The Centers for Medicare & Medicaid Services late today issued its hospital inpatient prospective payment system proposed rule for fiscal year 2017. The rule would increase rates by 0.85% in FY 2017 compared to FY 2016, after accounting for inflation and other adjustments required by law. In the rule, CMS proposes two adjustments to reverse the effects of the 0.2% cut it unlawfully instituted when implementing the two-midnight policy in FY 2014. Specifically, the agency proposes a permanent adjustment of approximately 0.2% to remove the cut prospectively for FYs 2017 and onward; as well as a temporary adjustment of 0.6% to address the retroactive impacts of this cut for FYs 2014, 2015 and 2016. “Today’s rule includes a very important outcome because it reverses the inappropriate and unfair 0.2% payment reduction for inpatient services that was implemented as part of the original ‘two-midnight’ policy,” said AHA President and CEO Rick Pollack in a statement. “The AHA successfully challenged the CMS interpretation through the courts to convince them to restore the resources that hospitals are lawfully due.” In addition, the proposed rule includes an initial market-basket update of 2.8% for those hospitals that were meaningful users of electronic health records in FY 2015 and that submit data on quality measures, less a productivity cut of 0.5% and an additional market-basket cut of 0.75%, as mandated by the Affordable Care Act. CMS also proposes a 1.5% cut that would fulfill the requirement of the American Taxpayer Relief Act of 2012 that the agency recoup what it claims is the effect of documentation and coding changes from FYs 2010-2012, which CMS says do not reflect real changes in case mix. Pollack expressed deep disappointment, saying that “While a cut in the hospital update factor was mandated by law in 2012, CMS’s proposal is significantly larger than Congress indicated and the hospital field anticipated. Congress was clear in its passage of physician payment reform last year that this cut should be 0.8%, but CMS ignored this directive and almost doubled the reduction. This cut poses another challenge to hospitals’ ability to care for their communities.” The rule also includes ACA-mandated Medicare Disproportionate Share Hospital reductions, which would reduce overall Medicare DSH payments by $134 million in FY 2017 compared to FY 2016. CMS also proposes a three-year transition, beginning in FY 2018, to using Worksheet S-10 data to determine the amounts and distribution of uncompensated care payments. For the FY 2018 Hospital-Acquired Condition Reduction Program, CMS proposes a new scoring methodology in which hospitals would be scored based on how their measure performance compares to the national mean, rather than on their decile of performance. CMS also proposes to expand, for the FY 2019 Inpatient Quality Reporting Program, the requirement to report electronic clinical quality measures. Hospitals would be required to report a full year’s worth of data on 15 eCQMs. The agency also proposes other changes to the IQR Program, the Hospital Readmissions Reduction Program, the Value-Based Purchasing Program, the Inpatient Psychiatric Facility Quality Reporting Program and the PPS-Exempt Cancer Hospital Quality Reporting Program. The rule also includes proposals to implement the Notice of Observation Treatment and Implication for Care Eligibility Act, which requires hospitals and critical access hospitals to provide notification to individuals receiving observation services as outpatients for more than 24 hours. The proposed rule will be published in the April 27 Federal Register and comments will be accepted through June 17. AHA staff are reviewing the rule, and members will receive a Special Bulletin tomorrow with further details.