Press release



The Centers for Medicare & Medicaid Services (CMS) today announced a 3.2 percent increase in payment rates in fiscal year 2004 to inpatient rehabilitation hospitals that care for Medicare beneficiaries recovering from strokes, spinal cord injury or other conditions requiring extensive therapy.

Under the Medicare regulations, CMS is required to update annually the prospective payments for rehabilitation facilities to reflect changes in the price of goods and services used by these hospitals in caring for Medicare beneficiaries, which is estimated at 3.2 percent for FY 2004. The adjustment will result in an increase of about $187.3 million in Medicare payments in FY 2004 over FY 2003.

"This increase for FY 2004 is a fair payment to valuable hospitals that help many Medicare beneficiaries return to a healthy physical condition," CMS Administrator Tom Scully said. "Last year, under the new payment system, the facilities were given a 3 percent increase. This time, rehab facilities will see a slightly higher rise in their payment rate."

The payment rate in the final rule is based on the latest projected changes in the estimated price of goods and services for FY 2004. The final rule also implements proposed changes to update wage adjustment data and refine the outlier policy.

Medicare's fiscal intermediaries, who are contractors that process Medicare Part A medical claims, verify compliance with the rehabilitative services regulation, known as the 75 percent rule. Because of concerns regarding the effectiveness and consistency of the verification procedures used by these contractors, in July 2002 CMS suspended enforcement of the 75 percent rule. In a May 16, 2003 proposed rule, CMS announced that enforcement of the 75 percent rule would commence for cost reporting periods beginning Oct. 1, 2003.

In today's final rule, CMS states it will issue a proposed rule in the Federal Register in the very near future on the 75 percent rule that will contain a full discussion of CMS' proposed changes to the existing rule.

"After three months of discussion with the rehab community, we believe that we can articulate an appropriate compromise on the 75 percent rule. We intend to ask for comments on this proposal and quickly move towards a final rule," said CMS Administrator Tom Scully. "Meantime, we will be instructing our fiscal intermediaries that we are extending the moratorium on enforcement until the new standards go into effect."

Under law, a rehabilitation unit that is part of an acute-care hospital and a stand-alone rehabilitation hospital are both classified as inpatient rehabilitation facilities. Under the current Medicare regulations, such facilities must show that during their most recent 12-month cost reporting periods they served an inpatient population of whom at least 75 percent required intensive rehabilitation services for 10 serious medical conditions. These conditions include stroke, spinal cord injuries, amputations, major multiple trauma, brain injuries, polyarthritis and neurological disorders.

Under the Balanced Budget Act, CMS was required to establish a prospective payment system (PPS) specific to inpatient rehabilitation facilities. The final rule on the PPS was published in the Federal Register in August 2001. This rule set forth the methodology for making payments under the system.

The PPS for inpatient rehabilitation hospitals, which replaced a cost-based payment system, is designed to promote quality and efficient care at about 1,200 inpatient rehabilitation facilities, including both freestanding hospitals and special units in acute-care hospitals.

Under this payment system, inpatient rehabilitation facilities are paid on a per-discharge basis. The PPS for rehabilitation facilities, which became effective Jan. 1, 2002, covers all costs of furnishing covered inpatient rehabilitation services - including routine, ancillary and capital costs - except for certain other costs, which are paid for separately.

Under the PPS, inpatient rehabilitation facilities are paid based on the characteristics of each patient they admit. Medicare pays hospitals more to care for patients with greater needs, as determined by a comprehensive assessment of their clinical status.

Also, this year to calculate changes in the price of goods and services for rehabilitation facilities, known as the market basket, CMS used 1997-based data, compared with 1992 data for the FY 2003 PPS.

Additionally, CMS updated the wage indices for rehabilitation facilities. For the final rule, CMS used acute-care hospital wage data from FY 1999, instead of FY 1997, to develop the FY 2004 wage indices. Under law, any adjustments to the wage indices for rehabilitation facilities must be made in a budget-neutral manner. As a result, the standardized payment amount will be slightly reduced to meet the requirement for budget neutrality.

In the final rule, CMS also has adjusted some components of the outlier policy relating to inpatient rehabilitation facilities to conform to the PPS outlier policy for inpatient acute care hospitals. Outlier payments are made for services to inpatients for whom the costs of treatment greatly exceed the fixed payment under the inpatient PPS. CMS will adjust outlier payments to the rehabilitation facilities and set limits on determining cost-to-charge ratios.

The final rule was published in the August 1 Federal Register, and will be effective for discharges on or after October 1, 2003.