The Centers for Medicare and Medicaid Services (CMS) has set its sights on the quality of care during hospital inpatient stays and much, much more. On May 15, 2014, CMS published a proposed rule that would update Medicare payment policies and rates under the Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System (IPPS Rule) in fiscal year (FY) 2015. The following is a list of the top five things that you need to know about the proposed IPPS Rule.

1. Payment Updates

Overall, hospitals will see a net 1.3 percent increase in payments. This increase resulted from a market basket update of 2.7 percent reduced by: (1) 0.4 percent as a productivity adjustment; (2) 0.8 percent documentation and coding creep adjustment; and (3) 0.2 percent for a cut mandated by the Affordable Care Act (ACA). The 0.8 percent reduction was mandated by the American Taxpayer Relief Act of 2012 (ATRA). This continues CMS’s recoupment approach that began in FY 2014. Although unclear at this time, CMS notes that the agency can fulfill the ATRA cut requirements within the statutory four-year timeline by implementing additional cuts of 0.8 percent in FYs 2016 and 2017. If so, absent new cuts, hospitals should see a payment increase in 2018 once the recovery is complete.

Notwithstanding, hospitals that do not submit quality data or that were not meaningful users of electronic health records in FY 2013 will be subject to a 0.25 percent reduction. Additionally, hospitals that fail to meet both of these requirements will be subject to a 0.5 percent reduction.

The proposed rule sets a 0.8 percent increase in payments for Long-Term Care Hospitals (LTCHs). This includes a one-time budget neutrality adjustment of a 1.3 percent reduction. CMS believes this reduction accounts for overpayments in FY 2003, the first year of the prospective payment system (PPS) for LTCHs.

2. Quality of Care and Quality Reporting Changes

CMS proposes making several substantive changes to the Hospital Inpatient Quality Reporting (IQR) Program. CMS proposes to remove five measures from the IQR program for FY 2016 and subsequent years, which begins in calendar year 2015. CMS also proposes to remove 15 chart-abstracted measures for FY 2017 because the measures no longer discriminate among providers’ quality, although 11 of these measures are reincorporated as electronic reporting measures. In addition, CMS proposes adding 11 measures to the IQR program. Nine of these measures are new. Two of the measures, however, are not new, having been added back to the program as electronic reporting measures despite not providing significant quality of care differentiation. The agency also proposes to more closely align the data collection periods and deadlines for chart-abstracted and electronically reported measure data.

The IPPS Rule made changes to the Value Based Purchasing (VBP) program. First, it reduced the weight of the clinical process measures from ten percent to five percent, as the clinical process measures CMS used failed to provide sufficient quality of care differentiation. Second, for 2017, it proposed removing six clinical process measures, but will add three new measures related to infections and early elective deliveries. For 2019, CMS proposes adding a measure of hip and knee arthroplasty complications.

Finally, as required by the ACA, the Hospital Readmission Reduction Program (HRRP) penalty has been increased from two percent to three percent of base Medicare payments. In addition, the algorithm used to compute the readmission rate will be modified slightly.

3. Wage Index Geographic Update

CMS proposes utilizing the new Office of Management and Budget (OMB) definitions of “rural” and “urban” counties. The OMB updates area classifications every ten years using census data. The OMB recently updated its definitions in 2013, and CMS proposes to implement and adopt OMB’s new Core Based Statistical Areas (CBSAs). The changes will reassign some hospitals previously treated as rural hospitals under the prior OMB definitions to urban hospitals and vice-versa. CMS also proposes a transition payment period for those hospitals adversely impacted by reclassification.

4. Standard Charge Transparency

The IPPS Rule also reminds hospitals of their obligation to establish and make public a list of their standard charges for items and services. This statutory requirement is found in the ACA, but this appears to be one of the first times that CMS has publicly commented on the requirement. The agency additionally noted that hospitals can establish policies for allowing the public to view a list of standard charges in response to requests, instead of publishing a list of those charges.

5. Two-Midnight Rule

The two-midnight rule, established in last year’s IPPS rule, provides that inpatient stays lasting fewer than two midnights must be billed as outpatient services. The rule has been controversial and is subject to litigation by the American Hospital Association. Recognizing that hospitals continue to have concerns about the implementation of the rule, CMS invites feedback from providers to further define short inpatient hospital stays and determine an appropriate payment system for them. In addition, CMS solicits comments for suggested exceptions to the two-midnight rule.

CMS will accept comments on the proposed rule through July 14, 2014. The final rule is slated for publication in August 2014.