Press Releases

CMS ANNOUNCES PAYMENT INCREASES, POLICY CHANGES FOR INPATIENT REHABILITATION FACILITIES

The Centers for Medicare & Medicaid Services (CMS) today issued its inpatient rehabilitation facility payment (IRF) final rule which increases payments in Fiscal Year (FY) 2006.  The payment policies in this rule help to ensure that Medicare beneficiaries continue to have access to intensive inpatient rehabilitation services when they are needed.  With the market basket update, adjustments for coding changes, and change to the outlier threshold, aggregate payments to IRFs in fiscal year 2006 are projected to increase $210 million over FY 2005, a 3.4 percent increase.  In this final rule CMS is adopting a number of proposed refinements to the IRF prospective payment system (PPS) that will both increase payments overall, improve the accuracy of Medicare's payments, and ensure continued access to appropriate rehabilitation care.  CMS made a number of important changes in response to comments to support these objectives, and to ensure that affected providers have an opportunity to adjust to the changes.

“We believe the payment policies we are adopting today will be adequate to enable inpatient rehabilitation facilities to continue to provide high quality care to Medicare beneficiaries with substantial impairments due to illness or accident,” said CMS Administrator Mark B. McClellan, M.D., Ph.D.  “At the same time, we will continue to monitor the impact of our payment policies on access to the rehabilitation services needed by the most severely disabled beneficiaries.”

The final rule includes a market basket increase of 3.6 percent, 0.5 percentage points higher than the projected 3.1 percent in the proposed rule.  The final rule also increases the payment rate adjustment for inpatient rehabilitation facilities in rural areas to 21.3 percent from the current 19.14 percent.  This adjustment would cover the higher costs per case rural facilities incur compared with other facilities.  It also sets the outlier threshold for cases with unusually high costs at $5,132, down from $11,211 in 2005.  As a result of the outlier refinement, more cases are likely to qualify for an extra payment that is in addition to the payment associated with the case-mix group assigned to these cases. 

CMS is adopting a 1.9 percent across-the-board reduction in the standard payment amount.  This decision is based on recent evidence indicating that part of the increases in payments to IRFs can be attributed to changes in coding practices, rather than changes in the complexity of the patient’s condition.  CMS’ research contractor, the RAND Corporation, compared patient clinical condition and

coding both before and after implementation of the PPS, and concluded that between 1.9 percent and 5.8 percent of payment increases are due to coding changes.  Similar coding changes were evidenced in the early years of the acute care hospital PPS.  CMS has decided in this rule to adopt the minimum adjustment supported by the evidence.

The IRF PPS was first implemented on January 1, 2002, and its payment policies were applied to an IRF when it began its cost reporting period on or after that date.  The objective of the IRF PPS is to increase the accuracy of the payments made to the facilities for the resources they use to furnish care to Medicare beneficiaries.  Fulfillment of that objective enhances the efficient delivery of quality care.  Since first implementing this prospective payment system, CMS has increased the payment rates each federal fiscal year.  In June 2005 there were 1,233 IRFs. 

CMS is adopting Core Based Statistical Area (CBSA) market area definitions as announced by the Office of Management and Budget.  These market area definitions are used to determine a payment adjustment that reflects variations in costs across geographic areas.  Under this rule, about 4 percent of all facilities would change geographic designations.  In addition, approximately 66 percent of IRFs would either experience no change or an increase in their wage index.  Overall, the changes in the labor market definitions will be achieved in a budget neutral manner.

In response to public comments, CMS has decided to provide for a one-year transition to the new CBSAs.  For discharges that occur on or after October 1, 2005, and on or before September 30, 2006, an IRF’s wage index will be based on 50 percent of the wage index determined by the previous methodology used to geographically designate the IRF and 50 percent of the wage index determined by the IRF’s CBSA’s geographic designation.  In addition, CMS is implementing a “hold harmless” policy which will cushion the impact on an existing rural provider adversely affected by the CBSA designation methodology.

Other changes to the IRF PPS payment methodology that CMS is adopting in the final rule include:

• An adjustment for teaching facilities to compensate them for the higher costs they incur in providing care to beneficiaries.  This adjustment is based on an analysis of IRF PPS data from FY 2003 which, for the first time, indicated a statistically significant relationship between teaching status and costs.

• Refinement of the IRF classification system and relative weights, as well as to the system used to determine additional payment for an illness or condition other than the admitting diagnosis that affects the costs of treating a beneficiary.  These changes are based on analysis of data after the IRF PPS was implemented, and, therefore, CMS believes these refinements make the IRF PPS payment rates more accurate.

The final rule will be published in the August 15 Federal Register.  The policies in this final rule will apply to discharges on or after October 1, 2005 and on or before September 30, 2006..

Note: For more information, see www.cms.hhs.gov/providers/irfpps.