Press Releases




The Centers for Medicare & Medicaid Services (CMS) today proposed the fiscal year (FY) 2010 policies and payment rates for inpatient services furnished to people with Medicare by both acute care hospitals and long-term care hospitals. 


In the announcement issued today, CMS is proposing to update acute care hospital rates by 2.1 percent for inflation less an adjustment of 1.9 percentage points to remove the effect of increases in aggregate payments due to changes in hospital coding practices that do not reflect increases in patient’s severity of illness.  CMS is similarly proposing to update long-term care hospital rates by 2.4 percent for inflation less an adjustment of 1.8 percentage points to account for changes in documentation and coding practices that do not reflect increases in patient’s severity of illness.  Beginning October 1, 2008, Medicare adopted a new classification system for general acute and long term care hospitals to better recognize severity of illness and the cost of treating Medicare patients. 


However, hospitals changed their documentation and coding of patient diagnoses under the new system in a manner that leads to an increase in aggregate payments without corresponding growth in actual patient severity. The proposed documentation and coding adjustments help ensure that estimated aggregate payments to these hospitals under the new classification systems would not increase solely as a result of the changes to the classification system and hospital coding practices.  Although CMS has the authority to make a much greaterdownward adjustment to payment rates to address these changes in hospital coding practices, CMS believes it would be prudent to phase-in the adjustment carefully over time.

The proposed rule would apply to approximately 3,500 acute care hospitals paid under the Inpatient Prospective Payment System (IPPS), and 400 long-term care hospitals paid under the Long-Term Care Hospital Prospective Payment System (LTCH PPS), beginning with discharges occurring on or after October 1, 2009.  The proposed payment rates are based on the most recently available data and are subject to revision in the final rule to reflect more current data.


The projected 2.1 percent update for inflation for inpatient acute care payment rates is lower than the updates applied in recent years and reflects the slowing rate of inflation in the economy.  The inflation updates are specifically designed to measure the inflation in the costs of resources (the market basket) used by hospitals in delivering care to inpatients.  Because long-term care hospitals generally use a different mix of resources than acute care hospitals, their inflation update of 2.4 percent is determined using a different market basket than the market basket used for acute care hospitals.

In FY 2008, CMS adopted a new, more accurate classification system for inpatient stays.  The Medicare Severity Diagnosis-Related Groups (MS-DRGs) are designed to better take into account the severity of the patient’s illness by providing higher payments for treating sicker patients – treatments that are more costly – and lower payments for other, less severe conditions.


“We understand hospitals will be concerned about lower than historical update amounts” said Charlene Frizzera, CMS Acting Administrator.  “However, we are proposing an adjustment that minimizes the effects on FY 2010 payments while still meeting the requirements of the law, which may mean larger reductions in the next two years.  We are asking for comments from the public to help us ensure that these proposals are the best ways to meet the requirements of the law.”


As required by the TMA [Transitional Medical Assistance], Abstinence Education and QI Programs Extension Act of 2007 (TMA), CMS has already applied adjustments of -0.6 percent in FY 2008, and -0.9 percent in FY 2009 to the acute care hospital rates.  However, if CMS’s review of claims data shows that the adjustments set by the TMA were too low to maintain budget neutrality under the new classification system, the TMA requires CMS to adjust payment rates to account for that difference in subsequent years.  This means that CMS must adjust payment rates between FYs 2010 and 2012 as necessary to recapture any excess payments made to hospitals in FYs 2008 and 2009 that resulted from changes in hospitals’ coding practices.


The Medicare Actuary found based on analysis of 2008 data that additional coding that did not reflect actual changes in the severity of patients’ illnesses increased total payments under IPPS by 2.5 percent in FY 2008 and will further increase total payments in FY 2009.  Based on current estimates, the Medicare Actuary estimates that total adjustments of approximately 8.5 percent would have to be made to the acute care hospital rates to address changes in hospitals’ coding practices, including the increase in FY 2008 payments and the estimated increase in FY 2009 payments.  CMS is proposing a prospective adjustment of 1.9 percentage points for FY 2010, which means additional adjustments of approximately 6.6 percentage points, will be needed in FY 2011 and FY 2012.  CMS is requesting public comment on whether to apply a different documentation and coding adjustment than the one being proposed for FY 2010.


Under current Medicare law, hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program will get the full update.  Hospitals that do not participate in the quality reporting program will get the update less two percentage points. Ninety-seven percent of participating hospitals received the full update last year. The proposed rule adds four new measures for which hospitals must submit data under the RHQDAPU program to receive the full market basket update.  Two of these measures are additions to the existing Surgical Care Improvement Project (SCIP) measure set, and CMS believes that the other two measures will promote hospital participation in nursing-sensitive care and stroke care registries.


CMS is also proposing changes to regulations affecting payment adjustments to teaching hospitals (hospitals that offer graduate medical education programs), and disproportionate share hospitals (hospitals that provide care to a disproportionate share of low income patients), and to clarify the regulations implementing the Emergency Medical Treatment and Labor Act (EMTALA).  In addition, the proposed rule describes five applications for new technology add-on payments and CMS’ preliminary findings about those technologies.


The proposed rule was placed on display at the Federal Register today, and can be found under Special Filings at:


CMS will accept comments on the proposed rule until June 30, and will respond to comments in a final rule to be made publicly available no later August 1, 2009. 


For more information, please see:



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