Hospitals face practically zero update in 2010

Acute care hospitals will receive a net 0.2 percent increase in payments for inpatient hospitals services in fiscal year (FY) 2010 under the proposed rule for the inpatient hospital prospective payment system (IPPS). Hospitals face a net decrease in payments in FY 2011 and 2012 under the proposed rule.

Under the proposed rule, hospitals will receive an inflation update of 2.1 percent in FY 2010, the smallest such update in years. This increase will be offset, however, by 1.9 percentage points “to remove the effect of increases in aggregate payments due to changes in hospital coding practices that do not reflect changes in patient’s severity of illness,” also known as “upcoding.”

For FY 2008, CMS instituted a new MS-DRG classification system which greatly expanded the number of DRGs that hospitals could use regarding the inpatient services they provide. At the time, CMS assumed that some hospitals in some cases would assign DRGs that did not properly reflect the severity of illness of individual payments.

A study of 2008 data by the Medicare actuary showed that upcoding increased total IPPS payments by 2.5 percent, with further increases expected in FY 2009. The actuary estimated that total adjustments of 8.5 percent would be necessary to bring payments in line with actual severity of illness. Under this scenario, hospital payments could be further decreased by 6.6 percentage points in FY 2011 and FY 2012, in addition to the 1.0 percentage point decrease in FY 2010.

CMS released the text of the proposed rule on May 1; it will be officially published in the Federal Register on May 22. CMS will accept comments on the proposed rule until June 30; the final rule is scheduled for release on August 1.