Medicare payment rule promotes improved hospital care, patient outcomes

August 9, 2011

On August 1, the Centers for Medicare & Medicaid Services issued a final rule that will update Medicare payment policies and rates for hospitals in fiscal year 2012.

On August 1, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that will update Medicare payment policies and rates for hospitals in fiscal year (FY) 2012.

The final rule, which will affect Medicare payments to general acute-care hospitals and long-term-care hospitals for inpatient stays, supports efforts to promote ongoing improvements in hospital care that will lead to better patient outcomes while addressing long-term growth of healthcare costs, said CMS Administrator Donald M. Berwick, MD.

“The final rule continues a payment approach that encourages hospitals to adopt practices that reduce errors and prevent patients from acquiring new illnesses or injuries during a hospital stay,” said Berwick. “This approach is part of a comprehensive strategy being implemented across Medicare’s payment systems that is intended to reduce overall costs by improving how care is delivered.”

The final rule updates payment policies and rates for acute-care hospitals paid under the Inpatient Prospective Payment System (IPPS), as well as for hospitals paid under the Long Term Care Hospital Prospective Payment System (LTCH PPS). The final rule also strengthens the Hospital Inpatient Quality Reporting (IQR) program by placing greater emphasis on preventing healthcare-associated infections in general acute-care hospitals and establishes the framework for a new quality-reporting program that will apply to hospitals paid under the LTCH PPS.

To provide hospitals with an incentive to reduce preventable hospital readmissions and improve coordination of care, the Affordable Care Act requires CMS to implement a Hospital Readmissions Reduction Program that, beginning in FY 2013 for discharges on or after Oct. 1, 2012, will reduce payments to certain hospitals that have excess readmissions for certain select conditions. CMS’s final rule finalizes readmissions measures for 3 conditions, acute myocardial infarction or heart attack, heart failure, and pneumonia, and provides the methodology that will be used to calculate excess readmission rates for these conditions.

The final rule also adopts Medicare spending per beneficiary as a measure for both the hospital IQR Program and the new hospital Inpatient Value-Based Purchasing (VBP) program required by the Affordable Care Act.

The final rule will be effective for discharges occurring on or after Oct. 1, 2011, unless otherwise specified in the rule. It will increase payments to general acute-care hospitals under the IPPS by 1.1%, compared to a 0.55% reduction in the proposed rule, and will increase payments to LTCHs by 2.5%, compared to 1.9% in the proposed rule.

The rule also finalizes the payment update that is used to calculate FY 2012 target amounts for certain hospitals excluded from the IPPS, such as cancer and children’s hospitals, and religious nonmedical healthcare institutions.

The final rule will appear in the Aug. 18, 2011 Federal Register.