Quality and Cost Reduction are Focus of New IPPS Rule

CMS has issued an advanced release of its hospital inpatient payment policy and changes for Fiscal Year (FY) 2015, which will strengthen the connection between care quality and Medicare payments received by approximately 3,400 general acute care and 435 long-term care hospitals (LTCHs). The final rule includes a payment rate update of 1.4 percent for acute care hospitals and an update of 1.1 percent for LTCHs. Despite the payment updates, CMS projects overall Medicare payments to inpatient hospitals will decrease by $756 million in FY 2015. The most significant provisions of the final rule are focused on improving the quality of care in hospitals by reducing hospital payments for readmissions and hospital acquired conditions (HACs).

Value-Based Purchasing

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) Value-Based Purchasing Program, adjusts hospital payments under the Inpatient Prospective Payment System (IPPS) relative to the quality of care furnished by the hospital. The amount CMS is taking back from base operating diagnosis-related group (DRG) payments, in order to disperse among participating hospitals with the highest quality is rising from 1.25 percent of DRG payments to 1.5 percent of DRG payments. The amount of quality care incentives to be dispersed among hospitals will be $1.4 billion for FY 2015.

Readmissions and Acquired Conditions

Payment reductions under the Hospital Readmissions Reduction program will increase from 2 to 3 percent to motivate increased inpatient care quality and reduce unnecessary hospital readmissions. The HAC program developed by the ACA will begin operation in FY 2015 and will reduce payments by 1 percent for hospitals with the highest number of HACs. Under the HAC program, Medicare limits reimbursement to hospitals for conditions that were reasonably preventable after the beneficiary was admitted to a hospital. The program negatively impacts hospitals that score in the lowest 25 percentile for HACs.

Wage Index

CMS is required to adjust its IPPS payments based upon geographic differences in labor costs. CMS is going to use the most recent labor market area delineations issued by The Office of Management and Budget (OMB) in its wage index for FY 2015. However, CMS is going to implement a transition into the use of the new OMB delineations by using a blend of the old and new wage index. The new wage index will take full effect in FY 2016.

Other Changes

The Final rule includes a reminder to hospitals that the ACA aimed to promote pricing transparency. CMS recommends that in order to comply with statutory requirements, hospitals make public a list of their standard charges or make such a list available upon inquiry. The Final rule also imposes changes to the Inpatient Quality Reporting (IQR) program, which previously reduced a hospital’s applicable payment percentage increase by two points if the hospital did not participate successfully in the IQR program. Under the new rule, the reduction for failure to participate successfully in the IQR program will be a reduction of one quarter of a hospital’s annual payment increase.