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Health Care Reform Affects Inpatient Hospital Reimbursement

When the 2011 Inpatient Prospective Payment System (IPPS) proposed rule was released May 4, 2010, it was noted throughout the provisions that the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010, known collectively as the Affordable Care Act (ACA), were not included.

On July 8, 2010, the Centers for Medicare & Medicaid Services (CMS) released Change Request (CR) 7029, which included changes for IPPS hospitals for federal fiscal year 2010, long-term care hospitals (LTCHs) for rate year 2010, Inpatient Rehabilitation Facilities (IRFs) for FY2010 and Outpatient Prospective Payment System (OPPS) hospitals for calendar year 2010 due to the ACA, which was enacted in March 2010. Provisions included in this CR relating to IPPS hospitals are being retroactively implemented for federal FY2010. These provisions replace data originally detailed in the Federal Register released August 27, 2009, and the correction notice released October 7, 2009.

Extension of Section 508 Reclassifications & Special Exceptions Wage Indices

Section 508 reclassifications and special exceptions wage indices have been retroactively extended through September 30, 2010, under Sections 3137(a) and 10317 of the ACA. This would include discharges occurring on or after October 1, 2009, through discharges on or before September 30, 2010.

Section 508 was originally enacted as part of the Medicare Modernization Act of 2003 to enable hospitals not meeting general criteria for wage index reclassification to be reclassified to a nearby area, if certain criteria were met. Also effective April 1, 2010, Section 10317 of the ACA states that the wage index data for hospitals qualifying for reclassification will be included in the reclassified wage index data only if they result in ahigher reclassified wage index. The wage indices originally published for federal FY2010 have been updated as a result of these changes. This includes a change to the statewide rural floor budget neutrality adjustment factors. For Section 508 and special exceptions hospitals, the change will be for all of FY2010. For all other IPPS hospitals, it will be effective for only the second half of FY2010, which includes discharges occurring on or after April 1, 2010, and on or before September 30, 2010.

Effective October 1, 2009, Section 508 and special exceptions hospitals will be given an individual special wage index. This wage index will be the higher of its wage index value from the FY2010 IPPS final rule (74 FR 44032-44078, August 27, 2009) and correction notice released on October 7, 2009, or its wage index value under the revised FY2010 wage index values effective April 1, 2010. This wage index will be effective for the entire federal FY2010.

Updated IPPS wage index tables reflecting revised wage indices effective April 1, 2010, through September 30, 2010, can be found on the CMS website.

Market Basket Update Reduction for IPPS

As part of the ACA, Section 3401(a) imposes a 0.25-percentage-point reduction to the IPPS market basket update for federal FY2010. This reduction is applied to the operating standardized amounts and hospital-specific rates for sole community hospitals (SCHs) and Medicare-Dependent Hospitals (MDHs). The IPPS standardized amounts, budget neutrality factors and outlier thresholds had to be updated as a result of this provision. These updates apply only to payments made for discharges occurring on or after April 1, 2010, through discharges occurring on or before September 30, 2010.

For SCHs and MDHs, the DRG Reclassification and Recalibration Budget Neutrality Factor to be applied to the hospital-specific rate have changed as follows:

Discharges occurring on or after October 1, 2009, through discharges on or before March 31, 2010 Discharges occurring on or after April 1, 2010, through discharges on or before September 30, 2010
Budget Neutrality Factor 0.997941 0.997935

Additional changes to the IPPS rates and outlier thresholds are noted below:

Discharges occurring on or after October 1, 2009, through discharges on or before March 31, 2010 Discharges occurring on or after April 1, 2010, through discharges on or before September 30, 2010
National Standardized Amounts Update Factor 1.021

1.001 (for hospitals that do not submit quality data)

1.0185

0.9985 (for hospitals that do not submit quality data)

SCH/MDH Hospital-Specific Update Factor 1.021

1.001 (for hospitals that do not submit quality data)

1.0185

0.9985 (for hospitals that do not submit quality data)

Outlier Fixed-Loss Cost Threshold $23,140 $23,135
Federal Capital Rate $430.20 $429.56

Information contained in CR 7029 relating to LTCHs, IRFs and OPPS hospitals will be released under separate cover. Hospitals should carefully review these changes and contact their BKD National Health Care Group advisor for more information on these matters.

This post was written by:

Becky, a managing consultant in BKD's Kansas City office, is a member of BKD National Health Care Group. She has more than eight years of experience in Medicare and Medicaid reimbursement as well as cost report consulting and preparation.

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Recent Comment

  • Karen Vance says:
    This would be under §484.18 of the Conditions of Participation describing regulations for the Plan of Care. Below is the Standard that addresses your issue: "§484.18(b) - Agency professional staff promptly alert the physician to any changes that suggest a need to alter the plan of care." From the State Operations Manual (guidance for state surveyors) "The
    February 24, 2011 on Webinars

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