Press release




The Centers for Medicare & Medicaid Services (CMS) today issued a proposed payment rule designed to assure that long-term care hospitals (LTCHs) continue to receive appropriate payment for services provided while giving them incentives to provide more efficient care to Medicare beneficiaries.  LTCHs are a type of acute care hospital that treats some of Medicare’s most severely ill or medically complex patients.  The new policies and payment rates would apply to services provided to individuals who are discharged from these hospitals on or after July 1, 2008.

“The proposals announced today will help make sure Medicare beneficiaries who need longer term inpatient care get high quality services appropriate to their medical conditions,” CMS Acting Administrator Kerry Weems said.  “The proposals seek increased incentives for efficient delivery of care, ensuring that beneficiaries and taxpayers get the best value for the Medicare dollar.”

The proposed rule would affect the nearly 400 LTCHs across the nation.  These hospitals are generally defined as inpatient hospitals where the average length of stay for Medicare patients is greater than 25 days.  These hospitals provide extended medical and rehabilitative care for patients with clinically complex conditions.  Treatment provided in these hospitals typically includes weaning patients from ventilators so they can breathe without this assistance, pain management, and rehabilitation.

These hospitals have been paid under a prospective payment system (PPS) that provides a single payment to the hospital for the patient’s stay based on the patient’s diagnosis, since cost reporting periods beginning on or after October 1, 2002.  Currently, patients are categorized under the Medicare Severity Long-Term Care Diagnosis Related Groups (MS-LTC-DRGs).  The payment is calculated to reflect the average costs incurred by an LTCH in treating this type of patient, but does not include payment for services of physicians and nonphysician practitioners who bill Medicare separately.

CMS is proposing a standard Federal rate of $39,076.28 for the 2009 rate year.  This is based on a proposed update of 2.6 percent compared with the standard Federal rate for RY 2008, as revised to comply with provisions of the recently enacted Medicare, Medicaid, and SCHIP Extension Act of 2007(“Medicare Extension Act”).   The update represents a 3.5 percent increase in the hospital marketbasket (a measure of inflation in the costs of goods and services used in providing inpatient care), less a 0.9 percent adjustment to offset coding changes in RY 2006 that do not reflect real changes in the severity of the cases treated by these hospitals.

Aggregate LTCH PPS payments for RY 2009 are estimated at approximately $4.44 billion, based on the proposed changes presented in the proposed rule, an increase of approximately $124 million over estimated payments in RY 2008.

CMS is proposing to change the annual update schedule for the LTCH PPS payment rate and related policy changes which are currently effective beginning each July 1 to coincide with the annual update of the MS-LTC-DRG classifications and recalibration of the relative weights which are effective beginning each October 1.  This policy is being proposed in response to industry concerns and to help maximize CMS resources. In order for CMS to consolidate the annual update to payment rates and changes to the MS-LTC-DRGs so both are made on October 1, CMS is proposing to make the rates for RY 2009 effective for a 15-month period from July 1, 2008 through September 30, 2009.

In unusually costly cases, Medicare may pay an LTCH an additional amount, called an outlier payment, in addition to the federal prospective payment for the MS-LTC-DRG.   To be eligible for this payment, the LTCH’s estimated costs in treating the case must exceed the MS-LTC-DRG payment by the outlier fixed-loss amount.  For RY 2009, CMS is proposing to increase the fixed-loss amount for high cost outlier cases to $21,199 from $20,738.  As under current regulations, estimated aggregate high cost outlier case payments are limited to 8 percent of total estimated LTCH payments.

At the outset of the LTCH PPS, which was implemented for cost reporting periods beginning on or after October 1, 2002, CMS regulations specified that the agency would review payments under the LTCH PPS, and, if appropriate, propose a one‑time prospective adjustment to the LTCH PPS rates by October 1, 2006 (later changed to July 1, 2008).   The purpose of this adjustment was to ensure that the effect of any significant difference between the data used in the original budget neutrality calculations, and more recent data, would not be perpetuated in the LTCH PPS rates for future years.  CMS is not proposing to implement the one-time prospective adjustment to the Federal rate for RY 2009 because of changes made by the Medicare Extension Act.  However, the proposed rule presents a possible methodology for evaluating whether a one-time budget neutrality adjustment may be appropriate.

CMS will issue guidance on the implementation of additional provisions relating to LTCHs that were contained in the recently adopted Medicare Extension Act at a later time.

The proposed rule will be posted on the CMS Web site at:

Comments on the proposed rule are due by March 24, 2008, and a final rule will be issued later in the spring.