Fact Sheets


For Immediate Release: Tuesday, August 01, 2006
Contact: CMS Media Relations


On August 1, 2006, the Centers for Medicare & Medicaid Services (CMS) issued the hospital inpatient prospective payment system (IPPS) final rule for fiscal year (FY) 2007. 


  • estimates FY 2007 operating and capital payments for hospitals under the Medicare program will increase by $3.4 billion, with payment rates increasing by 3.5 percent on average to all hospitals.  Payments for cardiac specialty hospitals will increase less than the national average (only 1.2 percent in FY 2007) because of the refinements we are making to improve payment accuracy.


  • The final rule also implements a number of changes made by the Deficit Reduction Act of 2005 (DRA) that will promote higher quality and more efficient care in our nation’s hospitals.


  • CMS is also improving the accuracy of Medicare’s payment for inpatient stays by setting the payment rates for different services using hospital costs rather than charges and by adjusting payment to better account for the severity of the patient’s condition.    These changes are discussed in a related fact sheet.


Hospital Quality Data


The final rule implements a DRA provision that requires hospitals to report additional quality measures to receive an update in rates equal to full market basket rate of increase.   Hospitals that report quality data will receive the full market basket increase to their payment rates, while those hospitals that do not report quality data will receive 2.0 percentage points less than the market basket.  Payment rates will increase 2.0 percentage points less than the market basket if hospitals do not report quality data.  The final rule indicates that hospitals must pledge to provide the additional quality measures beginning July 2006 to receive the full update. 


  • Hospitals must now report on the 20 Hospital Quality Alliance (HQA)-approved measures currently reported on Hospital Compare, as well as the additional HQA-approved measure, influenza vaccination, that will be added to the reported set during 2007.    


  • The HQA recently endorsed reporting a full set of measures, including patients' perspectives of their hospital care, measures of outcomes of care for common conditions like heart attacks, and additional measures related to preventing surgical complications.  Public reporting of some of these new measures is expected to begin from mid- to late 2007.  Given the DRA mandate to continue to expand the measures that hospitals report, CMS is currently evaluating how to incorporate these measures into its hospital reporting initiative for inclusion in the annual payment updates in future years.  We would expect hospitals to begin reporting these measures soon enough to include in the FY 2008 annual payment update.


Transparency of Quality and Cost Information


The proposed rule laid out several potential options for making pricing and quality information available to the public in order to foster comment on ways to promote the aims of transparency of pricing and quality information. 


  • The proposed options included publishing the rates that CMS pays to individual hospitals for every diagnosis-related group (DRG) or for selected DRGs. CMS received over a hundred comments regarding our transparency proposals and we found the comments to be extremely helpful and constructive as we work towards providing more effective information related to hospital quality and cost information, and crafting policies that will promote transparency in the health care system.


  • In pilot programs in communities around the country, and as part of privately-led collaborative efforts to improve quality, CMS is supporting the development of much more comprehensive cost and quality information, including on hospital care.   In particular, CMS is supporting pilot programs in Boston , Indianapolis , Minneapolis-St. Paul, Wisconsin , Phoenix , and California , in conjunction with the Hospital Quality Alliance and Ambulatory Care Quality Alliance, to identify and implement effective ways of providing better information on quality and improving quality.


New Medical Services and Technologies


CMS approved new technology add-on payments for an innovative new treatment for back pain in this final rule.   The technology—the X STOP Interspinous Process Decompression System—relieves pain, numbness and weakness caused when nerves coming from the spinal cord become compressed.  The device prevents the patient’s nerves from being compressed while preserving motion.  It is the first technology to offer a minimally invasive alternative to conservative treatments (exercise, physical therapy and medication) and major back surgery. 


CMS will continue to make add-on payments in FY 2007 for two technologies that were approved for new technology payments in FY 2006: Restore® Rechargeable Implantable Neurostimulator and the GORE TAG.  Restore® successfully treats chronic intractable pain using a rechargeable battery allowing the patient to avoid additional surgeries to replace it.  GORE TAG provides an endovascular treatment for thoracic aortic aneurysms and avoids the need for open heart surgery.


Emergency Medical Treatment and Labor Act (EMTALA) Technical Advisory Group


Section 945 of the Medicare Modernization Act (MMA) directed the Secretary to convene a Technical Advisory Group (TAG) to review issues related to EMTALA and its implementation.   In this rule, CMS is finalizing two revisions to current regulations recommended by the EMTALA TAG. 


  • CMS is modifying the current requirement under which only a physician is authorized to determine that a pregnant woman having contractions is in false labor.   As recommended by the TAG, CMS will allow hospitals the flexibility to use certified nurse-midwives or other qualified non-physicians acting within their scope of practice, as defined in hospital medical staff bylaws and State law.


EMTALA Requirements and Specialty  Hospitals


Over the past year, CMS has considered how provisions of EMTALA should apply to specialty hospitals.   CMS held a special Open Door Forum to solicit comments on this issue.  Additionally, the EMTALA TAG was asked to consider: (1) whether there should be a Federal requirement that all hospitals must have an emergency department; (2) whether EMTALA should be interpreted as meaning that all hospitals (including specialty hospitals) with specialized capabilities or facilities must accept appropriate transfers; and (3) whether specialty hospitals are exacerbating problems with “on-call” coverage for emergency departments. 


  • After taking into account the EMTALA TAG’s deliberations and public comments from the EMTALA TAG meeting and the Open Door Forum, CMS does not currently intend to recommend to Congress that all hospitals must have an emergency department; or require, as a condition of Medicare participation, that all hospitals have an emergency department.  Furthermore, CMS is not proposing, at this time, any statutory or regulatory changes regarding on-call requirements.


  • However, CMS is requiring that all Medicare-participating hospitals with specialized capabilities, including specialty hospitals, must accept appropriate transfers of unstable individuals, regardless of whether the hospital with specialized capabilities has an emergency department.   CMS has, in the past, taken enforcement actions based on its policy that all participating hospitals with specialized capabilities have an EMTALA obligation to accept an appropriate transfer of an unstable individual protected by EMTALA.


Medicare  Dependent Hospital (MDH) Program


The MDH program was set to expire at the end of FY 2006.  However, the DRA extended the program through 2011 and made several improvements to it.  The final rule implements the DRA provisions that are projected to increase payments to MDHs by 14 percent in FY 2007.


Graduate Medical Education (GME)


The Social Security Act provides that IPPS hospitals that have residents in an approved GME program receive an additional payment for each Medicare discharge to reflect the higher indirect patient care costs of teaching hospitals relative to non-teaching hospitals.   These payments—called indirect medical education—are based in part on the number of residents that a hospital trains.  Hospitals also receive direct graduate medical education payments (GME) from Medicare to subsidize a portion of resident salaries, teaching physician and other direct costs associated with training residents.  These payments are also based in part on the number of residents a hospital trains. 


  • CMS is finalizing a clarification of current policy that, with respect to residency training in non-hospital settings, only the time residents spend in patient care activities may be counted for purposes of direct GME and IME payments; and with respect to training in the hospital, residents training in all areas of the hospital complex may be counted for direct GME purposes, but may only be counted for IME purposes when the residents are involved in patient care activities in the inpatient portion of hospital subject to the IPPS or the outpatient department.


  • In addition, for cost reporting periods beginning on or after October 1, 2006, we are implementing a “one workday” approach to documentation of residents’ time, where, if a resident’s workday consists entirely of scheduled non-patient care activities, that workday must be identified as non-patient care time and must be subtracted from the allowable count of residents (for IME, if the training occurred in the hospital complex, and for both IME and direct GME, if the training occurred in a non-hospital site).


Hospitals within Hospitals (HwHs)


CMS proposed to revise the regulations applicable to HwHs to allow for increases or decreases in square footage, or decreases in the number of beds if these changes are made necessary by relocation of a hospital to permit construction or renovation necessary to comply with Federal, State, or local law affecting the physical facility or because of catastrophic events such as fires, floods, earthquakes, or tornadoes.  CMS also proposed to revise the regulations applicable to grandfathered HwHs and satellites of excluded hospitals and units to permit decreases in square footage and/or the number of beds.


  • In the final rule, CMS is revising the regulations for grandfathered HwHs, grandfathered satellites of excluded hospitals, and grandfathered satellites of excluded units to allow these facilities to increase or decrease their square footage, or decrease their number of beds, without jeopardizing their grandfathered status. 


  • Under the final rule, such changes could be undertaken for any reason and would not be limited to situations involving changes in Federal, State, or local laws or catastrophic events.   Such changes also would not be limited to cases in which a facility must be relocated.


Geographic Reclassification


CMS calculates a wage index for specific geographic areas that reflects how average hospital wages in each geographic area compare to average hospital wages nationally.   Hospitals can reclassify in order to be paid using another area’s wage index if they believe that they compete for labor with a different area than the one in which they are located.


Section 508


Section 508 of the MMA required the Secretary to develop a one-time special reclassification procedure that allowed hospitals meeting specified criteria to be reclassified to another geographic area for purposes of their Medicare inpatient payments from April 1, 2004 through March 31, 2007.    Because section 508 geographic reclassifications end in the middle of a fiscal year, it created some technical complexities for transitioning from the special one-time reclassification to those that occur under the normal provisions of the Social Security Act.  We established special procedural rules last year that allowed for ½ year geographic reclassifications after the expiration of section 508 next year.  The public comments “greatly appreciated and supported” CMS’ flexibility regarding transitioning Section 508 to normal reclassifications. 


Labor Market Areas for Group Reclassifications


For county-wide group reclassifications, our rules specified that the applicant can only be reclassified to another labor market area within the same the Combined Statistical Area (CSA).  We proposed to allow for urban county group reclassifications to other labor market areas within the same Core-Based Statistical Area (CBSA) as well as the same CSA.  The final rule will allow reclassifications between West Palm Beach , Miami and Fort Lauderdale —the only area of the country that has metropolitan divisions that is not currently permitted to reclassify.  The public comments supported this change in policy.


Competitive Acquisition Program (CAP) for Part B Drugs


In an interim final rule with comment (IFC) published last year, CMS required that sales of units of CAP drugs be excluded from the ASP calculation for the first three years of the CAP and specified the method for counting units excluded units of CAP drugs administered to a beneficiary by a participating CAP physician. There were no comments on this IFC. However, pharmaceutical manufacturers and the approved CAP vendor have subsequently raised the concern that this rule is unworkable and overly burdensome because there are certain circumstances in which a drug could be sold for CAP purposes but then be very difficult to track to determine if it was actually administered (e.g., in the case of a drug supplied under the CAP’s emergency restocking provision).  To report ASPs accurately, manufacturers would have to develop the means for obtaining information from participating CAP physicians on the administration status of units of CAP drugs. After considering these concerns, the current IFC changes the definition of unit so that the method of counting units, for the first three years of the CAP, excludes units of CAP drugs that are sold to an approved CAP vendor for use under the CAP.



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