On July 31, 2015, CMS issued its final rule to update the fiscal year (FY) 2016 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS).  Additionally, as an interim final rule with comment period, CMS is implementing the statutory extensions of the Medicare-dependent, small rural hospital program and changes to the payment adjustment for low-volume hospitals under the IPPS.  The final rule will affect discharges occurring on or after October 1, 2015, while the provisions of the interim final rule with comment period are applicable for discharges on or after April 1, 2015 and on or before September 30, 2017. 

CMS estimates that the applicable statutory percentage increase to the IPPS rates, combined with other payment changes in the final rule, will result in an estimated $378 million increase in FY 2016 operating payments (or 0.4 percent change from FY 2015) and an estimated $187 million increase in FY 2016 capital payments (or 2.3 percent change from FY 2015).  (Under the proposed rule, CMS had estimated IPPS operating payments to hospitals to increase by approximately 0.3 percent, or $278 million, over FY 2015 payments, plus an estimated $160 million increase in FY 2016 capital payments, or 2.0 percent.)  LTCHs will face an expected decrease of $250 million in payments in FY 2016 relative to FY 2015.  (This estimate is unchanged from the proposed rule.)

CMS’s projected 0.4 percent increase in total operating payments includes a 0.9 percent increase in operating payment rates, and also takes into account other payment changes in the final rule.  The 0.9 percent payment rate increase includes: (1) the 1.7 percent hospital update to the standardized amount (which includes the estimated 2.4 percent market basket update, less 0.5 percentage point for the multifactor productivity adjustment, and less 0.2 percentage point required under the Affordable Care Act); and (2) the -0.8 percent documentation and coding adjustment applied to the IPPS standardized amount, which is part of the recoupment required under the American Taxpayer Relief Act of 2012.  Hospitals that do not participate in the Hospital Inpatient Quality Reporting Program and do not submit the required quality data will be subject to a 25 percent reduction in the market basket update for FY 2016, while hospitals that are not meaningful users of certified electronic health record technology will be subject to a 50 percent reduction in the market basket update.

With respect to LTCHs, CMS is implementing section 1206 of the Pathway for SGR Reform Act, which requires the establishment of an alternative site neutral payment rate for Medicare discharges from an LTCH that fail to meet certain statutory defined criteria, beginning with LTCH discharges occurring in cost reporting periods beginning on or after October 1, 2015. In the final rule, CMS is also making changes to address certain statutory requirements related to an LTCH’s average length of stay criterion and discharge payment percentage, as well as providing technical clarifications relating to the FY 2015 implementation of the new statutory moratoria on the establishment of new LTCHs and LTCH satellite facilities and on bed increases in existing LTCHs and LTCH satellite facilities.

Additional IPPS Final Rule Highlights

• Disproportionate Share Hospital (DSH) Payments and Uncompensated Care Payments – Continuing with the reductions in DSH payments resulting from the Affordable Care Act, for FY 2016, CMS is providing that the 75 percent of what otherwise would have been paid for Medicare DSH is adjusted to approximately 63.69 percent of the amount to reflect changes in the percentage of individuals that the agency has calculated are uninsured, as well as additional statutory adjustments.  Ultimately, “CMS is distributing an estimated $6.4 billion in uncompensated care payments in FY 2016, a decrease of $1.2 billion from the estimated FY 2015 amount.” 
• Two Midnight Rule – Noting its acknowledgement in the proposed rule that hospitals and physicians continue to voice concerns with aspects of the Two Midnight Rule, CMS indicated that it is considering the feedback carefully, along with MedPAC’s recommendations on the subject, and expects to include a further discussion and response to public comments received on these issues in the CY 2016 OPPS/ASC final rule with comment period (which is expected to be issued in November 2015).  Public comments on the CY 2016 OPPS/ASC proposed rule must be received no later than 5 p.m. EST on August 31, 2015.
• Hospital Value-Based Purchasing (VBP) Program – For FY 2016 CMS is adopting one additional measure beginning with the FY 2018 program year, adopting one measure beginning with the FY 2021 program year, and removing two measures beginning with the FY 2018 program year.  The VBP program overall remains budget-neutral as required by statute.
• Hospital Acquired Conditions (HAC) and Hospital Readmissions Reduction Programs – In the final rule, CMS is making the following three changes to existing HAC Reduction Program policies: (1) an expansion to the population covered by the central line-associated bloodstream infection and catheter-associated urinary tract infection measures to include patients in select nonintensive care unit sites within a hospital; (2) an adjustment to the relative contribution of each domain to the Total HAC Score which is used to determine if a hospital will receive the payment adjustment; and (3) a policy that will align with existing extraordinary circumstance exception policies for other IPPS quality reporting and payment programs and will allow hospitals to request a waiver for use of data from the affected time period.

The final rule will be published in the Federal Register on August 17, 2015.  The inspection copy is available here.  A CMS fact sheet highlighting portions of the final rule is available here.

Reporter, Christina A. Gonzalez, Houston, +1 713 276 7340, cagonzalez@kslaw.com.