Fact sheet



OVERVIEW:  The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule on April 28, 2009 that would update payment rates and policies for services furnished to people with Medicare in inpatient rehabilitation facilities (IRFs), effective for discharges on or after October 1, 2009.  The proposed rule also clarifies and modifies existing regulations regarding pre-admission and post-admission services, including patient assessment, treatment planning, and care provision.  The proposed rule would apply to more than 200 freestanding IRFs, and to more than 1,000 IRF units of acute care hospitals.

This Fact Sheet addresses the proposed changes to IRF payment rates in FY 2010. CMS projects that the proposed changes would increase aggregate IRF payments by $150 million for FY 2010 compared with FY 2009.  This increase reflects the estimated 2.4 percent increase in the market basket and the proposed update to the outlier threshold amount to increase estimated outlier payments from 2.8 percent for FY 2009 to 3.0 percent for FY 2010. 

The proposed rule would also clarify and revise existing requirements for pre-admission screening, post-admission evaluations, and individualized treatment planning.  At the same time, CMS is posting draft revisions to the Medicare Benefit Policy Manual (MBPM) for public comment.  This draft manual provides detailed policy guidance regarding the selection of patients for admission to IRFs, and the development and implementation of individual treatment plans.  These proposals are addressed in a separate fact sheet also issued on April 28, 2009. 

BACKGROUND:  Prior to the introduction of the Inpatient Prospective Payment System (IPPS) in 1983, Medicare paid for hospital care based on the hospital’s reasonable costs, subject to a statutory limit.  Beneficiaries who required closely supervised, resource intensive rehabilitation services in addition to the treatment of the acute care condition for which they were hospitalized generally received these rehabilitation services as part of the same inpatient hospital stay that addressed their acute care needs.

The IPPS replaced cost-based payment for acute inpatient hospital stays with a payment methodology based on the average costs of treating a patient with a particular diagnosis.  For purposes of setting payment rates for acute inpatient stays, the diagnoses were classified into new Diagnostic Related Groups (DRGs) based on patients’ clinical conditions and treatment strategies.  However, the DRGs did not fully address the many variables of the rehabilitation portion of a hospital stay.  Therefore, these services were excluded from payment under the IPPS and continued to be reimbursed on a cost basis, either to free-standing IRFs or to IRF units within an acute care hospital.  CMS’s predecessor agency, the Health Care Financing Administration, established a list of qualifying conditions and required that at least 75 percent (since set at 60 percent to conform with recent legislation) of the patients served by IRFs or inpatient rehabilitation units in a year have one or more of the qualifying conditions.

The Balanced Budget Act of 1997 required CMS to implement a prospective payment system (PPS) for both freestanding IRFs and IRF units within an acute care hospital, effective for cost reporting periods beginning on or after January 1, 2002.   The new IRF PPS was intended to encourage the efficient provision of intensive rehabilitation services in IRFs and to constrain costs while ensuring quality care.   In order to be excluded from the IPPS and instead be paid the higher rates for providing rehabilitation services under the IRF PPS, current Medicare law requires an IRF to demonstrate that its annual patient population consists of at least 60 percent of patients with one or more of the qualifying conditions as a principal or secondary diagnosis. (See current list of Qualifying Conditions, attached). 

DETERMINING PAYMENT RATES UNDER THE IRF PPS:  CMS makes a single prospective payment to the facility for the inpatient rehabilitation stay based on the relative amount of resources that would typically be required to treat a patient’s clinical conditions and provide rehabilitative services intended to restore or maximize the patient’s physical functioning.

Under the IRF PPS, each patient is assigned to a case mix group (CMG) and tier within the CMG.  The CMG assignment is based on the primary condition for which the patient was admitted to the IRF, and on the patient’s functional and cognitive abilities at the time of admission.  The tier assignment is based on the presence of one or more specified secondary diagnoses, or comorbidities that affect the resources needed to treat the patient.  Each CMG and tier is assigned a relative weight that serves as the basis for the payment rate.  The payment rate is then adjusted at the facility level for teaching status, the applicable geographic wage index, and the percentage of low-income patients served by the facility.  IRFs in rural areas receive an additional payment adjustment.  Cases with extraordinarily high costs compared to the prospectively set payment may qualify for an outlier payment. 

PROPOSED PAYMENT RATE CHANGES FOR THE FY 2010 IRF PPS:  The proposed rule would update the payment rates for IRFs under the IRF PPS for FY 2010.

  • Market Basket Update:  CMS estimates that the market basket update for FY 2010 will be 2.4 percent, using a market basket specifically developed for inpatient rehabilitation facilities, inpatient psychiatric facilities, and long-term care hospitals (the RPL market basket).
  • CMG Relative Weights:  CMS is proposing to update the CMG relative weights and average length of stay values using FY 2007 data, which reflect recent changes in IRF patient populations resulting from the 60 percent rule and medical review activities.
  • High-Cost Outlier Threshold:  CMS is proposing to set the outlier threshold for FY 2010 at $9,976, the amount estimated to maintain estimated outlier payments equal to 3.0 percent of total estimated payments for FY 2010.
  • Wage Index Adjustment:  CMS is proposing to continue to use the pre-reclassified and pre-floor hospital wage data to determine the proposed FY 2010 rates.  For the purposes of this proposed rule, CMS used the final FY 2009 pre-reclassified and pre-floor wage data.
  • Facility-Level Adjustments:  CMS is proposing to update the rural, low-income patient (LIP), and teaching status adjustment factors using the most recent three years of data (FYs 2005 through 2007).
  • Collection of Patient Assessment Data on Medicare Advantage Patients:  CMS is proposing to require submission of IRF patient assessment data on Medicare Part C (Medicare Advantage) patients in IRFs for use in calculating the compliance percentage.


CMS will accept comments on the proposed rule until June 29, 2009, and will address all comments in a final rule to be issued by August 1, 2009.

The proposed rule went on display on April 28, 2009 at the Office of the Federal Register’s Public Inspection Desk and will be available under “Special Filings,” at:

For more information, please see:


Patients who have one or more of the following conditions as either a principal or secondary diagnosis may be counted toward an IRF’s compliance percentage:

  • Stroke
  • Spinal cord injury
  • Congenital deformity
  • Amputation
  • Major multiple trauma
  • Fracture of femur (hip fracture)
  • Brain injury
  • Neurological disorders
  • Burns
  • Arthritis-related medical conditions (three types specified in regulation)
  • Knee or hip joint replacement if (1) it was bilateral, (2) the patient’s BMI was greater than 50, or (3) the patient was 85 or older

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