United States: FY 2017 IPPS Proposed Rule Results In Modest Increase For Hospitals

Last Updated: May 20 2016
Article by Amy E. Fouts, Ernessa B. McKie and Kyle R. Gregory

CMS recently issued a proposed rule updating fiscal year (FY) 2017 Medicare payment policies and rates under the Medicare inpatient prospective payment system (IPPS) and the long-term care hospital (LTCH) prospective payment system. Highlights of the proposed rule applicable to IPPS hospitals are the focus of this summary. With the proposed rule, CMS continues to emphasize its focus on quality initiatives and takes significant steps toward alignment of these programs. Comments on the proposed rule are due by June 17, 2016. Once finalized, the updated IPPS will apply to discharges on or after October 1, 2016.

Update to Prospective Payment Rate

Overall, CMS estimates the proposed rule will increase IPPS rates by 0.85 percent in FY 2017, after accounting for inflation and other adjustments required by law. With this increase, hospitals will receive an estimated $539 million more under IPPS than they did in FY 2016. As in previous years, many of these adjustments are closely tied to participation in quality-of-care programs.

Two-Midnight Reduction Reversed

The two-midnight rule established in the FY 2013 IPPS update, created a time-based threshold based on the admitting physician's anticipated length of stay. CMS proposes to drop the inpatient payment cuts originally used to offset the rule and will provide a temporary positive adjustment in FY 2017 to address the retroactive effects of the cuts in FYs 2014, 2015 and 2016.

Hospital Readmissions Reduction Program (HRRP)

For FY 2017 and subsequent years, CMS proposes to use the hospital's risk-adjusted readmission rate during a three-year period for the following measures:

  • Acute myocardial infarction
  • Heart failure
  • Pneumonia
  • Chronic obstructive pulmonary disease
  • Total hip arthroplasty/total knee arthroplasty
  • Coronary artery bypass graft (CABG)

The proposed FY 2017 applicable period will include Medicare Provider Analysis and Review claims with discharge dates from July 1, 2012 through June 30, 2015. CMS clarified that excess readmission rates will be publicly reported on the Hospital Compare website following the preview period. CMS is not putting forward any changes to the HRRP measures in the FY 2017 IPPS rule, declining to incorporate any sociodemographic adjustment into the HRRP's measure. The regulatory impact analysis suggests that refinement of the pneumonia measure and addition of CAGB present the greatest financial impact.

Hospital Value-Based Purchasing (VBP) Program

Several changes would affect the VBP program, including the addition of two condition-specific payment measures (one for acute myocardial infarction and one for heart failure) beginning with the FY 2021 program year and a 30-day mortality measure following CABG surgery beginning with the FY 2022 program year.

CMS proposes to include the catheter-associated urinary tract infections and central line-associated bloodstream infections measures from non-ICU locations for the Hospital VBP Program beginning with the FY 2019 program year, with a baseline period of January 1, 2015, through December 31, 2015, and a performance period of January 1, 2017, through December 31, 2017. CMS proposes to shorten the performance period for the PSI 90 measure for the FY 2018 program year. Beginning with the FY 2019 program year, the Patient- and Caregiver-Centered Experience of Care/Care Coordination domain will change to Person and Community Engagement.

The agency further proposes to modify the definition of a survey-related immediate jeopardy for purposes of Hospital VBP eligibility. Under the proposal, a hospital must incur at least three (previously two) immediate jeopardy citations during the performance period to be excluded from the program. With respect to EMTALA-related immediate jeopardy citations, CMS is proposing to change the date of the immediate jeopardy citation for exclusion purposes to the date of CMS's final issuance of Form CMS-2567 to the hospital.

Hospital Acquired Condition (HAC) Reduction Program

CMS is proposing to make five changes to existing HAC Reduction Program policies:

  • Create NHSN (National Healthcare Safety Network) CDC hospital-acquired infection data submission requirements for newly-opened hospitals.
  • Clarify data requirements for Domain 1 scoring. To receive a Domain 1 score, a hospital must have three or more eligible discharges for at least one component indicator and 12 months or more of data.
  • Establish performance periods for the FY 2018 and FY 2019 HAC Reduction Programs.
  • Adopt the refined PSI 90: Patient Safety for Selected Indicators Composite Measure (NQF # 0531). This modification is a response to NQF (National Quality Forum) concerns and will be adopted for the FY 2018 payment determination and beyond.
  • Adjust the scoring methodology from the current decile-based scoring. Under the new methodology, hospitals would receive a score for each measure that compares performance to the national mean.

Reduction in Disproportionate Share Hospital (DSH) Payments

The proposed rule sets out adjustments to the new DSH formula designed to reflect the growth of insurance coverage. For FY 2017, the amount available for additional uncompensated care payments will decline from 75 percent to 56 percent of the Medicare DSH funds that hospitals would have received under the old DSH formula. In addition, CMS proposes a change in how DSH payment distribution is determined. Over a three-year period beginning in FY 2018, CMS plans to transition away from basing payments exclusively on the hospital's share of Medicare SSI and Medicaid-insured low-income patient days to incorporating the uncompensated care estimate from Worksheet S-10. CMS estimates the FY 2017 updates will amount to a 0.3 percent reduction in Medicare DSH payments and uncompensated care payments, a cut of $400 million in overall DSH payments compared with FY 2016.

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR program proposals present a significant move toward reporting all measures electronically for calendar year (CY) 2017. CMS has also proposed a validation strategy for electronic Clinical Quality Measures (eCQMs).

Several changes are proposed to the existing Hospital IQR measure set. Specifically, four new claims-based measures (three clinical episode-based payment measures and one communication and coordination-of-care measure) are proposed and 15 measures (13 eCQMs and two structural) will be removed for the FY 2019 determination and beyond. These eCQMs will be removed from both the IQR and the electronic health record (EHR) incentive program. CMS is also proposing refinements to two claims-based measures: (1) PN Payment: Hospital-Level, Risk-Standardized 30-Day Episode-of-Care Payment Measure for Pneumonia; and (2) PSI 90: Patient Safety and Adverse Events Composite.

As a signal of alignment with the EHR incentive program, hospitals would be required to (1) submit data for an increased number of eCQMs and (2) report a full year of eCQM data beginning with the CY 2017 reporting period. CMS also clarified that for ED-1, ED-2, VTE-6 and PC-01, hospitals must submit a full year of chart-abstracted data regardless of whether the data is submitted electronically. Hospitals will be required to submit eCQM data two months following the close of the reporting period calendar year for the CY 2017 reporting period.

CMS further proposes to incorporate eCQM validating into the Hospital IQR Program. The proposed rule provides that a random sample of up to 200 hospitals will be selected for validation of eCQMs beginning in spring of CY 2018. If a hospital is selected for chart-abstracted targeted or random validation that hospital would be excluded from the eCQM validation sample. CMS estimates these changes will result in total hospital costs of $30 million.

Finally, CMS is proposing changes to its extraordinary circumstances exception (ECE) policy by (1) extending the general ECE request deadline for non-eCQM circumstances from 30 to 90 calendar days following an extraordinary circumstance, and (2) establishing a separate submission deadline for ECE requests related to eCQM reporting circumstances of April 1 following the end of the reporting calendar year.

Implementation of Notice of Observation Treatment and Implication of Care Eligibility Act

As part of the Notice of Observation Treatment and Implication of Care Eligibility (NOTICE)Act signed into law on August 6, 2015, the proposed rule would require hospitals and critical access hospitals to furnish a new CMS-developed standardized notice, the Medicare Outpatient Observation Notice (MOON), to Medicare beneficiaries or enrollees who have been receiving observation services for more than 24 hours. The MOON will inform beneficiaries of their status as outpatients receiving observational services and explain the implications of observation services on cost-sharing and eligibility for Medicare coverage of skilled nursing facility services.

CMS has proposed the following delivery requirements for the MOON:

  • Must be provided no later than 36 hours after observation services are initiated or sooner if the individual is transferred, discharged or admitted as an inpatient.
  • An oral explanation must be provided with the delivery of the written notice.
  • The beneficiary, or an individual qualified to act on his or her behalf, must sign the notice to acknowledge its receipt and understanding of the notice. If refused, the staff member who presents the notice to the beneficiary must sign and provide additional information regarding the signature dismissal.

CMS plans to release a proposed draft of the MOON for comment soon.

Other Proposals

The proposed rule also addresses other programs and changes, including (1) changes to payments for hospitals and hospital units excluded from the IPPS; (2) cost report regulations to correct technical changes and typographical errors in 42 CFR pt. 413; (3) changes to the wage index; and (4) graduate medical education payments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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