Fact Sheets



OVERVIEW:  On April 19, 2010, the Centers for Medicare & Medicaid Services issued a proposed rule that would change payment rates and policies for inpatient services in acute care hospitals under the Inpatient Prospective Payment System (IPPS) for fiscal year (FY) 2011, beginning October 1, 2010.  The proposed rule also includes proposed payment rates and policy changes for inpatient stays in long-term care hospitals (LTCHs) under the LTCH Prospective Payment System (LTCH PPS).  In general, to qualify for payment under the LTCH PPS, the hospital�s average length of stay, taking into account all Medicare patients, must be greater than 25 days.

The 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.  Under the proposed rule, Medicare operating payments to acute care hospitals for inpatient services occurring in FY 2011 are projected to decrease by $142 million, while payments to LTCHs in FY 2011 are projected to increase by $41 million.

In late March, 2010, the Patient Protection and Affordable Care Act was enacted and amended shortly afterwards by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively referred to as the �Affordable Care Act�).  A number of the provisions in this new legislation affect the policies and payment rates under the IPPS and the LTCH PPS.  However, due to the timing of the passage of the legislation, CMS was not able to incorporate those provisions into this proposed rule.  Therefore the proposed policies and payment rates for FY 2011 that are set forth in this rule do not reflect the new legislation.  CMS expects to provide further information on the implementation of health care reform provisions in these laws that affect FY 2010 and FY 2011 IPPS payments in the near future.

This fact sheet discusses major provisions of the proposed rule, other than the proposed documentation and coding adjustment for FY 2011 to account for the cumulative effect of documentation and coding changes in FYs 2008 and 2009 and proposals to improve Medicare�s hospital quality initiatives.  These issues are addressed in separate fact sheets which are available on the CMS Web page at:


BACKGROUND:  By law, CMS pays acute care hospitals for inpatient stays under the IPPS and long-term care hospitals under the 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.  Under the IPPS and the LTCH PPS, a hospital receives a single payment for the case based on the payment classification assigned at discharge.  Until FY 2008, discharges from acute care hospitals were classified into one of 538 CMS-diagnosis-related groups (DRGs). 

In FY 2008, CMS replaced the 538 DRGs with 745 Medicare-severity DRGs (MS-DRGs) which provide higher payment for more severely ill or injured patients and lower payment for all other cases.  In FY 2009, Medicare created an additional MS-DRG bringing the total to 746.

The LTCH PPS was implemented in FY 2003.  Medicare payments under the LTCH PPS utilize the same DRG system as the IPPS, but payment weights associated with the LTCH patient classifications are calculated based on treatment costs at LTCHs.  In conjunction with the IPPS, in FY 2008, the LTCH PPS adopted Medicare severity Long-Term Care DRGs (MS-LTC-DRGs).

PROPOSED IPPS CHANGES FOR FY 2011:  Among the key changes in the IPPS for FY 2011 are the following:

Market Basket Update:  The market basket update for FY 2011 for hospitals paid under the IPPS is projected to be 2.4 percent, although this may be revised in the final rule, based on subsequent data.  As required by the Deficit Reduction Act of 2005 (DRA), hospitals that do not participate successfully in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program would receive the market basket update less 2.0 percentage points, or 0.4 percent based on this projection.  CMS will address provisions of the Affordable Care Act affecting the annual payment updates for FY 2011 in subsequent rulemaking. 

Outlier Threshold:  CMS estimates that the total outlier payments in FY 2010 will be 4.7 percent of total payments under the IPPS, 0.4 percentage points lower than the target rate of 5.1 percent.  CMS is proposing to raise the outlier threshold in FY 2011 to $23,970.  Since under the proposed rule, the overall FY 2011 IPPS payments are expected to be 0.1 percent less than they were in FY 2010, CMS needed to increase the outlier threshold in order to maintain projected outlier payments at 5.1 percent.

Partial Freeze to ICD-9-CM and ICD-10-CM/PCS Code Updates:  The ICD-10 coding system will be implemented on October 1, 2013.  In the ICD-10 final rule, CMS requested additional comments on whether to establish a partial freeze in the annual updates to both ICD-9-CM and ICD-10-CM/PCS code changes to alleviate concerns that any instructional or coding software programs would require frequent, significant updates.  Under this proposal, the only regular updates to either  ICD-9-CM or ICD-10-CM/PCS codes that would be made after October 1, 2011 would be for certain new technologies and diseases.  The next regular update to ICD-10-CM/PCS would not be effective until October 1, 2014.  A final decision on whether to have the partial freeze is expected to be announced at the September 2010 ICD-9-CM Coordination and Maintenance Committee meeting.  Information on meeting can be found at:

Information on ICD-10 can be found on CMS's website at: 

New Medical Services and Technology:  In order for technology to qualify for an additional payment to the MS-DRG, the applicant must demonstrate that the medical service or technology:

1)     is new � that is, generally, that it has been available on the open market for no more that 2-3 years prior to the year for which the additional payment is sought;

2)     is high cost relative to other cases in the relevant MS-DRG(s); and

3)     offers substantial clinical improvement over existing services or technologies for the Medicare patient population.

The proposed rule discusses three applications for new technology add-on payments in FY 2011.  Two of the three applications, Auto Laser Interstitial Thermal Therapy (AutoLITT�) System (Monteris) and LipiScan� Coronary Imaging System (InfraReDx Inc.) were originally submitted for FY 2010, and are being resubmitted this year.

  • Auto Laser Interstitial Thermal Therapy (AutoLITT�) System (Monteris):  AutoLITT� is a minimally invasive method for delivering a heat source to destroy a tumor or a portion of a tumor in a patient�s brain using magnetic resonance imaging (MRI) guidance.  The applicant asserts that the AutoLITT� improves survival, quality of life and recovery in patients with advanced types of brain tumors, such as glioblastoma multiforme tumors.
  • LipiScan� Coronary Imaging System (InfraReDx Inc.): The LipiScan� uses intravascular near infrared spectroscopy (INIRS) during coronary angiography to take images of lesions within coronary arteries in order to detect the lipid content within coronary artery plaques.  The lipid content is believed to correlate with the probability of plaque rupture as well as with the rate of progression of atherosclerosis.  The most common use of INIRS has been for selection of the length of artery to be stented in Percutaneous Coronary Intervention procedures.  The manufacturer asserts that the device can help physicians manage patients with unhealthy coronary artery plaques and improves the safety and efficacy of stenting in the coronary arteries.
  • LipiScan� Coronary Imaging System with intravascular ultrasound (IVUS) (InfraReDx Inc.) The LipiScan� IVUS uses intravascular near infrared spectroscopy (INIRS) combined with an ultrasound during coronary angiography to take images of lesions within coronary arteries in order to detect the lipid content within coronary artery plaques. The applicant asserts that this technology provides all the same benefits of the Lipiscan, but adds the benefits of IVUS as well. This combined device is not currently approved by the FDA.

            Graduate Medical Education (GME):  CMS is proposing to clarify its policy to specify that a physician that is training in an unaccredited program should bill for his/her services under the Part B Physician Fee Schedule and should not be included in the full-time equivalent (FTE) count for Indirect Graduate Medical Education (IME) and direct GME purposes.  CMS has received questions about this policy in the context of physicians who have already completed medical residency training but continue to remain at the teaching hospital to refine their skills. 

In addition, CMS is proposing to establish an electronic process for hospitals to submit their Medicare GME affiliation agreements to the CMS Central Office. CMS is proposing to require that affiliation agreements be received through electronic submission by 11:59 p.m. on July 1 of each academic year.  Under this proposal, hospitals could opt to file a hard copy of its affiliation agreements with the CMS Central Office, in addition to the electronic submission.  This proposed electronic process would enable CMS to more effectively track these affiliations and would reduce the paperwork burden on hospitals.

            Clarification on Determining Provider/Supplier Agreement Effective Dates:  CMS is proposing to clarify that the effective date of a Medicare provider/supplier agreement with health care facilities that are subject to survey and certification is the date that the provider/supplier meets all Federal Medicare requirements, including the date CMS determines that it has met enrollment requirements.  The date when all Federal requirements have been met may or may not be the date the survey was completed.

Provisions Affecting Critical Access Hospitals (CAHs):

            Reimbursement for Services of Certified Registered Nurse Anesthetists (CRNAs):  CMS is proposing to allow hospitals and critical access hospitals (CAHs) that are geographically urban but have applied for and been granted rural status under a provision of Medicare law to receive reimbursement for anesthesia and related care furnished by qualified CRNAs on reasonable cost basis.

            Removal of the Annual Election Requirement on Maintaining Method II Payment:  CMS is proposing a change so that, once a CAH elects the optional or �Method II� payment method for outpatient services that election remains in place until it is terminated by the CAH.

            Clarification of Which Provider Taxes May Be Allowable Costs:  CMS regulations currently permit certain provider taxes to be treated as allowable costs if they are related to the reasonable and necessary cost of providing patient care and they are actually incurred.  CMS is proposing to clarify that FI/MACs will determine whether provider taxes are allowable on a case-by-case basis, based on reasonable cost principles and will determine if a reduction of the allowable tax expenses is proper to account for payments providers receive that are associated with the assessed tax.


            LTCH PPS Market Basket:  The proposed market basket update for LTCHs for FY 2011 is projected to be 2.4 percent, although this may be revised in the final rule, based on the subsequent data. 

            Outlier Threshold:  CMS is projecting that the total estimated outlier payments in RY 2010 will be approximately 7.5 percent of total estimated LTCH PPS payments, 0.5 percentage points lower than the target rate of 8 percent.  Even though RY 2010 payments are projected to be less than the 8 percent removed from the rates using current data, CMS is proposing a slight increase to the LTCH outlier threshold for FY 2011.  Our payment models that incorporate the proposed documentation and coding adjustment indicate the outlier threshold must be raised slightly to keep projected estimated LTCH outlier payments at 8 percent of total estimated payments under the LTCH PPS.  The proposed outlier threshold for FY 2011 is $18,692.

            Because both policies and payment weights for LTCHs are now being revised on a fiscal year basis, CMS is proposing to replace the term �rate year� for LTCHs with �fiscal year.�

The proposed rule went on display today at the Office of the Federal Register�s Public Inspection Desk and will be available as a special filing at:


CMS will accept comments on this proposed rule until June 18, and will respond to them in a final rule to be issued by August 1, 2010. 

For more information, please see:


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