Corporate Compliance

CMS proposes historically low inpatient payment increases

Healthcare Auditing Weekly, May 5, 2009

John Commins, for HealthLeaders Media, May 1, 2009

CMS late Friday afternoon announced historically low net increases of well below 1% in its 2010 payment rates for Medicare inpatient services by both acute-care and long-term care hospitals, and signaled even larger reductions may be coming in the next two years.

CMS is proposing to update acute-care hospital rates by 2.1% for inflation less an adjustment of 1.9%, and 2.4% for inflation minus a 1.8% adjustment for long-term care hospitals, in both cases to remove the effect of increases in aggregate payments due to changes in hospital coding practices that CMS says do not reflect increases in the severity of illness in patients.

“We understand hospitals will be concerned about lower than historical update amounts,” says 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.”

CMS says the projected 2.1% 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. Because long-term care hospitals generally use a different mix of resources than acute care hospitals, their inflation update of 2.4% is determined using a different market basket than the market basket used for acute care hospitals.

Critics were not mollified by that explanation. Blair Childs, senior vice president of public affairs at Premier Health Alliance, says he is “extremely disappointed” by CMS’s net payment cut of 0.5%, on average and noted that hospital payments are already 7% below costs.

“As the economy and credit markets decline, non-profit hospitals are struggling, and now is not the time to further reduce hospital payments,” Childs says. 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, 2009.

Medicare on Oct. 1, 2008 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. CMS says 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.

CMS says the proposed documentation and coding adjustments help ensure that estimated aggregate payments to hospitals under the new classification systems would not increase solely as a result of the changes to the classification system and hospital coding practices. CMS says it “has the authority to make a much greater downward adjustment to payment rates to address these changes in hospital coding practices, but believes it would be prudent to phase-in the adjustment carefully over time.”
John Commins is an editor with HealthLeaders Media. He can be reached at

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