The final rule released Aug. 2 for the fiscal year (FY) 2017 hospital inpatient prospective payment system (PPS) is a “mixed bag for hospitals and the patients they serve,” the AHA said.

The final rule will increase rates by 0.95% compared to FY 2016, after accounting for inflation and other adjustments required by law. It will take effect Oct. 1.

The AHA welcomed the final rule’s removal of a controversial 0.2% inpatient payment cut on hospitals that was part of the Centers for Medicare & Medicaid Services’ (CMS) original “two-midnight” policy. The final rule includes 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 the cut for FYs 2014, 2015 and 2016.

But the association expressed strong disappointment with the rule’s “unjustified” 1.5% cut in the hospital payment update factor. CMS imposed the cut to fulfill the 2012 American Taxpayer Relief Act’s requirement that the agency recoup what it claims is the effect of documentation and coding changes form FY 2010-2012, which the agency says do not reflect real changes in case mix.

“While a reduction to the hospital update factor was mandated by law in 2012, CMS is undermining Congress’ intent by imposing a cut that is nearly two times what Congress specified,” AHA Executive Vice President Tom Nickels said in a statement.


Market-basket update. The final rule includes an initial market-basket update of 2.7% 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 0.3% and an additional market-basket cut of 0.75%, as mandated by the Affordable Care Act (ACA).


Medicare DSH. The rule also includes reductions to Medicare Disproportionate Share Hospital (DSH) payments mandated by the ACA, which will reduce overall Medicare DSH payments by $400 million compared to FY 2016.

CMS delayed changes to the way it distributes DSH payments. In April, the agency proposed a three-year transition, beginning in FY 2018, to using Worksheet S-10 data to determine the amounts and distribution of uncompensated care payments.

In response to concerns expressed by the AHA and others, CMS said in the final rule that it will institute certain additional quality control and data improvement measures to the Worksheet S-10 instructions and data prior to moving forward with incorporation of the data.

“We commend the agency for pausing the incorporation of ‘Worksheet S-10’ data in order to improve its accuracy and consistency in determining the cost of treating uninsured patients,” the AHA’s Nickels said. “We will continue to advocate that CMS adopt a broad definition of uncompensated care that includes Medicaid shortfalls and discounts to the uninsured, and fully accounts for graduate medical education expenditures.”


Quality reporting. Against the AHA’s recommendation, CMS will expand, beginning with the FY 2019 Inpatient Quality Reporting Program, the requirement to report electronic clinical quality measures, or eCQMs. Starting in 2017, CMS will require that hospitals select and submit four quarters of data on eight of 15 eCQMs available in the IQR. CMS also will begin to validate eCQM data reported during 2018, which will affect payment in FY 2020.

“While CMS reduced its proposed requirements on reporting electronic clinical quality measures, much more work needs to be done to ensure that the measures are valid and reliable before broad-scale implementation,” Nickels said.


Observation notice. The final rule also implements the Notice of Observation Treatment and Implication for Care Eligibility Act, which requires hospitals and critical access hospitals to provide a written and oral notification to Medicare beneficiaries receiving observation services as outpatients for more than 24 hours.

CMS made a number of changes recommended by the AHA, including providing hospitals with more than four months to fully implement the use of the standardized Medicare Outpatient Observation Notification.


LTCH PPS final rule for FY 2017. CMS released another major payment rule on Aug. 2 – the long-term care hospital (LTCH) final rule for FY 2017. 

The rule finalizes a 2.8% market-basket update, a 0.3% cut for productivity and an additional 0.75% cut, as mandated by the ACA. The rule also implements the second year of the transition to a dual-rate payment system for LTCHs, which was mandated under the 2013 Bipartisan Budget Act and represents a transformative change for the field.

During this phase-in, site-neutral cases are paid a 50/50 blend of the LTCH PPS and site-neutral rates. When accounting for all the rule’s provisions, CMS estimates that total LTCH payments are estimated to decrease by 7.1%, or $363 million, compared to FY 2016 payment levels. This overall impact includes a 0.7% net increase in payments for cases paid a standard LTCH PPS rate, and a 23% drop in payments for LTCH site-neutral cases.

Despite the AHA's urging, the final rule proceeds with 25% Rule implementation for discharges occurring on or after Oct. 1, 2016, which the agency believes complies with the statutory deadlines.

The AHA is “deeply disappointed that CMS is implementing the long-term care hospital 25% Rule,” Nickels said. “This arbitrary decision discounts the transformation that the LTCH field is undergoing and has the potential to negatively affect patient access to care.”

CMS also finalized four new measures for the LTCH Quality Reporting Program to meet the requirements of the Improving Medicare Post-Acute Care Transformation Act. For the FY 2018 LTCH Quality Reporting Program, CMS adds measures for Medicare spending per beneficiary, discharge to community and potentially-preventable 30-day post-discharge readmissions. For the FY 2020 LTCH QRP, CMS adopts a drug regimen review measure.

The rule’s provisions will take effect Oct. 1.