The Centers for Medicare & Medicaid Services (CMS) has changed its decision to cut payments to acute-care hospitals. The agency, instead, will be increasing reimbursement  2.1 percent in fiscal year 2010, despite its proposal earlier this year to reduce payments by 1.9 percent.

CMS said its proposed reduction was meant to account for the effect of increases in aggregate payments due to changes in hospital coding practices that do not reflect increases in patients' severity of illness. 

Friday's update was included in a final rule making policy changes and setting payment rates for inpatient services in general acute-care hospitals paid under the inpatient prospective payment system (IPPS), as well as long-term care hospitals (LTCHs), paid under the LTCH PPS. 

The changes will be effective beginning with discharges on or after Oct. 1. 

"The policies and payment rates in this final rule will ensure that Medicare beneficiaries continue to have access to high-quality inpatient care in both short-stay acute-care and long-term care hospitals," said Jonathan Blum, director of the CMS' Center for Medicare Management.

In fiscal 2008, CMS adopted Medicare severity diagnosis-related groups that account for the severity of patient illnesses and the cost of treating Medicare patients. Prior experience, however, shows that hospitals were likely to change coding practices as they adopted new classifications, causing Medicare spending to increase. Therefore, in the IPPS final rule for fiscal 2008, CMS adopted adjustments to hospital rates in fiscal 2008 through fiscal 2010 to ensure spending neither increased nor decreased, as authorized by statute.

Congress later halved the adjustments for fiscal 2008 and 2009, but directed CMS to adjust future rates and recoup excess spending for 2008 and 2009 if the lower adjustments under the new law led to an increased spending due solely to hospitals' documentation and coding practices. In the proposed IPPS rule for fiscal 2010, CMS recommended to reduce future rates based on the observed increase in spending due to documentation and coding that occurred in fiscal 2008. However, information on the extent of documentation and coding effects on 2009 spending is yet unknown. 

Therefore, CMS has "decided not to implement an adjustment for fiscal 2010 until it has a full year of fiscal 2009 data. Based on a complete analysis of fiscal 2008 and fiscal 2009 data CMS will consider phasing in future adjustments over an extended period beginning in fiscal 2011." 

The final rule provides for an inflation update of 2.5 percent to payment rates for inpatient services furnished by LTCH. To qualify for the higher payment rates under the LTCH PPS, the hospital's average length of stay--taking into account all patients--must be greater than 25 days.

As part of this rule, CMS also is finalizing the corrections to Medicare's fiscal 2009 LTCH payments for patients discharged on or after June 3, through Sept. 30, which were adopted on an interim basis on June 3, pending public comment. 

The final rule will apply to approximately 3,500 acute-care hospitals paid under the IPPS, and 400 long-term care hospitals paid under the LTCH PPS.