Press release



The Centers for Medicare & Medicaid Services (CMS) today issued a notice outlining procedures for hospitals meeting specific criteria to follow to request reclassification to geographic areas with higher payment rates under Medicare’s inpatient prospective payment system (IPPS).

The notice implements a one-time-only appeals process required by Congress in the Medicare Prescription Drug Improvement and Modernization Act of 2003 (DIMA). This appeals process will provide relief to certain hospitals in rural areas that fall just outside Medicare’s existing criteria for reclassification to geographic areas that have higher payment rates for Medicare services. Congress has allocated up to $900 million dollars over three years for the added payments to these hospitals resulting from the reclassifications.

"It’s important that we pay hospitals appropriately so they will be able to retain the staff necessary to treat Medicare beneficiaries," said Dennis Smith, Acting CMS administrator. "President Bush and Congress agreed that hospitals should be given the opportunity to hire the best nurses and other staff without having to worry about them moving to another hospital just over the county line that is able to pay higher wages."

To be considered for reclassification under the provision, hospitals are required to file an appeal by February 15, 2004. Successful reclassifications will become effective for discharges during the three-year period beginning April 1, 2004. Priority under the notice will be given to hospitals that have submitted quality data under Medicare’s National Voluntary Hospital Reporting Quality Initiative.

The reclassification appeals will be reviewed and decided by the Medicare Geographic Classification Review Board based on criteria included in today’s notice. The law provides general guidance for determining eligible hospitals and authorizes the Secretary of the Department of Health and Human Services to apply other criteria as necessary.

Medicare pays hospitals for inpatient services provided to Medicare beneficiaries according to the inpatient prospective payment system (IPPS). Payment under the IPPS is based on the average cost of treating patients with a similar diagnosis. However, the actual amount received by a hospital for a particular case depends on a number of factors, including the geographic area in which the hospital is located. As a general rule, hospitals in urban areas, as defined by the Census Bureau’s Metropolitan Statistical Areas (MSAs), are paid at higher rate than those in rural areas.

Regulations in effect since 1990 have provided hospitals meeting certain criteria with the opportunity to seek reclassification to another MSA with a higher wage index, and every year since then, several hundred hospitals have been able to avail themselves of this process.

The current MSAs are based on Census data from 1990. Earlier this year, the Census Bureau announced revisions to the MSA structure. CMS is evaluating the impact of these changes on the hospital payment methodology and will address these issues in a separate regulatory proceeding.

The notice will be published in the January 6, 2004 Federal Register.

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