The Centers for Medicare & Medicaid Services (CMS) today issued a proposed rule that would increase payments to acute care hospitals for inpatient services in fiscal year 2005, offer additional financial relief to rural hospitals, and for the first time in the history of Medicare, create a direct link between quality services to Medicare beneficiaries and payment for those services. The proposed rule would implement major payment and policy changes for acute care hospitals required by the comprehensive Medicare modernization legislation signed into law on December 8, 2003.
“The proposed inpatient payment rule that we are announcing today includes many specific changes created by the Medicare modernization legislation, such as updating the labor markets that are used to determine hospital payment rates in fee-for-service Medicare,” said CMS Administrator Mark B. McClellan, M.D., Ph.D. “The bottom line, particularly for rural hospitals, is significant increases in hospital payment rates. And the bottom line for Medicare beneficiaries, whether in urban or rural areas, is better access to high-quality inpatient care.”
CMS projects that the combined impact of the inflation update and other proposed changes will yield an average 4.7 percent increase in payments for urban hospitals in fiscal year 2005, while rural hospitals will see an average increase of 6.0 percent. In FY 2005, Medicare payments to approximately 3,900 acute care hospitals under the inpatient prospective payment system (IPPS) are projected to be $105 billion, up from a projected $100 billion in fiscal year 2004.
“The proposed rule represents our continuing effort to use the new Medicare legislation and other good ideas to help beneficiaries, in this case by providing regulatory and payment relief to hospitals,” said Dr. McClellan. “Among other things, the rule proposes a full market basket update for hospitals if and only if they report on the quality of their care; it proposes changes to the wage index that will increase the payment rates for rural hospitals significantly; proposes additional payments for hospitals in remote areas to reflect the higher costs associated with having a low volume of Medicare discharges; it proposes to incorporate in regulation a number of policy changes that we are already implementing to benefit critical access hospitals; it increases payments related to the use of some important new medical technologies; and it better targets physician training slots to where they are most needed.”
As required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), hospitals reporting specified quality data will receive an inflation update equal to the hospital market basket percentage increase, currently estimated at 3.3 percent. Hospitals that do not report this information will receive the market basket percentage increase less 0.4 percentage points, or an estimated 2.9 percent increase. The market basket percentage increase refers to the projected rate of inflation for goods and services used by hospitals in caring for Medicare beneficiaries. This is the first time that hospital payment rate increases have been related to performance, in this case by providing incentives for giving information to patients and health professionals related to quality of care.
The proposed rule would also implement Section 406 of the MMA, which requires CMS to make an additional payment to low-volume acute care hospitals that are located more than 25 road miles from another acute care hospital: payments will be based on their additional incremental costs. CMS has determined that this adjustment will be paid to hospitals with 500 or fewer discharges in a year that meet the distance requirement, because the available evidence shows that costs per case increase below this level of discharges. CMS is proposing to use the number of discharges from a previous fiscal year both in determining whether a hospital qualifies for the adjustment and in determining the amount of the adjustment to make it possible for hospitals to know in advance whether they will be receiving adjustments and how much.
The proposed rule addresses the impact of the new Core Based Statistical Areas (CBSAs) on hospital geographic classification. The CBSAs, which were developed by the Office of Management and Budget on the basis of 2000 Census data, will replace the currently used Metropolitan Statistical Areas and New England County Metropolitan Areas, which reflect 1990 data. Overall, the impact of the CBSAs is expected to be relatively small, although a number of hospitals, currently located in rural areas, are expected to benefit from being classified into areas with higher payment rates.
The CBSAs will also have an impact on hospitals that are entitled to automatic geographic reclassification because they are located in rural counties whose workforces tend to commute to adjacent urban areas. The number of such counties is increasing from 28 to 97 under the proposed rule.
The MMA contained a number of provisions to help critical access hospitals (CAHs) as they serve rural beneficiaries. The proposed rule addresses these provisions. For example, these hospitals can now designate up to 25 beds as either acute care beds or swing beds ‑ beds that may be used for either acute or post-acute care, and can set aside units of up to ten beds each to be used exclusively for inpatient rehabilitation and psychiatric services. These units, which would not count toward the CAH’s 25-bed maximum, will be paid as if they were distinct parts of acute care hospitals, and will have to meet the same standards as units in acute care hospitals. In addition, payment for both inpatient and outpatient services rendered by critical access hospitals has been increased from 100 percent to 101 percent of reasonable costs.