FY 2014 IPPS Final Rule Released

On August 2, the Centers for Medicare and Medicaid Services (CMS) released the Medicare inpatient prospective payment system (IPPS) final rule for fiscal year 2014.


Coding Update

The ICD-9-CM Coordination and Maintenance Committee implemented a partial freeze of ICD-9-CM prior to the implementation of ICD-10 on October 1, 2014. The last regular annual updates to ICD-9-CM were made on October 1, 2011.  The only updates to ICD-9 are limited to code sets to capture new technologies and diseases as required by section 503(a) of Pub. L. 108-173.

In the final rule, there are no new, revised or deleted ICD-9 diagnoses. There are no revised or deleted ICD-9-CM procedure codes; however there are four (4) new procedure codes which will be effective October 1, 2013.

  • 00.96         Infusion of 4-Factor Prothrombin Complex Concentrate
  • 14.81         Implantation of epiretinal visual prosthesis
  • 14.82         Removal of epiretinal visual prosthesis
  • 14.83         Revision or replacement of epiretinal visual prosthesis

There have been no additions or deletions to the MS-DRG list; however some have had an increase or decrease in relative weight. Be sure to review your top MS-DRGs for potential financial impact.

Here are a few highlights from the final rule. For more detailed information please refer to the FY 2014 IPPS Final Rule Home Page at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html


FY 2014 Payment

The IPPS operating rates will increase by 0.7 percent in FY 2014.


Outlier Threshold

Under the Final Rule, the outlier threshold for FY 2014 will increase to $21,748 (reduced from $24,140 in the Proposed Rule). The final outlier threshold for FY 2014 is slightly lower than the FY 2013 threshold of $21,821. CMS estimates that outlier payments in FY 2014 will equal 5.1% of total Medicare DRG payments.


Other changes

The August rule also finalizes a number of payment policies as proposed, among them rebasing the hospital market basket and the method to recover documentation and coding.


Changes to Medicare DSH

Section 3133 of the Affordable Care Act amends the Medicare DSH adjustment provision and provides for an additional payment for a hospital’s uncompensated care. Effective for discharges occurring on or after FY 2014, hospitals will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH. The remaining 75 percent of what otherwise would have been paid as Medicare DSH will then become available for an uncompensated care payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH hospital will receive an uncompensated care payment based on its share of insured low income days.


Changes to the Hospital IQR Program and the Medicare EHR Incentive Program

The Hospital Inpatient Quality Reporting (IQR) Program grew out of the Hospital Quality Initiative developed by CMS in consultation with hospital groups. By statute, annual payment updates for hospitals that do not participate successfully in the Hospital IQR program are reduced by 2.0 percentage points. Beginning with fiscal year 2015, hospitals that do not participate will lose one-quarter of the percentage increase in their payment updates. Since the implementation of this financial penalty, hospital participation has increased to well over 99 percent.

Measures reported under the Hospital IQR Program are published on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/), and may later be adopted for use in the Hospital VBP Program, mandated by the Affordable Care Act, which began to affect hospital payment rates in FY 2013.

The Hospital IQR Program measure set includes chart-abstracted measures, such as measures related to heart attack, heart failure, pneumonia, and surgical care improvement measures; claims-based measures, such as mortality and readmissions; healthcare-associated infections measures; a surgical complications measure; a patient experience of care survey-based measure; immunization measures, and structural measures to assess hospitals’ capacity to improve quality of care.

For the FY 2016 payment determination and subsequent years, CMS will remove six chart abstracted measures and one structural measure. We will suspend one chart-abstracted measure and adopt five new claims-based measures: (1) 30-day risk-standardized COPD Readmission; (2) 30‑day risk standardized COPD mortality; (3) 30-day risk standardized stroke readmission; (4) 30-day risk standardized stroke mortality; and (5) AMI payment per episode of care.

In the final rule, CMS finalizes a policy to validate two new chart- abstracted Healthcare Associated Infections measures: hospital-onset methicillin-resistant staphylococcus aureas (MRSA) bacteremia, and clostridium difficile. CMS is also finalizing a proposal to reduce the number of records used for HAI validation from 48 records per year to 36 records per year beginning with the FY 2015 payment determination and to provide hospitals with the option to transmit secure electronic versions of medical information to meet validation requirements.

The final rule also includes changes to the Medicare Electronic Health Record (EHR) Incentive Program, such as expanding the submission period for reporting clinical quality measures electronically; giving eligible hospitals and critical access hospitals the option of submitting aggregate clinical quality measure data for meaningful use by attestation; and streamlining the process for submitting aggregate population data under the case number threshold exemption policy.

Under the final rule, hospitals participating in the Hospital IQR program will have the option to submit data electronically, through Certified Electronic Health Record Technology (CEHRT), for up to 16 selected measures across four measure sets: Stroke (STK), Venous Thromboembolism (VTE), Emergency Department (ED), and Perinatal Care (PC). A hospital that chooses this option might be able to meet both the reporting requirements for clinical quality measures under the Medicare EHR Incentive Program and the reporting requirement for these measures under the IQR program simultaneously. Hospitals that do not submit electronically will continue to report a full year’s worth of data via chart-abstraction for the IQR program.

CMS believes the use of CEHRTs will greatly simplify and streamline reporting, in particular for Hospital IQR Program quality data now manually abstracted from charts. Their intent is to harmonize measures across hospital quality reporting programs, improve care, and minimize the reporting burden on hospitals through a single voluntary submission to comply with multiple programs.


Changes to the Hospital Value Based Purchasing (VBP) Program

Program Requirements for FY 2014

The final rule describes operational details for FY 2014, including an increase in the applicable percent reduction to base operating Diagnosis Related Group (DRG) payment amounts (1.25 percent), which is required by law to fund this program. The rule also includes the total estimated amount available for value-based incentive payments to hospitals as a result of this reduction (approximately $1.1 billion).


Program Requirements for FY 2016

The final rule readopts all finalized FY 2015 Clinical Process of Care measures for the FY 2016 measure set, except AMI-8A, primary percutaneous coronary intervention received within 90 minutes of hospital arrival; PN-3b, blood cultures performed in the emergency department prior to initial antibiotic received in hospital; HF-1, discharge instructions for heart failure patients; and SCIP-Inf-1, prophylactic antibiotic received within one hour prior to surgical incision. The final rule also readopts a patient experience survey measure, a Medicare spending per beneficiary measure, three 30-day mortality measures, an outcome measure that assesses patient safety, and Central-Line Associated Blood Stream Infection (CLABSI), a healthcare-associated infection measure.

CMS also is adopting new measures for FY 2016, including one new clinical process measure, IMM-2 influenza immunization, and two new healthcare-associated infection measures, Catheter-Associated Urinary Tract Infection (CAUTI) and Surgical Site Infection (SSI), the latter of which is stratified into two separate surgery sites.

The final rule includes the performance and baseline periods for the FY 2016 program and for certain measures for FY 2017 through FY 2019, and finalizes re-classification of the Hospital VBP program domains to more closely align with the National Quality Strategy in FY 2017. It also finalizes domain weighting for the reclassified domains for the FY 2017 program, as well as domain weighting under the current domain structure for FY 2016.

The final rule adopts performance standards, including achievement thresholds and benchmarks for the FY 2016 program, including the “floors” for all eight Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) dimensions, as well as performance standards for certain measures for FY 2017 and FY 2019.


Additional Policies

The final rule also finalizes a disaster/extraordinary circumstance exception process under the Hospital VBP program for hospitals struck by a natural disaster or experiencing extraordinary circumstances. Under this policy, CMS will allow a hospital to request a Hospital VBP program exception within 90 days of the natural disaster or other extraordinary circumstance.


New Hospital-Acquired Condition (HAC) Reduction Program

HACs are conditions that patients develop during their hospital stays that they did not have prior to being admitted.  As part of the HAC Reduction program created by the Affordable Care Act, beginning in FY 2015 hospitals that are in the lowest quartile for medical errors or serious infections that patients contract while in the hospital will be paid 99 percent of what they otherwise would have been paid under the IPPS. The application of the penalty to all payments differs from the other hospital performance programs, where the adjustment only applies to base operating diagnosis-related group (DRG) payments.  This rule finalizes the criteria to rank hospitals with a high rate of hospital-acquired conditions. CMS will use two measure domains to determine a hospital’s total HAC score. Domain 1 will consist of the Agency for Healthcare Research & Quality (AHRQ) composite measure, which is a conglomerate of 11 individual patient safety indicators. Domain 2 will include the Centers for Disease Control and Prevention (CDC)’s Central Line-Associated Blood Stream Infection and Catheter-Associated Urinary Track Infection measures.


Changes Affecting Direct and Indirect Graduate Medical Education (GME) Payments

  • Labor and delivery days will be included as inpatient days in the Medicare utilization calculation for purposes of direct GME payments, effective for cost reporting periods beginning on or after October 1, 2013.
  • CMS announced the closure of four teaching hospitals.
  • An IPPS teaching hospital may not count resident time spent training at a CAH and may not be reimbursed for such time.
  • The “freeze” that has been in effect for per-resident amounts (PRAs) that exceeded the ceiling expires beginning in FY 2014. For cost reporting periods beginning on or after October 1, 2013, the full CPI-U update will apply to all PRAs for direct GME purposes.

In addition, CMS has finalized two separate proposals in the final IPPS rule: payment of Medicare Part B inpatient services; and admission and medical review criteria for payment of hospital inpatient services under Medicare Part A.


Readmissions Reduction Program

As required by law, the FY 2014 IPPS rule increases the maximum reduction of payments to up to two percent for excess 30-day patient readmissions for heart attack, heart failure and pneumonia. Also, hip and knee surgery and chronic obstructive pulmonary disease were added to the list of conditions used to determine the reduction, effective in FY 2015. CMS has increased the number and types of planned readmissions that no longer count against a hospital’s readmission rate.


Admission and Medical Review Criteria for Inpatient Services

The final rule provides greater clarity regarding when inpatient hospital admissions are generally appropriate for Medicare Part A payment. The new rules are intended to address concerns about Medicare beneficiaries having long stays in the hospital as outpatients and improve program integrity.

Under the rule, if a physician expects a beneficiary’s surgical procedure, diagnostic test or other treatment to require a stay in the hospital lasting at least two midnights, and admits the beneficiary to the hospital based on that expectation, it is presumed to be appropriate that the hospital receive Medicare Part A payment. The final rule emphasizes the need for a formal order of inpatient admission to begin inpatient status, but permits the physician to consider all time a patient has already spent in the hospital as an outpatient receiving observation services, or in the emergency department, operating room, or other treatment area in guiding their two-midnight expectation.

The rule also finalizes the provision in a March 2013 proposed rule that set the timeframe in which to bill Medicare Part B for hospital inpatient services inappropriately billed under Part A at one year from the date of service. This portion of the rule makes clear that its terms apply to admissions with dates of service on or after October 1, 2013.


  1. Patrice DeMarco says:

    Can you clarify for me whether hospitals can be reimbursed for inpatient lactation consultant services,under what circumstances and whether a MD order is needed for this reimbursement, under the new ACA law?
    Thank You !

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