Fact Sheets

PROPOSED PAYMENT UPDATES FOR INPATIENT REHABILITATION FACILITIES IN FISCAL YEAR 2012

(Corrected April 26, 2011)                                      

OVERVIEW:  The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule on April 22, 2011, that would update payment rates and policies for services furnished to Medicare patients in inpatient rehabilitation facilities (IRFs) that are paid under the IRF Prospective Payment System (PPS).  The proposed rule would also implement section 3004 of the Affordable Care Act, establishing a new IRF quality-reporting program.  Under the new program, IRFs would be required to submit data on quality measures to CMS or have their annual increase factor reduced by 2 percentage points, starting in fiscal year (FY) 2014.  Finally, recognizing that freestanding IRFs and IRF units are paid the same and, with very few exceptions, are subject to the same Medicare rules and policies, the proposed rule would consolidate and streamline the IRF PPS regulations to eliminate repetition of policies and remove outdated regulations.

The proposed rule would apply to more than 200 freestanding IRFs, and to more than 1,000 IRF units of acute care hospitals, including a small number of IRF units in critical access hospitals (CAHs), and would be effective for discharges in FY 2012, beginning Oct. 1, 2011.

IMPACT:  CMS projects that the proposed changes would increase estimated IRF payments by $120 million for FY 2012 compared with FY 2011.  This increase reflects a projected 2.8 percent inflation update less a 1.3 percentage point reduction required by the Affordable Care Act, plus 0.3 percentage points due to a proposed adjustment to the outlier threshold, for a net increase of 1.8 percent.  The proposed update to the outlier threshold amount is projected to increase outlier payments from 2.7 percent for FY 2011 to 3.0 percent for FY 2012. 

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.  The IPPS replaced cost-based payment for acute inpatient hospital stays with payment based on the average costs of treating a patient in a particular diagnosis-related group  (DRG). However, the DRGs did not fully address the many variables of the rehabilitation portion of a hospital stay, so these services continued to be reimbursed on a cost basis until, as directed by the Balanced Budget Act of 1997, CMS implemented a new IRF PPS.  The new payment system became effective for cost reporting periods beginning on or after Jan. 1, 2002.  The IRF PPS intended to ensure quality intensive rehabilitation services while constraining costs.  Furthermore, it stipulated that in order to be excluded from the IPPS and be paid at the higher IRF PPS rates, an IRF must demonstrate that its annual patient population consists of at least 75 percent of patients with one or more qualifying conditions as a principal diagnosis. 

Congress later reduced the percentage threshold to 60 percent and included patients with one or more of the qualifying conditions as either a principal or secondary diagnosis as counting toward the threshold.  The list of qualifying conditions currently includes stroke; spinal cord injury; congenital deformity; amputation; major multiple trauma; hip fracture; brain injury; certain neurological disorders; burns; three types of arthritis-related medical conditions, and knee or hip joint replacement if it was bilateral, if the patient’s BMI is greater than 50, or if the patient is 85 year or older.

HOW THE IRF PPS WORKS:  CMS makes a single prospective inpatient rehabilitation-stay payment to the facility based on the relative amount of resources typically required to treat a patient’s clinical condition and provide rehabilitative services to restore or maximize the patient’s physical functioning.

Each patient is assigned a case mix group (CMG) and tier within the CMG, based on the patient’s principal diagnosis, functional and cognitive abilities at the time of admission, and, in some cases, age.  The tier assignment is based on the presence of specified comorbidities requiring treatment. 

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 FY 2012 IRF PPS CHANGES:  The proposed rule would update the payment rates for IRFs under the IRF PPS for FY 2012, and establish a new quality reporting system.

·       Market Basket Update:  CMS is projecting a 1.8 percent increase for IRFs in FY 2012, although this number may change in the final rule based on more recent data.  This 

update factor is calculated based on a rebased and revised measure of the rate of inflation specific to IRFs, inpatient psychiatric facilities, and long-term care hospitals (the RPL market basket) — currently estimated at 2.8 percent for FY 2012 — less a 1.3 percentage point reduction mandated by the Affordable Care Act, plus 0.3 percentage points due to a proposed increase in the outlier threshold discussed below.

• New Quality Reporting Program: CMS would establish the new IRF quality-reporting program required by the Affordable Care Act.  Beginning October 1, 2012, IRFs would submit data on two measures: “Urinary Catheter-Associated Urinary Tract Infections,” and “Pressure Ulcers that are New or Have Worsened.”  IRFs that don’t comply with the new program would see their payments reduced by two percentage points beginning in FY 2014.  CMS anticipates adding quality measures to the reporting program in future years through rulemaking, and currently has under development a third measure, “30-day comprehensive all cause, risk standardized readmission.”

·       Case-Mix Group Relative Weights:  CMS would update the case-mix group (CMG) relative weights using FY 2010 IRF claims and FY 2009 IRF cost report data.

·       High-Cost Outlier Threshold:  CMS proposes to set the outlier threshold for FY 2012 at $11,822, to maintain outlier payments in FY 2012 at three percent.

·       Wage Index Adjustment:  CMS proposes to continue using the pre-reclassified and pre-floor hospital wage data to determine the proposed FY 2012 rates.  For the purposes of this proposed rule, CMS used the final FY 2011 hospital inpatient prospective payment system (IPPS) pre-reclassified and pre-floor wage data.

• Facility-Level Adjustments:  CMS would update the rural, low-income patient (LIP), and teaching status adjustment factors using the most recent three years of data (FYs 2008 through 2010).  CMS would also allow IRFs to receive temporary adjustments to their full-time equivalent (FTE) intern and resident caps if they take on interns and residents unable to complete their training because the IRF at which they had been receiving training either closed or ended its residency training program.

CMS will accept comments on the proposed rule until June 21, 2011, and will address all comments in a final rule to be issued by August 1, 2011.

The proposed rule went on display on April 22, 2011 at the Office of the Federal Register’s Public Inspection Desk and will be available under “Special Filings,” at: http://www.ofr.gov/inspection.aspx.

For more information, please see: http://www.cms.gov/InpatientRehabFacPPS/.

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