CMS increases hospital payment rates for 2010--slightly

The Centers for Medicare & Medicaid Services (CMS) has proposed a slight increase in its 2010 fiscal year policies and payment rates for inpatient services furnished to Medicare beneficiaries by both acute-care hospitals and long-term care hospitals.

The agency has proposed 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 Oct. 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 greater downward adjustment to payment rates to address these changes in hospital coding practices, the agency said it would be "prudent to phase-in the adjustment carefully over time."

CMS said the proposed rule would apply to approximately 3,500 acute-care hospitals paid under the Inpatient Prospective Payment System, and 400 long-term care hospitals paid under the Long-Term Care Hospital Prospective Payment System, beginning with discharges occurring on or after Oct. 1. 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, according to the agency.

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 CMS said. The inflation updates are specifically designed to measure the inflation in the costs of resources 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.

"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."