Press Releases



The Centers for Medicare & Medicaid Services (CMS) today issued a final rule to assure appropriate payment for services to severely ill or medically complex patients, while providing incentives to long-term care hospitals (LTCHs) for more efficient care of Medicare beneficiaries. The final rule increases the Medicare payment rates for LTCHs by 3.4 percent for patient discharges taking place on or after July 1, 2005, through June 30, 2006. 


The LTCH PPS federal rate is set at $38,086.04 for the 2006 rate year.  Medicare projects that aggregate payments to these hospitals under the LTCH Prospective Payment System (PPS) would increase by $169 million during the 2006 LTCH rate year compared with the 2005 rate year.


“We believe the payment rates and policies established in this final rule will ensure that the Medicare beneficiaries who are served by long-term care hospitals receive the level of care they need,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “We also believe this final rule will lead to the efficient provision of services to some of our most seriously ill beneficiaries.”


Long-term care hospitals, in general, are defined as hospitals that have an average Medicare inpatient length of stay greater than 25 days. These hospitals typically provide extended medical and rehabilitative care for patients who are clinically complex and may suffer from multiple acute or chronic conditions. Services typically include comprehensive rehabilitation, respiratory therapy, head trauma treatment and pain management.


The LTCH PPS, which now sets payments for approximately 350 long-term care hospitals, was designed to assure appropriate payment for services to the medically complex patients treated in these facilities, while providing incentives to hospitals to provide more efficient care to Medicare beneficiaries. Payments under the LTCH PPS are updated annually.


The LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, to replace the previous cost-based payment methodology.  The new system was based on the hospital inpatient prospective payment system (IPPS), but modified to reflect the relatively higher costs experienced by LTCHs in treating the most severely ill beneficiaries.  During the five-year transition period, CMS pays existing LTCHs under a blend methodology in which a percentage of the payment is based on cost-based reimbursement and a percentage is based on the federal PPS. Existing LTCHs, however, have the option to elect payment based on 100 percent of the adjusted federal PPS. 


Because the base standard federal rate was determined as if all LTCHs are paid based on 100 percent of the federal rate, in order to maintain budget neutrality during the five-year transition period, CMS reduces all LTCH payments to account for the additional costs of the transition period methodology.  At this time, CMS estimates that 98 percent of LTCHs will be paid at 100 percent of the federal rate. Based on CMS estimates of the cost to the Medicare program as a result of the transition methodology, the budget neutrality adjustment for the 2006 rate year is 1.000.


In the final rule, CMS is adopting the revised labor market area definitions based upon the Core-Based Statistical Areas (CBSAs) designated by the Office of Management and Budget using the 2000 Census Data.  This is consistent with the realignment of the labor market areas that were adopted in the FY 2005 hospital IPPS, published in August 2004. The revised labor market area definitions will be incorporated into the LTCH PPS in full in the 2006 rate year.


In unusually costly cases, Medicare will pay a hospital an amount in addition to the payment under the LTCH PPS for the LTC Diagnosis Related Group (DRG).  To be eligible for this payment, the hospital’s estimated costs in treating the case must exceed the LTC-DRG payment by an outlier fixed-loss amount.  The outlier fixed-loss amount for rate year 2006 is $10,501, down from $17,864 in rate year 2005.  This means that more cases would potentially qualify for outlier payments.


CMS is also extending for an additional year, the surgical DRG exception to the three-day or less interrupted stay policy, which was originally established for RY 2005, to RY 2006.  The three-day or less interrupted stay policy provides that Medicare will only pay for one LTC-DRG in situations in which a patient is discharged to an acute care hospital, inpatient rehabilitation facility (IRF), skilled nursing facility (SNF) or to the patient’s home and is readmitted to the long-term care hospital within three days. 


Further, payment for any covered inpatient or outpatient services provided by an acute care hospital or IRF, or any covered services provided by a SNF to the LTCH patient during the interruption, is the responsibility of the LTCH.  This policy is in accord with legal requirements that an LTCH must provide such services either directly or “under arrangements” with the facility that actually provides the service, and no additional payment by Medicare would be made.  Under the surgical DRG exception, an acute care hospital providing care to an LTCH patient may submit a separate Medicare claim under the inpatient prospective payment system (IPPS) if the acute care discharge is for one of the surgical DRGs.


If the interruption exceeds three days but is within the applicable fixed day period, Medicare payments to the LTCH are governed by the greater than three-day interrupted stay policy.  Under this policy, the entire LTCH hospitalization, both before and after the interruption, is seen as one episode of care, generating one LTC-DRG payment; however, the intervening provider receives a separate payment under the applicable prospective payment system.


The final rule also addresses CMS efforts to evaluate recommendations affecting LTCHs in the June 2004 Medicare Payment Advisory Commission (MedPAC) Report to Congress.  In its report, the Commission noted that payments to LTCHs for each episode of patient care are the highest in the Medicare program and expressed concern about the rapid growth in the number of LTCHs.  Specifically, MedPAC recommended that CMS more clearly define the role of LTCHs in the inpatient continuum of care by establishing facility and patient criteria and that Medicare’s Quality Improvement Organizations play a larger role in reviewing LTCH admissions for medical necessity and for compliance with any facility and patient criteria.  The rule describes a recent contract awarded to Research Triangle Institute, International to research the feasibility of implementing the Commission’s recommendations, as well as CMS’ ongoing monitoring of LTCHs under the new PPS.


CMS is not revising the LTC-DRGs and relative weights at this time. Because the LTC-DRGs and their relative weights are related to the inpatient hospital DRGs, those changes will be made at the same time as the hospital IPPS update on October 1, 2005.


The final rule will appear in the May 6, 2005, Federal Register will be effective for discharges occurring on or after July 1, 2005, and through June 30, 2006.


Note: For more information, see the CMS web site at