Proposed IPPS Rule: Low Rates, Not Many Changes

Lisa Eramo , May 4, 2009

The long-awaited fiscal year (FY) 2010 Inpatient Prospective Payment System (IPPS) proposed rule is out, and with it comes good and bad news for hospitals.

Although there aren't a whole slew of changes related to Medicare Severity DRGs (MS-DRG), hospital acquired conditions (HAC), and the present on admission (POA) indicator, hospitals will see historically low payment updates with a phased-in documentation and coding adjustment (DCA) to take place over time.

A slow rate of economic inflation and an increase in aggregate payments due to changes in hospital coding practices that do not reflect increases in patient severity of illness (SOI) are the reasons for the low updates, according to a CMS press release announcing the rule late Friday afternoon.

"We understand hospitals will be concerned about lower than historical payment update amounts," said Charlene Frizzera, CMS acting administrator in a CMS press release. "However, we are proposing an adjustment that minimizes the effects on FY 2010 payments while still meeting the requirements of the law, which may mean larger reductions in the next two years."

Payment updates
The proposed update for acute care hospitals means an update of 2.1% for inflation minus a DCA of 1.9 percentage points. Long-term care hospitals will see a proposed update of 2.4% for inflation minus a DCA of 1.8 percentage points. These DCA adjustments reflect the differences between the changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008, according to CMS.

Experts agree that these low rates won't help hospitals struggling to keep their doors open in the midst of a worsening economy. "Hospitals that are counting on some sort of increase won't really see anything this year," says Kimberly Hoy, JD, CPC, director of Medicare compliance for HCPro, Inc. in Marblehead, MA. "Payments are going to stay flat, and that's going to be tough for a lot of hospitals."

"The increase was practically eliminated by CMS' contention that improved documentation and coding for MS-DRGs resulted in an underserved 2.5% improvement in reimbursement," says James Kennedy, MD, CCS, director of FTI Healthcare in Atlanta.

The Medicare Actuary found based on analysis of 2008 data that additional coding did not reflect actual changes in patients' SOI. The analysis also found that additional coding increased total payments under IPPS by 2.5% in FY 2008 and will further increase total payments in FY 2009.

Still, it's as though CMS is penalizing hospitals for documentation and coding improvement, Kennedy says. "It's as if no good deed goes unpunished," he says. "Hospitals that took care of these sick patients and had rigorous clinical documentation and coding integrity processes in place in 2007 will see their reimbursement decline. CMS is penalizing their ethical and compliance efforts to improve disease definition, documentation, and reporting."

Clinical documentation improvement programs as well as more diligent efforts by HIM are most likely the reasons behind more accurate coding that led to higher payments, agrees Shannon McCall, RHIA, CCS, CCS-P, CPC-I, director of HIM and coding for HCPro, Inc. in Marblehead, MA. "CMS may have underestimated that facilities would create such effective clinical documentation improvement programs," she says. "I think those programs were an integral part of all of this."

And in light of decreased payment updates, hospitals that don't currently have a clinical documentation program will need to think seriously about implementing one, says Gloryanne Bryant, RHIA, CCS, CHW, senior director of corporate coding and HIM compliance in San Francisco. "Hospitals will need to assess their current efforts to capture patient severity and acuity through documentation and coding to see if opportunities remain," she says.

To view the rule, click here. CMS will accept comments until June 30.

Lisa Eramo, CPC, is a senior managing editor in the health information management division of HCPro, Inc. She is located in Rhode Island and writes content for the company's flagship newsletter, Medical Records Briefing. Contact her at

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