Fact sheet







OVERVIEW:  On May 21, 2010, the Centers for Medicare & Medicaid Services (CMS) issued a supplemental proposed rule implementing changes in payments for inpatient stays in general acute care hospitals paid under the Inpatient Prospective Payment System (IPPS hospitals) and long-term care hospitals (LTCHs) for Fiscal Year (FY) 2011 that were required by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act).  CMS also issued a notice publicizing revised rates effective for payment years beginning October 1, 2009.  These revised rates are used to pay hospitals for discharges on or after April 1, 2010, as a result of provisions in the Affordable Care Act.


The supplemental proposed rule, which would apply to more than 3,500 acute care hospitals and approximately 420 LTCHs, would generally be effective for discharges occurring on or after October 1, 2010.  The Affordable Care Act provisions being implemented by this supplemental proposed rule include supplemental payments totaling $400 million for FY 2011 and 2012 for qualifying hospitals located in counties that rank, based on adjusted Medicare spending per beneficiary, among the lowest quartile in the country.  The supplemental proposed rule also implements provisions in the Affordable Care Act resulting in a reduction in the annual update for general acute care hospital operating payments and long term care hospitals.  The resulting change in aggregate payments across all IPPS hospitals is projected to decrease by $820 million, while payments to LTCHs in FY 2011 are projected to increase by $13 million.


BACKGROUND:  By law, CMS pays acute care hospitals for inpatient stays under the inpatient prospective payment system (IPPS) and long-term care hospitals (generally, hospitals with an average inpatient length of stay of greater than 25 days) under the long term care hospital prospective payment system (LTCH PPS).  These prospective payment systems establish prospectively set rates based on the patient’s diagnosis and the severity of the patient’s medical condition.  Medicare payments under the LTCH PPS utilize the same DRG system as the IPPS, but at a higher rate to reflect increased treatment costs at LTCHs. 


On April 19, 2010, CMS issued a proposed rule that would change FY 2011 payment rates and policies for inpatient services in acute care hospitals under the IPPS as well as inpatient stays in LTCHs under the LTCH PPS.  Although the Affordable Care Act included provisions that affect FY 2011 IPPS and LTCH payments, it was enacted too late to include its provisions in the original FY 2011 proposed rule issued by CMS.





Protection For Hospitals In Frontier States:  Section 10324 of the Affordable Care Act requires CMS to adopt a hospital wage index that is not less than 1.0 for hospitals located in frontier states, beginning in FY 2011.  Frontier states are defined in the law as states where at least 50 percent of the counties have a population density of less than six people per square mile.  CMS is proposing to base the frontier county and state determinations in the FY 2011 supplemental rule on the Annual Population Estimates from the U.S. Census.  Under this proposal, 51 IPPS hospitals in the following five states would currently benefit – Montana , Nevada , North Dakota , South Dakota , and Wyoming .  CMS is proposing to update this determination of frontier state status periodically, such as when data from the 2010 Census becomes available.  This provision will also apply to the wage index for hospital outpatient services and the practice expense geographic practice cost index under the physician fee schedule beginning in calendar year (CY) 2011.  The impact of the frontier provision on outpatient hospital and physician fee schedule services will be detailed in future rulemaking.


Additional Payments For Hospitals With Low Per Enrollee Medicare Spending:  Section 1109 of the Affordable Care Act requires CMS to make additional payments for FYs 2011 and 2012 totaling $400 million to qualifying hospitals located in counties that rank in the lowest quartile of per enrollee Medicare spending under parts A and B, adjusted for age, sex, and race.  CMS is proposing a methodology for adjusting county level per enrollee Medicare spending for age, sex, and race to determine the counties that are in the lowest quartile of per enrollee Medicare spending.  In this proposed rule, CMS published a proposed list of the counties in this quartile, the qualifying hospitals located in those counties, and the proportion of the additional payments for each qualifying hospital based on its proposed methodology.


Temporary Improvements To The Low-Volume Hospital Adjustment:  Section 3125 of the Affordable Care expands eligibility for the low-volume payment adjustment during FYs 2011 and 2012 to hospitals within 15 miles of other hospitals (instead of the current requirement of 25 miles) and with less than 1,600 discharges of individuals entitled to, or enrolled for, benefits under Part A (instead of the current statutory requirement of 800 total discharges).  The law requires the Secretary to create a sliding payment scale, with larger payments (starting at a 25 percent adjustment) going to hospitals with 200 or fewer Medicare discharges and no payment adjustment for hospitals with greater than 1600 Medicare discharges.  CMS is proposing to adopt a linear scale as follows:


Low Volume Payment Adjustment, Proposed Linear Scale


Medicare Discharge              Low-Volume Payment Adjustment

Range:                                                (% Add-On):


1          to         200                              25.0000

201      to         300                              23.3333             

301      to         400                              21.6667

401      to         500                              20.0000

501      to         600                              18.3333

601      to         700                              16.6667

701      to         800                              15.0000

801      to         900                              13.3333

901      to         1000                            11.6667

1001    to         1100                            10.0000

1101    to         1200                              8.3333

1201    to         1300                              6.6667

1301    to         1400                              5.0000

1401    to         1500                              3.3333

1501    to         1599                               1.6667

1600    or         more                              0.0000



Revisions Of Certain Market Basket Updates:The Affordable Care Act reduces the FY 2010 IPPS and LTCH PPS annual update by 0.25 percentage points.  Discharges from IPPS hospitals and LTCHs beginning on or after April 1, 2010 are paid based on revised FY 2010 standard Federal rates that reflect the 0.25 percentage point reduction.  CMS is announcing these changes in the notice being published simultaneously with the supplemental proposed rule. 


In the proposed rule issued on April 19, 2010, CMS proposed for FY 2011 an estimated full market basket update for IPPS hospitals and LTCHs, or 2.4 percent for both types of hospitals.  These updates may be revised in the final rule, based on subsequent data.  The Affordable Care Act sets the annual update for FY 2011 IPPS equal to the market basket update minus 0.25 percentage points.  The Affordable Care Act also reduces the FY 2011 LTCH PPS annual update by 0.5 percentage point for LTCHs, which results in a 0.5 percentage point reduction applied to the full market basket update. Thus, in the supplemental proposed rule for the IPPS and LTCH PPS, the proposed annual update for IPPS has been revised to 2.15 percent, and the proposed LTCH PPS annual market basket update has been revised to    1.9 percent.   Additionally, for FY 2011, CMS also is proposing a similar reduction of 0.25 percentage points to the annual update applied to the Puerto Rico specific rate under our existing authorities which would result in a proposed annual update for the Puerto Rico specific rate of 2.15 percent.  It should be noted that in the proposed rule issued on April 19, 2010, CMS proposed documentation and coding adjustments for both the IPPS and LTCH PPS that are unaffected by the Affordable Care Act.


The proposed outlier threshold for FY 2011 is $24,165 (an increase relative to the $23,970 IPPS threshold proposed in the April 19 IPPS/LTCH PPS FY 2011 Proposed Rule to reflect the reduction to the annual update under the Affordable Care Act ). 


Similarly, the proposed outlier threshold for FY 2011 is $19,254 (an increase relative to $18,692 LTCH PPS threshold proposed in the April 19 IPPS/LTCH PPS FY 2011 Proposed Rule) to reflect the reduction to the annual update under the Affordable Care Act).


Wage Index Improvement Related To Geographic Reclassification:  Section 3137 of the Affordable Care Act, extends the reclassifications authorized under section 508 of the Medicare Modernization Act of 2003 through September 30, 2010.  In addition, section 3137 of the Affordable Care Act changes the policy implemented in the FY 2009 IPPS rule that updated the average hourly wage comparison criteria used when determining reclassification eligibility, effectively restoring the average hourly wage thresholds that were in place in FY 2008.  This provision is effective for discharges beginning in FY 2011 and for each subsequent fiscal year until the first fiscal year beginning on or after the date that is one year after the Secretary submits a report to Congress on comprehensive wage index reform.  Hospitals that applied for reclassification for FY 2011 that meet the criteria under the Affordable Care Act will be granted reclassification.  There is no provision that would allow additional hospitals to apply for reclassification for FY 2011.  If a hospital wishes to request withdrawal or termination of its reclassification, that request has to be received by the Medicare Geographic Classification Review Board by June 18, 2010.  


National Budget Neutrality In The Calculation Of The Rural Floor For Hospital Wage Index: Section 3141 of the Affordable Care Act changes the policy implemented in the FY 2009 IPPS rule that established a statewide budget neutrality adjustment for the rural and imputed floors.  It requires that this budget neutrality adjustment be applied through a uniform, national adjustment, rather than on a statewide basis. This provision is effective beginning in FY 2011.



Extension of Medicare Dependent Hospitals (MDHs): Section 3124 of Affordable Care Act extends the MDH program through October 1, 2012.


Technical Correction Related To Critical Access Hospital (CAH) Services:  Prior to enactment of the Affordable Care Act, the law required CAHs which elected the optional billing method to receive 100 percent of reasonable costs for outpatient facility services.  Similarly, CAHs received 100 percent of reasonable costs for ambulance services.  Section 3128 of the Affordable Care Act changes the percentage to 101 percent of reasonable costs for outpatient facility services and ambulance services and is effective as if it had been included in the Medicare Prescription Drug Improvement and Modernization Act of 2003.


Extension Of Certain Payment Rules For LTCH Services And Of Moratorium On The Establishment Of Certain Hospitals And Facilities:  Sections 3106 and 10312 of the Affordable Care Act together extend for an additional two years certain requirements of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) affecting certain LTCHs and LTCH satellite facilities, including the prohibition on implementing payment adjustments for LTCHs whose admissions from co-located or non co-located hospitals exceed a certain percent, and the moratorium on establishing new LTCHs and LTCH satellite facilities or increasing hospital beds in existing LTCHs and LTCH satellite facilities.  Also delayed for an additional two years are the application of a specific payment adjustment for short stay outlier discharges from LTCHs, as well as the one-time adjustment to the LTCH PPS rates.


Extension Of The Rural Community Hospital Demonstration Program:  Sections 3123 and 10313 of the Affordable Care Act together extend the Rural Community Hospital Demonstration Program for five years, expand eligible sites to additional states and additional rural hospitals, and make adjustments to payment levels provided within the demonstration program.



CMS will accept comments on the Supplemental Proposed Rule until June 21, 2010.  CMS will review these comments along with comments timely received on the April 19 IPPS/LTCH PPS Proposed Rule, and respond to all comments in its final rule.



For more information, see:  :  or


Once the document is published (6/2), the link to the Federal Register will be