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CMS Issues FY 2017 IPPS Final Rule

On Aug. 2, the Centers for Medicare & Medicaid Services (CMS) issued the Medicare Inpatient Prospective Payment System (IPPS) final rule for fiscal year (FY) 2017. The final rule includes the annual payment update to inpatient payment rates, as well as changes to the Medicare disproportionate share hospital (DSH) payment methodology.

Acute-Care Hospitals

In the final rule, CMS increased inpatient operating payments for acute-care hospitals by 0.95 percent in FY 2017. This payment update includes a 0.8 percentage point adjustment to reverse the payment cut associated with the two-midnight policy.

Medicare DSH

With regard to Medicare DSH payments, CMS finalized an aggregate uncompensated care pool of $5.98 billion and estimated empirically justified payments will be $3.60 billion, resulting in total DSH payments of $9.58 billion. While CMS had proposed to phase in the use of worksheet S-10 of the Medicare cost report for calculating uncompensated care payments in FY 2018, the agency decided to postpone the use of the S-10 and focus on refining the S-10 form in the interim.

Quality Reporting Programs

In addition to payment changes, CMS finalized revisions to hospital quality reporting programs. CMS finalized a new continuous scoring methodology for the Hospital Acquired Condition (HAC) Reduction Program and adopted a modified patient safety indicator (PSI 90) composite measure. The agency continues to omit risk adjustment for sociodemographic factors in the Hospital Readmissions Reduction Program.

CMS also made changes to the Value-Based Purchasing Program and the Inpatient Quality Reporting (IQR) Program. For the IQR Program, CMS finalized the removal of 15 measures and the addition of four measures. CMS will also require electronic reporting of eight clinical quality measures instead of all 15, as originally proposed.

Observation Services

Last, as required by the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act), hospitals will be required to provide written and oral notification to a beneficiary receiving observation services as an outpatient for more than 24 hours. Written notification will be provided using a standardized form developed by CMS, the Medicare Outpatient Observation Notice, which is currently posted for public comment.

America’s Essential Hospitals will send members a detailed update in coming days. Contact Director of Policy Erin O’Malley at eomalley@essentialhospitals.org or 202.585.0127 with questions.

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About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.