iProtean—CMS Payments to Hospitals Will Increase $1.2 Billion in FY 2014

Medicare inpatient operating payment rates for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program will increase by 0.7 percent in FY 2014. For the 3,400 hospitals that participate in the inpatient prospective payment system (IPPS), this represents an approximate increase of $1.2 billion in 2014. CMS confirmed the increase in a final rule released August 2. (“CMS Issues FY 2014 IPPS Rule,” Health Lawyers Weekly, August 09, 2013)


The IPPS payment update is based on a 2.5 percent market basket update adjusted downward due to a number of factors:

  • A 0.5 percentage point productivity adjustment reduction
  • A 0.3 percentage point cut mandated by the Affordable Care Act (ACA)
  • A 0.8 percentage point reduction required by the American Taxpayer Relief Act of 2012 (this statute requires CMS to recoup $11 billion over the next four years)
  • A 0.2 percentage point cut to offset projected increases from changes to admission and medical review criteria for inpatient services.

(“Final Rule Increases IPPS Payments, But Does Not Address Key Hospital Concerns,” HFMA, August 5, 2013)


The rule finalizes a proposal that hospital inpatient admissions spanning at least two midnights would presumptively qualify as appropriate for payment under Medicare Part A. Hospital inpatient admissions spanning less than two midnights (that is, less than one Medicare utilization day) would presumptively be inappropriate for payment under Part A.


Specifically, surgical procedures, diagnostic tests, and other treatments generally are appropriate for inpatient hospital admission and Medicare Part A payment when the physician (1) expects the beneficiary to require a stay that crosses two midnights and (2) admits the beneficiary to the hospital based on that expectation, according to the CMS fact sheet. The timeframe to determine the expectation of a stay spanning two midnights begins when the beneficiary starts receiving services in the hospital, including outpatient observation services or services in an emergency department, operating room or other treatment area. (“CMS Issues FY 2014 IPPS Rule,” Health Lawyers Weekly, August 09, 2013)


The time a patient spends as an outpatient before the formal inpatient admission order is not inpatient time, but the physician and Medicare review contractor “may consider this period when determining if it is reasonable and generally appropriate to expect the patient to stay in the hospital at least two midnights as part of an admission decision,” the fact sheet noted.


The final rule also emphasizes the importance of documentation in the medical record to support a reasonable expectation of the medically necessity of a stay lasting at least two midnights.


Other parts of the final rule include:

  • Allowing additional Medicare Part B payment when a Part A claim is denied because the patient should have been treated as an outpatient rather than admitted to the hospital as an inpatient.
  • Implementation of Section 3133 of the ACA, reducing the Medicare disproportionate share hospital (DSH) adjustment to reflect the expected reduction in uncompensated care as more individuals gain insurance coverage
  • Changes to quality programs mandated by the ACA, including the Hospital-Acquired Conditions (HAC) Reduction Program; the Hospital Value-Based Purchasing and Readmissions Reduction programs; the IQR program; the Inpatient Psychiatric Facility Quality Reporting and LTCH Quality Reporting programs; and the PPS-Exempt Cancer Hospital Quality Reporting Program.


To view the CMS fact sheet on the final rule, click here.


For the CMS fact sheet on the quality provisions specifically, click here.



iProtean subscribers, watch for two upcoming advanced Finance courses on a portfolio approach to making difficult decisions about programs and services. These courses feature Marian Jennings, Lisa Goldstein and Nate Kaufman and will be released later this year.


For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


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