Press Releases



The Centers for Medicare & Medicaid Services (CMS) today proposed its inpatient rehabilitation facility payment (IRF) rule for 2006 to ensure that Medicare beneficiaries 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 these facilities in fiscal year 2006 are projected to increase $180 million over FY 2005, a 2.9 percent increase.

“Inpatient rehabilitation facilities perform a vital function for Medicare beneficiaries with substantial impairments due to illness or accident.  The services they provide are uniquely designed to ensure a full recovery for this vulnerable patient population,” said CMS Administrator Mark B. McClellan, M.D., Ph.D.  “The payment increases that we are proposing today help make sure that beneficiaries can get these rehabilitation services, and that we are using the latest evidence to make sure we are paying accurately for them.”

The rule includes a proposed market basket increase of 3.1 percent.  The rule also proposes to increase the payment rate adjustment for inpatient rehabilitation facilities in rural areas to 24.1 percent from the current 19.1 percent.  This adjustment would cover the higher costs per case rural facilities incur compared with other facilities.  It also proposes a reduction to the outlier threshold for cases with unusually high costs that allows more cases to qualify for extra payments, in addition to the payment rates for the case-mix groups to which they are assigned.

CMS is also proposing a 1.9 percent across-the-board reduction in the standard payment amount based on recent evidence indicating that coding increases, rather than actual changes in patient acuity, have caused increases in payments to inpatient rehabilitation facilities.   The evidence, compiled by the RAND Corporation (CMS’s research contractor), indicates that at least 1.9 percent of the payment increases are due to coding changes that were a direct result of the 2002 implementation of the new prospective payment system, which created incentives for coding patients at higher acuity levels.

This is most clearly demonstrated by the comparison of patient clinical condition and coding both before and after implementation of the PPS.   Similar coding changes were also evidenced in the early years of the acute care hospital PPS.   The analysis clearly shows that upcoding in the first year of the PPS increased payments to providers by at least 1.9 percent, and as much as 5.8 percent.  Because 1.9 percent is the minimum reduction justified by the data, the proposed rule requests comments on whether a larger adjustment is appropriate.

The IRF prospective payment system (PPS) was first implemented with respect to discharges occurring on or after January 1, 2002, to base payments to the facilities on the resources they use to furnish care to Medicare beneficiaries.  The goal is to encourage the efficient delivery of quality care.  Since first implementing this prospective payment system, CMS has increased the payment rates each federal fiscal year.  For Fiscal Year 2003, there were 1215 IRFs paid under the system.  Of these, 195 were rural.  In addition, 221 were freestanding, while 994 were distinct part units of acute care hospitals.

CMS is also proposing to adopt revised Core Based Statistical Area (CBSA) market area definitions as announced by the Office of Management and Budget.  These market area definitions are used to set payment adjustments to reflect variations in costs across geographic areas.  Under this proposal, about 4.4 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 proposed changes in the labor market definitions would be achieved in a budget neutral manner.

Other proposed changes to the IRF PPS payment methodology include:

• A proposal to adopt an adjustment for teaching facilities to compensate them for the higher costs they incur in providing care to beneficiaries.  This proposed adjustment is based on an analysis of 2003 data under the IRF PPS which, for the first time, indicated a statistically significant relationship between teaching status and costs.
• Proposals to refine the IRF classification system to reflect recent data on case mix groups, relative weights and the impact of illnesses or conditions other than the admitting diagnosis on the costs of treating a beneficiary.   CMS believes the new data from 2003 are more complete and accurate than the data used to develop current classifications.  

The proposed rule will be published in the May 25 Federal Register.  Comments will be accepted until July 18, and a final rule will be published later in the summer.

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