Press release



The Centers for Medicare & Medicaid Services (CMS) today proposed a 3.3 percent increase in payment rates in fiscal year 2004 to inpatient rehabilitation hospitals that care for Medicare beneficiaries recovering from strokes, spinal cord injury or other conditions requiring extensive therapy.

Under the Medicare law, CMS is required to update annually the prospective payments for rehabilitation facilities to reflect changes in the price of goods and services used by these hospitals in caring for Medicare beneficiaries, which is estimated at 3.3 percent for FY 2004. The adjustment will result in an increase of $204.2 million in Medicare payments in FY 2004 over FY 2003.

The update is contained in a notice of proposed rulemaking to be published May 16 in the Federal Register. However, the 60-day comment period will begin today. CMS will publish the final notice of the updated payments in the Federal Register on or before Aug. 1.

"Rehab facilities are very important in helping restore ailing Medicare beneficiaries to a healthier, more active physical condition," CMS Administrator Tom Scully said. "Last year, under the new payment system, the facilities were given a 3 percent increase. This time, we expect these valuable hospitals will see a slightly higher rise in their payment rate."

The Balanced Budget Act required CMS to establish a prospective payment system (PPS) specific to inpatient rehabilitation facilities. The final rule on the PPS was published in the Federal Register in August 2001. This rule set forth the methodology for making payments under the system.

The PPS for inpatient rehabilitation hospitals, which replaced a cost-based payment system, is designed to promote quality and efficient care at about 1,200 inpatient rehabilitation facilities, including both freestanding hospitals and special units in acute-care hospitals.

Under this payment system, inpatient rehabilitation facilities are paid on a per-discharge basis. The PPS for rehabilitation facilities, which became effective Jan. 1, 2002, covers all costs of furnishing covered inpatient rehabilitation services – including routine, ancillary and capital costs – except for certain other costs, which are paid for separately.

Under the PPS, rehabilitation facilities are paid based on the characteristics of each patient they admit. Medicare pays hospitals more to care for patients with greater needs, as determined by a comprehensive assessment of their condition.

Under law, a rehabilitation unit that is part of an acute-care hospital and a stand-alone rehabilitation hospital are both classified as inpatient rehabilitation facilities. Such facilities must show that during their most recent 12-month cost reporting periods they served an inpatient population of whom at least 75 percent required intensive rehabilitation services for 10 serious medical conditions. These traumatic health problems include stroke, spinal cord injuries, amputations, major multiple trauma, brain injuries and neurological disorders.

Medicare’s fiscal intermediaries, who are contractors that process Medicare Part A medical claims, enforce this rehabilitative services regulation, known as the 75 percent rule. Because of concerns regarding the effectiveness and consistency of the enforcement procedures used by these contractors, in July 2002 CMS suspended enforcement of the 75 percent rule. CMS is not proposing to make changes to the current regulation regarding the 75 percent rule. Thus, CMS will instruct these contractors to re-institute verification of compliance with the rule for cost reporting periods beginning after Sept. 30, 2003.

"We realize that a rehab facility may need time to come into compliance with the 75 percent rule," Scully said. "But the rule remains extremely important in separating inpatient rehab hospitals from other types of inpatient facilities, and ensuring that Medicare pays for patients who are getting rehabilitation in the most appropriate setting."

Also, this year to calculate changes in the price of goods and services for rehabilitation facilities, known as the market basket, CMS used 1997-based data, compared with 1992 data for the FY 2003 PPS.

CMS also is proposing to update the wage indices for rehabilitation facilities. For this notice of proposed rulemaking, CMS used acute-care hospital wage data from FY 1999, instead of FY 1997, to develop the FY 2004 wage indices. Under law, any adjustments to the wage indices for rehabilitation facilities must be made in a budget-neutral manner. As a result, CMS has proposed that the standardized payment amount be slightly reduced to meet the requirement for budget neutrality.