Fact Sheets


For Immediate Release: Friday, April 26, 2013
Contact: CMS Media Relations


OVERVIEW:  On April 26, 2013 the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would update fiscal year (FY) 2014 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital Prospective Payment System (LTCH PPS). 


The proposed rule, which would apply to approximately 3,400 acute care hospitals and approximately 440 LTCHs, would generally be effective for discharges occurring on or after October 1, 2013.  Under the proposed rule, operating rates for inpatient stays in general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program would be increased by 0.8 percent. Those that do not successfully participate in the IQR Program would receive a 2.0 percentage point reduction in the proposed increase.  Total IPPS payments (capital and operating payments) are projected to increase by $27 million.  Medicare payments to LTCHs in FY 2014 are projected to increase by approximately $62 million or 1.1 percent as compared to FY 2013 Medicare payments. 


This fact sheet discusses major payment provisions of the proposed rule.  A separate fact sheet related to quality is available at: www.cms.gov/apps/media/fact_sheets.asp.


BACKGROUND.  CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS and long-term care hospitals under the LTCH PPS. Under these two payment systems, CMS generally sets payment rates prospectively for inpatient stays based on the patient’s diagnosis and severity of illness.   A hospital receives a single payment for the case based on the payment classification—MS-DRGs under the IPPS and MS-LTC-DRGs under the LTCH PPS—assigned at discharge. 

Medicare law requires CMS to update payment rates for IPPS hospitals annually, to account for changes in the costs of goods and services used by these hospitals in treating Medicare patients, as well as for other factors.  This is known as the hospital “market basket.”  LTCHs are paid according to a separate market basket based on LTCH-specific goods and services. 


Proposed Changes to Payment Rates under IPPS.  The proposed rule would increase IPPS operating payment rates by 0.8 percent.  This reflects the hospital market basket of 2.5 percent adjusted by -0.4 percentage point for multi-factor productivity and an additional adjustment of    -0.3 percentage point in accordance with the Affordable Care Act; the rate is further decreased by 0.8 percent for a proposed documentation and coding recoupment adjustment required by the American Tax Relief Act of 2012 and by a 0.2 percent proposed adjustment to offset the cost of the proposal on inpatient admission and medical review criteria for hospital inpatient services (more detail about these adjustments is included later in this fact sheet). 

Admission and Medical Review Criteria for Inpatient Services

In the proposed rule, CMS clarifies its longstanding policy on how Medicare contractors review inpatient admissions for payment purposes.  Under this proposed rule, CMS is proposing that hospital inpatient admissions spanning at least two midnights (that is, at least more than one Medicare utilization day), will presumptively qualify as appropriate for payment under Medicare Part A.  Conversely, hospital inpatient admissions spanning less than two midnights (that is, less than one Medicare utilization day) will presumptively be inappropriate for payment under Medicare Part A. 


This presumption may be overcome by documentation in the medical record supporting the admitting physician’s expectation that the beneficiary would need care spanning at least two midnights and an unforeseen circumstance results in a shorter beneficiary stay than the physician’s expectation.    Physicians must support their expectation, and accordingly their order for admission, through clear and complete medical documentation. This proposed policy would address longstanding concerns from hospitals that they need more guidance on when a patient is appropriately treated and paid by Medicare as an inpatient.    At the same time the proposed change would help beneficiaries who in recent years have been having longer stays as outpatients because of hospital uncertainties about payment if they admit the patient to the hospital.


Documentation and Coding Adjustment.   Section 631 of the American Taxpayer Relief Act of 2012 requires CMS to recover $11 billion over the next four years to fully recoup documentation and coding overpayments for prior years. For FY 2014, CMS is proposing a negative 0.8 percent recoupment adjustment as the first step in this recovery process. CMS expects to make similar adjustments in FYs 2015, 2016, and 2017 in order to recover the full $11 billion. Once the recovery is complete, a positive adjustment will be made to remove the effects of these one-time recoupment adjustments.

Direct Graduate Medical Education (DGME).  CMS proposes to revise the GME policy addressing inpatient labor and delivery days in the inpatient Medicare utilization calculation.  CMS also proposes, for portions of cost reporting periods beginning on or after October 1, 2013, that a hospital may not claim full-time equivalent residents training at a Critical Access Hospital (CAH) for Indirect Medical Education (IME) and/or direct GME purposes.  However, if a CAH itself incurs the costs of training the full-time equivalent residents when these residents rotate to the CAH, the CAH may receive payment based on 101 percent of those Medicare reasonable costs under the regulations. 


Finally, in accordance with section 5506 of the Affordable Care Act, which redistributes residency slots from closed hospitals, CMS is notifying the public of the closure of a hospital and initiating another application and selection process to redistribute the closed hospital’s GME full-time equivalent caps.




Medicare Disproportionate Share Hospitals (DSH).  Section 3133 of the Affordable Care Act, as amended, requires that instead of the amount that would otherwise be paid, hospitals will receive 25 percent of their current Medicare DSH payments beginning in FY 2014.  The remaining 75 percent will be adjusted for decreases in the rate of uninsured individuals nationally and distributed as additional payments to hospitals that receive DSH payments based on each hospital’s share of uncompensated care relative to all hospitals that are estimated to receive DSH payments.   In the FY 2014 proposed rule, we include proposals for estimating the three factors required to determine the amount of these proposed new uncompensated care payments.


Affordable Care Act Quality-Related Provisions.  The proposed rule proposes a framework for implementation of the new Hospital-Acquired Condition Reduction Program, which would begin in FY 2015.  The proposed rule would update the measures and financial incentives in the Hospital Value-Based Purchasing (VBP) and Readmissions Reduction programs.  It would also revise measures for the Inpatient Psychiatric Facility Quality Reporting, Long-Term Care Hospital (LTCH) Quality Reporting and PPS-Exempt Cancer Hospital Quality Reporting programs.


For more information on these and other proposed quality-related provisions please see the quality fact sheet at: www.cms.gov/apps/media/fact_sheets.asp.



Market Basket. CMS proposes to revise and rebase the hospital market basket for FY 2014.  The proposed FY 2014 market basket will use FY 2010 data for the base-year cost weights in place of FY 2006 data.   


Wage Index. Medicare law requires CMS to adjust the labor-related share of the standardized amount to account for differences in area wage levels. CMS currently uses Office of Management and Budget (OMB) delineations of statistical areas to define the areas used in determining area wage levels.  On February 28, 2013, OMB announced revisions to these statistical areas based on the 2010 Census.  Because there was not sufficient time to assess the geographic changes and their ramifications to the wage index adjustment and related policies prior to issuing this proposed rule, CMS will not be using these revised statistical area definitions for FY 2014 but expects to propose using these definitions for FY 2015.


MS-DRGRelative Weight Refinement In the FY 2009 and the FY 2011 final rules, CMS created new cost centers for Implantable Devices Charged to Patients, MRIs, CT scans, and cardiac catheterization.  In those rules, we stated that we would consider creating separate cost to charge ratios (CCRs) for the new cost centers to calculate the relative weights.  We propose to implement the new cost centers for Implantable Devices, MRIs, CT scans, and cardiac catheterization for FY 2014, which would increase the total number of CCRs used to calculate the FY 2014 proposed relative weights from 15 to 19. 


Critical Access Hospitals Conditions of Participation. To ensure continued access to inpatient services, the FY 2014 proposed IPPS rule would clarify critical access hospital Conditions of Participation to require that CAHs have the capacity to provide inpatient care on-site.   


Medicare-Dependent Hospital (MDH) Program. The American Taxpayer Relief Act extended the MDH program for one additional year, through FY 2013.  The proposed rule includes the expiration of the MDH payment designation for discharges occurring on or after October 1, 2013. 


Low-Volume Hospitals.  The temporary changes to low-volume hospital definition and payment adjustment methodology provided for by the Affordable Care Act and the American Tax Relief Act for FY 2011 through FY 2013 are expiring.  Consistent with statute, CMS is proposing in FY 2014 to return the low-volume hospital definition and payment adjustment methodology that was in place prior to FY 2011, before the temporary provisions took effect.




Changes to Payment Rates under the LTCH PPS.  CMS projects that LTCH PPS payments would increase by 1.1 percent, or approximately $62 million, in FY 2014.  This estimated increase is attributable to several factors, including the proposed update of 1.8 percent for LTCHs that submitted quality data (based on a market basket update of 2.5 percent reduced by a multi-factor productivity adjustment of 0.4 percentage points and an additional 0.3 percentage points reduction in accordance with the Affordable Care Act); the “one-time” budget neutrality adjustment to standard federal rate of approximately -1.3 percent under the second year of a three-year phase-in; and projected increases in estimated high cost outlier payments as compared to FY 2013.

Twenty-Five Percent Patient Threshold Rule.  Under the 25-percent patient threshold policy, if an LTCH admits more than 25 percent of its patients from a single acute care hospital, Medicare will pay it at a rate comparable to IPPS hospitals for those patients above the 25-percent threshold.  A statutory moratorium on application of the 25-percent rule was in place from December, 2007 through December 2012.  CMS extended the moratorium for FY 2013 but would allow the policy to go into effect in FY 2014. 


Chronically Ill/Medically Complex Criteria. In the FY 2014 proposed rule, CMS includes a discussion of recent research on the development of empirically-derived criteria for the identification of the chronically critically ill/medically complex (CCI/MC) population, presently treated in general acute care hospitals and in LTCHs.  The CCI/MC population identified by the project has been shown to have intensive service needs, high costs and negative margins in IPPS hospitals.  Additionally, they typically have a predictable and consistent need for extended hospital-level care that can be met either from continued stays in the initial IPPS hospital in a step-down unit or from transfer to an LTCH. At this time, CMS is soliciting feedback on this research study and its findings with the expectation of formulating policy proposals for FY 2015. 


CMS will accept comments on the proposed rule until June 25, 2013, and will respond to comments in a final rule to be issued by August 1, 2013.  The proposed IPPS/LTCH PPS rule can be downloaded from the Federal Register at: http://www.ofr.gov/inspection.aspx?AspxAutoDetectCookieSupport=1.

It will appear in the May 10, 2013 Federal Register


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