Timothy Wolters

The Centers for Medicare & Medicaid Services (CMS) released its federal fiscal year 2010 (FFY 2010) hospital inpatient final rule July 31, 2009. The provisions in the rule generally are effective October 1, 2009.

IPPS payment update

The Inpatient Prospective Payment System (IPPS) market basket update is only 2.1 percent, significantly below the 3.6 percent update for FFY 2009. However, CMS has decided not to impose a documentation and coding adjustment to reduce FFY 2010 rates. CMS had proposed a 1.9 percent downward adjustment for documentation and coding, as it believes hospitals have experienced increases in reimbursement under the MS-DRG system unrelated to patient severity of illness. Responding to numerous comments on this adjustment, CMS has decided to further study this area and may propose a more significant negative adjustment next year.

In another favorable move, CMS has decided not to eliminate the indirect medical education add-on to the capital payments received by teaching hospitals. CMS estimates hospitals will experience an overall average increase in reimbursement of 1.6 percent in FFY 2010.

Wage index issues

The geographic reclassification changes initiated last year are fully implemented this year. This means for applications filed September 1, 2009, an urban hospital will need to show its average hourly wage (AHW) is at least 88 percent of its existing area’s AHW, while a rural hospital must show its AHW is at least 86 percent of its area’s AHW.

CMS is also recognizing three new metropolitan areas in FFY 2010:

• Cape Girardeau, Missouri
• Manhattan, Kansas
• Mankato, Minnesota

Critical access hospitals (CAHs) located in these areas are given two years to elect rural status to retain their CAH classification.

Rural hospital issues

CMS reimburses sole community hospitals (SCHs) and Medicare-dependent hospitals (MDHs) based on the higher of the federal rate or their hospital-specific rate (HSR). HSRs can be computed from various years, most recently 2002 for MDHs and 2006 for SCHs. In computing the HSR, CMS believes it should impose budget neutrality factors retroactively to 1993. These factors will result in the 2002 MDHs HSRs being reduced by 1.7 percent starting October 1, 2009. The 2006 SCHs HSRs have been reduced by 2.4 percent for fiscal years beginning on or after January 1, 2009. On the surface, these retroactive budget neutrality factors appear unwarranted and we suggest all affected SCHs and MDHs consider filing appeals within 180 days of receiving notice of their applicable HSR.

Due to a legislative oversight, CMS believes CAHs that have elected the Method II billing option for outpatient services should not be paid 101 percent of cost for outpatient services, but instead 100 percent. CMS is adjusting such payments for cost reporting periods beginning on or after October 1, 2009. CMS implements a legislative provision by reimbursing CAHs their cost for outpatient lab services, even if the specimen is not drawn at the CAH, as long as the specimen is drawn by a CAH employee or the patient appears at the CAH for outpatient services on the same day. Skilled nursing consolidated billing rules apply for such outpatient lab services. Finally, CMS will apply the provider-based rules for CAH outpatient lab services effective October 1, 2010.

Other IPPS issues

CMS has finalized all three proposals related to disproportionate share reimbursement:

• Removing inpatient observation days
• Including maternity patients who have been admitted, regardless of whether they have occupied an inpatient bed
• Allowing Medicaid patient days to be counted based on admission date, discharge date or service date

CMS finalized its proposal that a new medical residency program is one that receives initial accreditation for the first time, as opposed to reaccreditation of a program that existed previously at the same or another hospital, regardless of how it is characterized by the accrediting body.

There are numerous other provisions affecting hospitals. Contact your BKD advisor for information on the impact these regulations may have on your operations.