Medicare Hospital Payments Will Increase Less than Expected in 2016

Medicare’s inpatient prospective payments (IPPS) will increase 0.9 percent in fiscal year (FY) 2016, down from the projected 1.1 percent increase noted by CMS in April this year. Capital payments also will increase by 2.3 percent in FY 2016. The final rule was released July 31 and will take effect October 1.


According to a CMS fact sheet, “The increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and demonstrate meaningful use of certified electronic health record (EHR) technology . . . reflects the hospital market basket update of 2.4 percent adjusted by -0.5 percentage points for multi-factor productivity and an additional adjustment of -0.2 percentage points in accordance with the Affordable Care Act.” CMS noted that as happened last year, the rate is further decreased by 0.8 percentage points due to an adjustment required by the American Taxpayer Relief Act of 2012. (“Fiscal Year 2016 Final Inpatient and Long-term Care Hospital policy and payment changes,”, July 31, 2015)


Quality drove some of the components in the final rule. For example,

  • Hospitals not successfully participating in the IQR Program and not submitting required quality data: a one-fourth reduction of the market basket update
  • Hospitals not a meaningful user of EHR: a one-half reduction of the market basket update
  • Continued penalties for readmissions
  • A -1 percent penalty for hospitals in the worst performing quartile under the Hospital Acquired Condition Reduction Program
  • Continued bonuses and penalties for hospital value-based purchasing



No Extension of Two-Midnight Rule


Enforcement of the two-midnight rule has been repeatedly delayed since it took effect in October 2013.But the final rule doesn’t extend the partial enforcement delay, even though CMS recently published changes to the two-midnight policy in the proposed rule for 2016. (See iProtean blog for July 8, 2015, “Proposed Changes to Two-Midnight Rule Generate Optimism, Praise”).


The proposal would allow Medicare Part A reimbursement of short inpatient hospital stays spanning less than two midnights on a “case-by case basis” if the admitting physician documents the medical necessity of the admission. The proposed changes, if finalized, wouldn’t take effect until January 1, 2016. (“Medicare Payments to Hospitals Increase by 0.9% in FY 2016, AHLA Weekly, August 7, 2015)


To read the CMS Fact Sheet, click here.



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