas would see an average increase of 6.7%. CMS administrator Mark B. McClellan, M.D., said that the hospital payment reforms being proposed will mean that payments for inpatient services will more accurately reflect the costs for hospitals of providing the services. The proposed changes reflect recommendations from the Medicare Payment Advisory Commission and respond to some Congressional concerns that the existing system may create incentives for certain hospitals to cherry-pick more profitable cases.

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