CMS keeps greater overpayment reduction in final hospital inpatient rule

In what’s being called a “mixed bag” for hospitals, CMS finalized two adjustments in its Medicare inpatient payment system update for fiscal year 2017, which, overall, increases reimbursements for acute care hospitals by 0.95 percent.

The first adjustment is a 1.5 percent reduction, which CMS said is needed to recoup the last of $11 billion in overpayments based on incorrect coding on inpatient stays dating back to fiscal year 2008. The adjustment isn’t new, as Congress had mandated it be included beginning in 2014, but, until now, the rate reduction had been set at 0.8 percent.

The American Hospital Association questioned why the reduction rate needed to change in its response to the finalized rule.

“We are disappointed that CMS finalized an unjustified cut to reimbursement rates for hospital services,” the AHA said. “While a reduction to the hospital update factor was mandated by law in 2012, CMS is undermining Congress’s intent by imposing a cut that is nearly two times what Congress specified.”

The greater reduction in inpatient payment rates would be mostly offset by the other adjustment, “permanently removing” the -0.2 percent adjustment of compensation for services related to the “two-midnight rule,” and increasing fiscal year 2017 payments by 0.8 percent to make up for the effects on 2014, 2015 and 2016 payments.

Under the two-midnight rule, only patients that the doctor expects will need to spend two nights in the hospital would be considered hospital inpatients. The rule directs CMS payment contractors to presume hospital stays are appropriately billed as inpatient admissions rather than outpatient observation visits when they span two midnights. The change had first been proposed in April.

CMS suggested including a payment increase to make up for the effects of old policies wouldn’t happen under most circumstances, as it “does not generally believe it is appropriate in a prospective payment system to retrospectively adjust rates.” The AHA applauded the move, saying it “restored the resources hospital are lawfully due.”

The agency decided against changing another payment policy in this year’s rule, as the distribution of disproportionate-share hospital (DSH) payments will remain the same for fiscal year 2017, though the total amount will be reduced by $400 million compared to fiscal year 2016.  

“CMS proposed to begin incorporating uncompensated care cost data from Worksheet S-10 of the Medicare cost report in the methodology for distributing these funds starting in FY 2018,” the agency said. “In light of public comment, we are not finalizing this proposal. Instead, our intent is to engage in future rulemaking and begin to incorporate Worksheet S-10 data into the computation of Factor 3 no later than FY 2021.”

For long-term care hospitals, their fiscal year 2017 payments will decrease by 7.1 percent, or $363 million.