CMS released its final rule on the 2008 Medicare hospital inpatient prospective payment system yesterday.  It will be published in the Federal Register August 22.  The CMS press release says:

The IPPS payment reforms would restructure the inpatient diagnosis-related groups (DRGs) to account more fully for the severity of each patient’s condition. In addition, the rule includes important provisions to ensure that Medicare no longer pays for the additional costs of certain preventable conditions (including certain infections) acquired in the hospital. The rule also expands the list of publicly reported quality measures and reduces Medicare’s payment when a hospital replaces a device that is supplied to the hospital at no or reduced cost.

Highlights (quoted or adapted from the press release) include:

  • Payment increase.  Payments to all hospitals will increase by an estimated average of 3.5 percent for FY 2008 when all provisions of the rule are taken into account, primarily as a result of the 3.3 percent market basket increase.
  • MS-DRGs.  745 new severity-adjusted diagnosis-related groups (Medicare Severity DRGs or MS-DRGs) to replace the current 538 DRGs. Projected aggregate spending will not change as a result of the reforms. However, payments will increase for hospitals serving more severely ill patients and decrease for those serving patients who are less severely ill. (This is intended to remove incentives for "cherry-picking.")
  • Outliers; capital cost reimbursement.  New methodologies for calculating outlier payments and capital cost reimbursement, which are intended to be more accurate.
  • No pay for "never" events.  The rule implements a provision of the Deficit Reduction Act of 2005 (DRA) that takes the first steps toward preventing Medicare from giving hospitals higher payment for the additional costs of treating a patient who acquires a condition (including an infection) during a hospital stay. Already the feature of many state health care programs, the DRA requires hospitals to begin reporting secondary diagnoses that are present on the admission of patients, beginning with discharges on or after October 1, 2007. Beginning in FY 2009, cases with these conditions would not be paid at a higher rate unless they were present on admission. In order to improve the reliability of care in the nation’s hospitals, the rule identifies eight conditions, including three serious preventable events (sometimes called “never events”) that meet the statutory criteria. CMS will work to add an additional 3 conditions to the list next year.
  • Quality measures and reporting.  New quality measures that hospitals would need to report in calendar year (CY) 2008 in order to qualify for the full market basket update in FY 2009.  Failure to report will result in a 2% penalty.  CMS will measure 30-day mortality for Medicare patients with pneumonia and plans to adopt two measures relating to surgical care improvement in the CY 2008 outpatient prospective payment system final rule. In addition, CMS will finalize two additional surgical care improvement measures by program notice after they receive NQF endorsement.
  • Replacement medical device reimbursement.  Payments for replaced medical devices which were recalled and replaced by manufacturers below cost will be reduced.
  • Specialty hospitals.  In keeping with the plan contained in CMS’s August 2006 final Report to Congress on specialty hospitals, the rule creates new disclosure requirements for these hospitals. The rule requires physician-owned hospitals to disclose such ownership to patients and provide the names of the physician owners upon request. The rule also requires physician-owned hospitals to require physician owners who are members of the hospital’s medical staff to disclose their ownership to the patients they refer to the hospital. Disclosure would be required at the time of referral. In addition, the rule requires a hospital to notify all patients in writing if a doctor of medicine or doctor of osteopathy is not present in the hospital 24/7, and describe how the hospital will meet the medical needs of a patient who develops an emergency condition while no doctor is on site. CMS now has the authority to terminate a provider agreement for noncompliance with these disclosure requirements.

David Harlow