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HFMA’s Regulatory Sound Bites. An Overview of the Final 2013 Inpatient Prospective Payment Rule. Dear Member,

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hfma s regulatory sound bites

HFMA’s Regulatory Sound Bites

An Overview of the Final 2013 Inpatient Prospective Payment Rule


Dear Member,

This presentation provides a summary of recent regulatory acts and highlights the features that most affect acute care hospitals. It also offers a guide to HFMA resources you can use to navigate your organization through the complicated economic and regulatory environment.

Please feel free to use this presentation to educate your staff and other hospital stakeholders. If HFMA can be of additional assistance in any way, please do not hesitate to contact us.

Warmest Regards,


presentation objectives
Presentation Objectives
  • Review the 2013 Final Medicare Inpatient Prospective Payment Rule
  • Analyze Implications for Hospitals
  • Identify HFMA Resources for Addressing These Changes


positive impact
Positive Impact


Rural Areas

All Hospitals


> 100 Residents

<= 100 Residents

Other Urban Areas

Large Urban Areas

The Final Rule Increases Payments to All Hospitals

Reimbursement Impact of the 2013

Final IPPS Rule

Teaching Status

Geographic Area

Source, pp. http://www.ofr.gov/OFRUpload/OFRData/2012-19079_PI.pdf pgs 1881-1886


operating base rates
Operating Base Rates

CMS Is Adjusting the Market-Basket Update for Upcoding Related to MS-DRG Implementation

IPPS Provisions

Implications for Hospitals

  • The 2013 final MBU is
  • The market basket rate-of-increase of 2.6% will be reduced further by an adjustment of 0.7% for the multifactor productivity adjustment, less 0.1% (both mandated by the ACA), resulting in a net payment increase of 1.8 percent.
  • The rate increase will increase hospital payments by an estimated $2.0 billion in FY13, or 2.3 percent.
  • Additional reductions are anticipated. Providers should look for opportunities to reduce waste inefficiencies.
  • 2.6% for hospitals submitting quality data
  • 0.2% for hospitals not submitting quality data


1. See Appendix 1 for final operating rates


capital base rates and payments
Capital Base Rates and Payments

Capital Payments Are Increased by an Estimated 1.2%

IPPS Provisions

Implications for Hospitals

  • CMS establishing an update of 1.2% in determining the FY13 capital federal rate for all hospitals
  • CMS not adopting proposal to make an additional -0.8% adjustment to the national capital rate in FY13 to adjust for upcoding as a result of MS-DRG implementation
  • Capital rate established at $425.49 for FY13, based on 1.2 % update and other budget neutrality factors
  • Additional negative adjustments for documentation and coding should be anticipated


1. See Appendix 2 for calculation of FY13 standard federal capital rates


outlier payments
Outlier Payments
  • The final outlier fixed-loss cost threshold for FY13 will decrease to $21,821, from the current amount of $23,630.
  • CMS using same methodology it proposed to calculate the outlier threshold for FY13, using cases from the FY11 MedPAR file (the most recent data available at the time of this final rule)
  • Hospital VBP and readmissions payment adjustments excluded from this calculation
  • For FY13, a case would qualify as a cost outlier if the cost for the case plus the (operating) IME and DSH payments is greater than the prospective payment rate for the MS-DRG, plus the fixed loss amount of $21,821
  • Facilities need to model these changes to understand the full financial impact on revenue



Quality Data for Payment Update

  • For FY14, CMS suspended data collection for four measures beginning with January 1, 2012, discharges, affecting the FY14 payment determination and subsequent years
  • These measures include:
    • Acute Myocardial Infarction (AMI)
      • AMI-1 Aspirin at arrival
      • AMI-3 ACEI/ARB for left ventricular systolic dysfunction
      • AMI-5 Beta-blocker prescribed at discharge
    • Surgical Care Improvement Project (SCIP)
      • SCIP INF-6 Appropriate Hair Removal
  • CMS says the suspension of data collection for these four measures will be continued unless it has evidence that performance on the measures is in danger of declining


quality data for payment update
Quality Data for Payment Update

The rule finalizes a total of 59 measures for FY15 and subsequent years

IPPS Provisions

Implications for Hospitals

  • For FY15 CMS adopting all Hospital IQR Program measures adopted in previous payment determinations, with the exception of the 17 measures
    • Measures that CMS is removing include:
      • 1 chart-abstracted measure
      • 16 claims-based measures
  • For FY15, and subsequent years, the 59 measures that CMS is finalizing include:
    • New survey-based measure items for inclusion in the HCAHPS survey measure
    • 3 claims-based measures
    • 1 chart-abstracted measure
  • Total of 59 measures for the FY15 payment determination and subsequent years
  • Providers should make sure they can collect and submit the additional quality measures
  • Processes should be in place to improve performance for each measure


See Appendix 3 for FY15 Hospital IQR quality measures


quality data for payment update1
Quality Data for Payment Update

Additional IQR Program Measures for FY15

IQR Program Measures for the FY16

  • HCAHPS survey measure: NQF-endorsed 3-Item Care Transition Measure (CTM-3) (NQF #0228)
  • Three claims-based measures:
    • Hip/Knee Complication: Hospital-level risk-standardized complication rate (RSCR) following elective primary total hip arthroplasty (THA) and total knee arthroplasty (TKA) (NQF#1550)
    • Hip/Knee Readmission: Hospital-Level 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) Following Elective Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF #1551)
    • Hospital-Wide Readmission (tentative NQF #1789)
  • New Chart-Abstracted Measure: Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of babies electively delivered prior to 39 completed weeks gestation (NQF #0469)
  • CMS adopted the Safe Surgery Checklist Use measure for FY16
  • not NQF-endorsed
  • Structural measure assesses whether a hospital outpatient department utilizes a Safe Surgery checklist that assesses whether effective communication and safe practices are performed during three distinct perioperative periods:
      • prior to the administration of anesthesia
      • prior to skin incision
      • period of closure of incision and prior to the patient leaving operating room
  • CMS is finalizing the Safe Surgery Checklist use measure for a total of 60 measures for the FY 2016 payment determination and subsequent years. .


wage index
Wage Index

IPPS Provisions

Implications for Hospitals

  • Providers should complete the occupational mix index survey
    • In the FY11 IPPS/LTCH PPS proposed rule and final rule, beginning with the new 2010 occupational mix survey, CMS required hospitals that do not submit occupational mix data to provide an explanation for not complying.
    • CMS instructed FIs/MACs to begin gathering this information as part of the FY13 wage index desk review process. CMS will review these data for future analysis and consideration of potential penalties for noncompliant hospitals.
  • For FY13, the wage index will continue to be calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located
  • CMS defines hospital labor market areas based on the Core-Based Statistical Areas (CBSAs)
  • The FY13 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY09 (the FY12 wage indices were based on data from cost reporting periods beginning during FY08)
  • The FY13 national average hourly wage (unadjusted for occupational mix) is $37.4855



Hospital Readmissions Reduction

IPPS Provisions

Implications for Hospitals

  • The Hospital Readmissions Reduction Program requires a reduction to a hospital’s base operating DRG payment amount to account for excess readmissions of selected applicable conditions:
    • acute myocardial infarction
    • heart failure
    • pneumonia
  • Minimum number of discharges for each applicable conditions is 25
  • Provision not budget neutral
  • For FY13, readmission payment adjustment is the higher of ratio of a hospital’s aggregate dollars for excess readmissions to their aggregate dollars for all discharges, or 0.99 (that is, or a 1-percent reduction)
  • Program will result in an estimated 0.3 percent decrease, or $280 million, in payments to hospitals
  • Secretary can expand the conditions for the program in FY15
  • CMS finalized 3 years (7/1/08 to 6/30/11) as the applicable period for the FY13 payment adjustment
  • Hospitals should work to understand the readmission drivers within their patient population and put programs in place to mitigate these issues.



Value Based Purchasing

  • Under Hospital Value-based Purchasing Program (VBP), value-based incentive payments are made in a fiscal year to hospitals that meet performance standards established for a performance period for such fiscal year.
  • ACA directs the Secretary to begin making value-based incentive payments under the Hospital Inpatient VBP Program for discharges occurring on or after October 1, 2012.
  • Incentive payments will be funded for FY13 through a reduction to the FY13 base operating MS-DRG payment for each applicable hospital’s discharge of 1%.
    • The applicable percentage for FY14 is 1.25%
    • The applicable percentage for FY15 is 1.5%
    • The applicable percentage for FY16 is 1.75%
    • The applicable percentage for FY17 and subsequent years is 2%
  • For the FY13 Hospital VBP Program, CMS previously adopted 13 measures, including 12 clinical process of care measures and a 13th measure comprising 8 dimensions from the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS). The 13 measures were categorized into two domains.



Value Based Purchasing

  • CMS grouped the 12 clinical process of care measures into a Clinical Process of Care domain, and placed the HCAHPS survey measure into a Patient Experience of Care domain.
  • CMS adopted a 3-quarter performance period from July 1, 2011, through March 31, 2012, for these measures and performance standards on which hospital performance will be evaluated.
  • To determine whether a hospital meets or exceeds the performance standards for these measures, CMS will assess each hospital’s achievement and improvement during the period as compared with its performance during a 3-quarter baseline period from July 1, 2009, through March 31, 2010.
  • CMS will then calculate a total performance score (TPS) for each hospital by combining the greater of the hospital’s achievement or improvement points for each measure to determine a score for each domain, weighting each domain score.
    • For the FY13 Hospital VBP Program, the weights will be clinical process of care = 70 percent, patient experience of care = 30 percent. The weighted domain scores will be added together.
  • CMS will convert each hospital’s TPS into a value-based incentive payment percentage using a linear exchange function and then convert the value-based incentive payment percentage into a per
  • discharge value-based incentive payment amount.



Value Based Purchasing

  • For FY14, CMS has adopted 17 measures for the Hospital VBP Program, including:
    • 12 clinical process of care measures from FY13 Hospital VBP Program and the HCAHPS measure adopted for the FY13 Hospital VBP Program
    • 1 new clinical process of care measure (SCIP-Inf-9: Postoperative Urinary Catheter Removal on Postoperative Day 1 or 2)
    • 3 mortality outcome measures (Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, Heart Failure (HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day Mortality Rate)
  • Although CMS previously adopted 8 HAC measures, 2 AHRQ composite measures, and a Medicare Spending Per Beneficiary Measure for the FY14 Hospital VBP Program, it has suspended the effective date of these measures, with the result that they will not be included


See Appendix 4 for FY14 VBP Measures



Value Based Purchasing

  • For FY15, CMS will retain 12 of the 13 clinical process of care measures it adopted for the FY14 program
    • CMS finalizing proposal to remove SCIP-Inf-10: Surgery Patients with Perioperative Temperature Management from the FY15 Hospital VBP Program because it is “topped-out”
    • SCIP-VTE-1 removed from the Hospital VBP Program measure set beginning with the FY15 Hospital VBP Program
  • AMI-10 not finalized for FY15 Hospital VBP Program measure because it meets CMS definition of “topped-out”
  • For patient experience of care domain, CMS will retain eight dimensions of the HCAHPS survey adopted for FY13 and FY14 Hospital VBP Program
  • For the outcome domain, CMS retains the three 30-day mortality measures finalized for the FY14 Hospital VBP Program
  • Adopts two additional outcome measures for the Outcome domain
    • PSI-90, the AHRQ PSI composite measure
    • CLABSI: Central Line-Associated Blood Stream Infection measure
  • For Efficiency domain, CMS adopts one new measure:
    • Medicare Spending per Beneficiary measure


See Appendix 5 for FY15 VBP measures (please note that although AMI-10 is not finalized for FY15, it appears in the list of measures published in the final rule, which also appears in the appendix)



Value Based Purchasing

  • CMS is not finalizing the proposal to reclassify the Hospital VBP measures into domains based on the six priorities of the National Quality Strategy in FY16. It will maintain the existing four-domain structure.
  • Will include the 30-day mortality measures, AHRQ PSI composite measure, and other measures finalized for the FY15 Hospital VBP measure set (with the exception of the CLABSI measure) in the FY16 measure set.

Note: See Appendix 6 for FY15 data collection period and performance standards


disproportionate share
Disproportionate Share

IPPS Provisions

Implications for Hospitals

  • CMS will adopt a policy that hospitals that are required to submit no pay bills for services furnished on a prepaid capitation basis by a Medicare Advantage organization, or through cost settlement with an HMO, a competitive medical plan (CMP), a health care prepayment plan (HCPP), or a demonstration, for the purpose of calculating the DSH patient percentage (DPP), must also do so within the time limits for filing claims specified at § 424.44
  • Hospitals submitting claims for services provided to Medicare Advantage enrollees for additional IME and direct GME payments, and for claims for nursing or allied health education program payments, must ensure that they comply with the regulations governing time limits for filing claims at § 424.44
  • Under §424.44, time limits for filing claims, for services furnished on or after January 1, 2010, the claim must be filed no later than the close of the period ending 1 calendar year after the date of service


disproportionate share1
Disproportionate Share

Policy Change Relating to Treatment of Labor and Delivery Beds in the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment

  • Under current policy, services furnished to a labor and delivery patient are considered to be generally payable under the IPPS, under § 412.105(b)(4), but beds where the services are furnished are not available for IPPS-level acute care hospital services
  • CMS believes if patient day is counted because the services furnished are generally payable under the IPPS, the bed in which the services were furnished should be considered available for IPPS-level acute care hospital services
  • CMS believes it is appropriate to extend current approach of including labor and delivery patient days in the disproportionate patient percentage of the Medicare DSH payment adjustment to rules for counting hospital beds for purposes of both the IME payment adjustment and the Medicare DSH payment adjustment
    • The rules for counting hospital beds for purposes of the IME payment adjustment are codified in the IME regulations at § 412.105(b), which are cross-referenced in § 412.106(a)(1)(i) for purposes of determining the DSH payment adjustment
  • CMS revises the regulations at § 412.105(b)(4) to remove from the list of currently excluded beds those beds associated with ancillary labor/delivery services
  • Will negatively impact IME reimbursement


ime gme payments
IME/GME Payments

IPPS Provisions

Implications for Hospitals

  • Section 5503 of the ACA added new section 1886(h)(8) to the Act providing reductions in FTE resident caps for direct GME payment purposes under Medicare hospitals training fewer residents than their FTE resident caps, and to authorize a “redistribution” of the estimated number of excess FTE resident slots to other qualified hospitals
  • This section amended section 1886(d)(5)(B)(v) of the Act to require application of the provisions of section 1886(h)(8) of the Act “in the same manner” to the IME FTE resident caps
  • Cap-building period will increase the from 3 years to 5 years
  • CMS is also finalizing the proposed methodology used to calculate a cap adjustment for an individual hospital if a new program rotates residents to more than one hospital (or hospitals)

Hospitals that can qualify for additional slots and can fill them should apply


See Appendix 8 for additional information.



IME/GME Payments

  • The methodology is based on the sum of the products of the following three factors:
    • The highest total number of FTE residents trained in any program year, during the fifth year of the first new program’s existence at all of the hospitals to which the residents in that program rotate
    • The number of years in which residents are expected to complete the program, based on the minimum accredited length for each type of program
    • The ratio of the number of FTE residents in the new program that trained at the hospital over the entire 5-year period to the total number of FTE residents that trained at all hospitals over the entire 5-year period
  • CMS finalizing policy under section 5503 and revising the regulations text at §413.79(n)(2)(ii) to state that if a hospital does not use all of its section 5503 cap award in its final (12-month or partial) cost report of the 5-year period beginning July 1, 2011, and ending June 30, 2016, the applicable unused slots will be removed , and the award will be reduced for portions of cost reporting periods on or after July 1, 2016.



New HACs

  • The hospital-acquired conditions (HACs) payment policy, mandated by the Deficit Reduction Act of 2005, prevents hospitals from being paid at higher MS-DRG rate for patients with complications or major complications if the sole reason for the higher payment is the occurrence, during the beneficiary’s hospital stay, of one of the conditions on the HACs list.
  • CMS adding Surgical Site Infection Following Cardiac Implantable Electronic Device (CIED) and Iatrogenic Pneumothorax with Venous Catheterization to the HAC payment provision for FY13.
  • CMS finalizing its proposal to add Iatrogenic Pneumothorax with Venous Catheterization with the following diagnosis code 512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous catheterization NEC).
  • CMS also adding two codes, 999.32 (Bloodstream infection due to central catheter) and 999.33 (Local infection due to central venous catheter) to the existing Vascular Catheter-Associated Infection HAC Category for FY13.
    • CMS is modifying its proposal to add SSI Following CIED Procedures as a HAC condition. CMS’s final policy makes SSI following CIED Procedures a sub-HAC condition within the SSI HAC category subject to the HAC payment provision for discharges occurring on or after October 1, 2012.



MDH Program Expiration

  • Under Section 3124 of the ACA, Medicare dependent hospitals (MDHs) currently receive the higher of payments made under the federal standardized amount or the payments made under the federal standardized amount plus 75 percent of the difference between the federal standardized amount and the hospital-specific rate
  • Because MDH program is not authorized by statute beyond FY12, beginning in FY13, all hospitals that previously qualified for MDH status will no longer have MDH status and will be paid based on the federal rate
  • CMS will allow hospitals currently classified as Medicare dependent hospitals (MDHs) to apply for classification as sole community hospitals (SCHs) upon the expiration of the MDH program on September 30, 2012
  • The SCH status will be effective the day following the expiration of the MDH program
  • CMS believes it is difficult to quantify the payment impact of this policy because it cannot estimate the number of MDHs that will be applying for SCH status


hfma resources
HFMA Resources

Links to HFMA Resources Addressing IPPS-Related Challenges

HFMA provides additional information on the following:

IIPS Final Rule:

HFMA’s Medicare’s Final Inpatient Payment Rule for FY13 Webinar

Larry Goldberg provides commentary on the 2013 final Medicare rule.

Value-Based Purchasing:

Hospital Inpatient Value-Based Purchasing Program Fact Sheet

Discusses the value-based purchasing program, including scoring methodologies, thresholds, benchmark targets, and measures.

Hospital Readmissions:

Hospital Readmissions Reduction Program Overview

Provides a summary of the various aspects of the Hospital Readmissions Reduction Program.



For questions regarding this presentation or the final IPPS Rule, please contact:

  • Chad Mulvany
  • Technical Director
  • HFMA
  • 1825 K Street, NW
  • Suite 900
  • Washington, D.C. 20006
  • Office: 202.238-3453
  • Email: dmulvany@hfma.org


  • Appendix I: Final IPPS Base Rates/Standard Operating Amounts
  • Appendix II: Standard Federal Capital Rates
  • Appendix III: FY15 Hospital IQR Quality Measures
  • Appendix IV: FY14 VBP Measures
  • Appendix V: FY15 VBP Measures
  • Appendix VI: FY15 Data Collection Period
  • Appendix VII: FY15 Performance Standards
  • Appendix VIII: Resident Cap Ranking Criteria


appendix i final ipps base rates standard operating amounts
Appendix I: Final IPPS Base Rates/Standard Operating Amounts

National Adjusted Operating Standardized Amounts

(68.8 Percent Labor Share/31.2 Percent Nonlabor if Wage Index Is Greater Than 1)

National Adjusted Operating Standardized Amounts

(62 Percent Labor Share/38 Percent Nonlabor Share

if Wage Index Is Less Than or Equal To 1)

Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor