Inpatient Prospective Payment System (IPPS) Final Rule Announced

On July 31, 2009, CMS issued the IPPS final rule announcing the changes that will affect the payment rates and related policies for acute care hospitals and long-term care hospitals that are paid under the prospective payment system. The changes are effective for discharges beginning on October 1, 2009 which is the start of the government’s fiscal year for 2010 (FY2010).

In the proposed rule, there were concerns that the payment rate update of 2.1% minus the documentation and coding adjustment (DCA) of 1.9% were going to leave the annual increase for hospitals flat in the midst of a declining economy.  The final rule brought some good news in that the payments are actually projected to increase by $1.9 billion for IPPS hospitals.

With the adoption of MS-DRGs in FY2008, the diagnosis and the severity of the patient’s illness were reflected in the payment structure.  Ultimately, physician documentation needed to improve in order for the coder to assign the most specific and appropriate MS-DRG for reimbursement related to the intensity of those services used to treat the patient.   In anticipation that documentation would improve overall, thereby causing increased reimbursements to hospitals, Medicare statutes required CMS to make “adjustments” to the annual inpatient rates to prevent excess spending in the Medicare program.  For FY2010, CMS had proposed the 1.9% DCA to offset that anticipated increased spending.  However, based on public comments and the fact that CMS could not definitely determine that FY2009 spending was either higher or lower than projected based on those documentation and coding improvements, CMS chose not to make any DCA adjustment at all to the FY2010 rates.  This change and several other adjustments have projected that the IPPS payments will increase by $1.9 billion during the upcoming fiscal year.

This is good news for many hospitals that are struggling; however, keep in mind that after the FY2009 documentation and coding improvement information has been analyzed by CMS, adjustments will probably be forthcoming.  Facilities who have effective clinical documentation improvement programs in place should continue their efforts and those who do not have one in place should seriously consider it.  The lack of a DCA adjustment this fiscal year could help some hospitals put some “money in the bank” in preparation for future adjustments.