Fact sheet

Medicare Issues Payment Upades and Policy Changes for Inpatient Psychiatric Facilities

Medicare Issues Payment Updates and Policy Changes for Inpatient Psychiatric Facilities

OVERVIEW: On July 31, 2014 the Centers for Medicare & Medicaid Services (CMS) issued the Inpatient Psychiatric Facilities Prospective Payment System (IPF PPS) final rule for fiscal year (FY) 2015.  

The IPF PPS applies to inpatient psychiatric facilities across the United States, including both freestanding psychiatric hospitals and psychiatric units of acute care hospitals or critical access hospitals. The updated rates would generally be effective for discharges occurring on or after October 1, 2014.  Under the final rule, payments to IPFs are estimated to increase by 2.5 percent compared to FY 2014.

The final rule also updates the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program, which requires IPFs to report on quality measures or incur a reduction in their annual payment update.  This rule expands the measure sets for use in future fiscal years and discusses CMS’s plans to collect data to help better target future measures.  

BACKGROUND ON IPF PPS.  Medicare pays an estimated $4.6 billion per year on a per diem basis to 1,626 IPFs for the routine, ancillary, and capital costs associated with furnishing covered inpatient psychiatric services.  The IPF PPS base rate is adjusted to account for patient and facility characteristics that contribute to higher costs per day including age, diagnosis-related group assignment, comorbidities, length of stay, geographic wage area, rural location, teaching status, costs of living adjustment factors for IPFs in certain localities, and presence of a full-service emergency department.  The IPF PPS methodology includes a payment adjustment for interrupted stays, additional payments for outlier cases, and a per treatment adjustment for electroconvulsive therapy (ECT) treatments.  

BACKGROUND ON IPFQR.  The IPFQR Program is a pay-for-reporting program established by the Affordable Care Act (ACA) and added to the Social Security Act.  The program currently requires participating facilities to report on six quality measures or incur a two percentage point reduction in their annual payment update.  In August 2013, two additional measures were added to the program for FY 2016 reporting and beyond.  

On April 17, CMS announced that, for the first time, quality measures from inpatient psychiatric facilities will be publicly reported on Hospital Compare, a consumer-oriented website that provides information on the quality of care hospitals are providing to their patients.  Hospital Compare will feature data from inpatient psychiatric facilities on patient care for the period of October 1, 2012 through March 31, 2013.  Public reporting will allow consumers to directly compare facilities based on data collected.   


The following routine annual updates are included in the final rule:

Federal Per Diem Base Rate Update:  The total payment rate update is 2.1 percent.  This is comprised of a rehabilitation, psychiatric, and long-term care market basket increase of 2.9 percent, an ACA-required reduction of 0.3 percentage point, and an ACA-required productivity adjustment reduction of 0.5 percentage point.  

Wage Index:  The wage index budget neutrality factor is 1.0002.  CMS determined this by using the core-based statistical area wage index values (the FY 2014 pre-floor, pre-reclassified hospital wage index) and the labor-related share applied to the most current hospital wage data in a budget neutral manner.

Federal Per Diem Base Rate:  CMS is increasing from the current base rate of $713.19 to a FY 2015 rate of $728.31.

Outlier Fixed-Dollar Loss Threshold Update:  CMS is updating the FY 2014 fixed-dollar loss threshold amount of $10,245 to a FY 2015 rate of $8,755, in order to maintain a 2.0 percent outlier percentage.

ECT Payment Update:  CMS is increasing the current rate of $307.04 to a FY 2015 ECT rate of $313.55.

Cost of Living Adjustment (COLA):  CMS is adopting the IPPS/LTCH PPS new methodology (established in the FY 2013 IPPS/LTCH PPS final rule, and finalized in FY 2014 IPPS rule) for updating the COLA factors for IPFs in Alaska and Hawaii.  

Additional update in the final rule:

Discussion of Stand-alone IPF Market Basket for FY 2016:  CMS is not setting a new policy for FY 2015 but intends to continue research on an IPF-specific market basket for FY 2016.

ICD-10-CM/PCS Conversion  

Under the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), ICD-10 CM/PCS implementation was barred prior to October 1, 2015.  On May 1, 2014, the Department of Health and Human Services announced a new compliance date for ICD-10 of October 1, 2015, to be established in an upcoming interim final rule.  In advance of this implementation date, CMS will implement the proposed conversion of ICD-9-CM to ICD-10-CM for the 17 IPF PPS comorbidity categories, for which the IPF PPS provides a comorbidity adjustment, in advance of the new implementation date for ICD-10.

CMS will implement the proposal to remove site-unspecified codes in instances when a more specific code is available or when the clinician should be able to identify a more specific diagnosis based on clinical assessment.  
Specifically, CMS will implement the proposed the elimination of 156 ICD-10-CM codes for nonspecific conditions in the following areas:

  • Oncology – 93 ICD-10-CM site-unspecified codes.
  • Gangrene – 6 ICD-10-CM site-unspecified codes.
  • Severe Musculoskeletal and Connective Tissue – 57 ICD-10-CM codes.

Impact Analysis

The estimated payments to IPFs in FY 2015 are projected to increase by 2.5 percent overall compared with the estimated payments in FY 2014.  This amount includes the effect of the 2.9 percent market basket update adjusted by the ACA-required 0.3 percentage point reduction and the productivity adjustment of -0.5 percentage point, and a 0.4 percent overall estimated increase in the IPF outlier payments from the update to the outlier fixed-dollar loss threshold amount.

IPF payments are estimated to increase 2.5 percent in urban areas and 2.3 percent in rural areas compared with estimated FY 2014 payments.  CMS estimates that IPF expenditures from FY 2014 to FY 2015 would increase by approximately $120 million.

As part of the FY 2016 and FY 2017 payment determinations, CMS increases the IPFQR measure set to 14 measures, and commits to providing additional information necessary to help ensure program integrity.

Measurement Proposals for FY 2016 Payment Determination

Two Structural Measures

  • Patient Experience of Care – requires attestation as to whether the facility conducts some type of patient experience survey.
  • Use of an Electronic Health Record – requires attestation as to which one out of a group of statements best characterizes the facility’s EHR use.

Measurement Proposals for FY 2017 Payment Determination

Two Tobacco Use Measures

  • Screening & Cessation Intervention – assesses if patients 18 and older have been a) questioned about tobacco use and b) for those patients identified as tobacco users, offered and provided tobacco cessation intervention treatment and medications.   

One Influenza Immunization Measure – assesses the percentage of inpatients that are screened and vaccinated for influenza during the October through March period.

One Healthcare Worker Immunization Measure – assesses the percentage of healthcare personnel who receive influenza vaccination during the October through March period. CMS will allow the calculation of a single measure that could be used across components in cases where hospitals report on this measure for multiple components.  

Other Changes in the Final Rule

CMS has finalized the collection of aggregate population and sampling data, along with information concerning the distribution of patient population by age, diagnosis, and payer.  This information will assist CMS in assessing these measures and will help the agency better target future measures.

The final IPF PPS rule can be downloaded from the Federal Register at:

It will be published in the August 6, 2014 Federal Register.