CMS looks to alter acute care payment system for inpatient services
The Centers for Medicare & Medicaid Services (CMS) has released plans to revise for the first time the Inpatient Prospective Payment System (IPPS) which has been in existence since 1983. The changes have been designed in an effort to increase the accuracy of payment rates for inpatient hospital visits with a weighted system using DGRs (Diagnosis Related Groups) which is associated to hospital costs instead of charges that can be modified depending on the severity of the illness, according to a release. The new payment system would be installed by or before fiscal year 2008.
“The hospital payment reforms we are proposing today will mean payments for hospital inpatient services will more accurately reflect the costs of providing the services,” said Mark B. McClellan, MD, PhD, CMS administrator. “We are taking important steps to make payments fairer to hospitals and to assure beneficiary access to services in the most appropriate setting.”
Acute care hospitals would see an overall 3.4 percent increase in payments by FY 2007 — which is a bump of $3.3 billion — while over 1,000 rural hospitals could see a jump of 6.7 percent, according to CMS.
The Medicare Payment Advisory Commission (MedPAC) has proposed many of the changes which address concerns that the existing system creates the possibility for facilities to hand pick the most profitable cases. Specifically, the reforms are likely to significantly impact payments to specialty hospitals.
The plan would unfold in two phases, starting with the rollout of the DRG weights associated with hospital costs. Secondly, the current 526 DRGs would be replaced with either the proposed 861 consolidated severity-adjusted DRGs or an alternative severity adjusted DRG system developed in response to public comments. CMS also is considering ways of improving recognition of illness severity FY 2007.
CMS is further making an effort to speed availability of the latest technologies to patients as add-on payments. Technologies available for the additional reimbursement would have to be:
  • Less than two to three years old;
  • It must meet a defined cost threshold in  relation to the underlying DRG; and
  • A considerable benefit for patients in  treatment.
“This proposed rule will be shaped by the public comment process,” McClellan added. “We look forward to comprehensive feedback from hospitals, suppliers, and other stakeholders that will help to refine and improve the final version of the rule.”
Read a copy of the proposed rule here:

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