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The Centers for Medicare & Medicaid Services (CMS) has proposed the fiscal year (FY) 2010 policies and payment rates for inpatient services furnished to people with Medicare by both acute care hospitals and long-term care hospitals.

In the announcement issued Friday, CMS is proposing to update acute care hospital rates by 2.1 percent for inflation less an adjustment of 1.9 percentage points to remove the effect of increases in aggregate payments due to changes in hospital coding practices that do not reflect increases in patient's severity of illness. CMS is similarly proposing to update long-term care hospital rates by 2.4 percent for inflation less an adjustment of 1.8 percentage points to account for changes in documentation and coding practices that do not reflect increases in patient's severity of illness. Beginning October 1, 2008, Medicare adopted a new classification system for general acute and long term care hospitals to better recognize severity of illness and the cost of treating Medicare patients.



However, hospitals changed their documentation and coding of patient diagnoses under the new system in a manner that leads to an increase in aggregate payments without corresponding growth in actual patient severity. The proposed documentation and coding adjustments help ensure that estimated aggregate payments to these hospitals under the new classification systems would not increase solely as a result of the changes to the classification system and hospital coding practices. Although CMS has the authority to make a much greaterdownward adjustment to payment rates to address these changes in hospital coding practices, CMS believes it would be prudent to phase-in the adjustment carefully over time.

The proposed rule would apply to approximately 3,500 acute care hospitals paid under the Inpatient Prospective Payment System (IPPS), and 400 long-term care hospitals paid under the Long-Term Care Hospital Prospective Payment System (LTCH PPS), beginning with discharges occurring on or after October 1, 2009. The proposed payment rates are based on the most recently available data and are subject to revision in the final rule to reflect more current data.

The projected 2.1 percent update for inflation for inpatient acute care payment rates is lower than the updates applied in recent years and reflects the slowing rate of inflation in the economy. The inflation updates are specifically designed to measure the inflation in the costs of resources (the market basket) used by hospitals in delivering care to inpatients. Because long-term care hospitals generally use a different mix of resources than acute care hospitals, their inflation update of 2.4 percent is determined using a different market basket than the market basket used for acute care hospitals.

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