Although the survey guidance issued today applies to all hospitals, it also implements one element of the Strategic and Implementing Plan for Specialty Hospitals that CMS reported to Congress in August of 2006, in accordance with the provisions of section 5006 of the Deficit Reduction Act of 2005. Other actions CMS has taken to implement the Plan's elements include the following:

1. Continue making improvements in the inpatient hospital and ambulatory surgical center (ASC) payment systems to address the perception that specialty hospitals select more profitable DRGs and more profitable patients within those DRGs.


- Inpatient Prospective Payment System (IPPS). In the FY 2006 and 2007 final IPPS rules, CMS refined selected diagnosis related groups (DRGs), including the cardiac DRGs, to reflect the severity of a patient's illness. In the FY 2008 proposed IPPS rule, CMS is proposing a more comprehensive revision to the DRGs that would further improve the accuracy of inpatient acute care payments, while providing additional incentives for hospitals to engage in quality improvement efforts. The proposed rule would replace the existing 538 DRGs with 745 new DRGs to account more fully for the severity of the patient's condition.


CMS is also transitioning from basing DRG weights on hospital charges to estimated hospital costs. Studies by the Medicare Payment Advisory Commission have indicated that hospitals charge significantly more than their costs for some types of services, such as medical supplies and radiology. As a result, certain services are relatively more profitable, potentially contributing to the development of specialty hospitals which focus on high margin conditions. By basing DRG weights on estimated costs, rather than hospital charges, hospital payments will be more closely aligned with the actual costs of patient care, and the incentive for hospitals to take higher margin cases will be reduced. In October 2006, CMS began to phase in the new cost-based weights. The phase-in will take three years.

- ASC Payment System. Consistent with its payment reform goals, CMS published its proposal for reforming the payment system for ambulatory surgical centers on August 23, 2006. The proposal was intended to improve payment accuracy under the revised ASC payment system by more logically aligning payment rates across payment systems to eliminate financial incentives favoring one care setting over another. The proposal would significantly expand the list of covered ASC services and provide ASC payment generally based on the Ambulatory Payment Classification relative payment weights used in the Outpatient Prospective Payment System to improve access to surgical services and payment accuracy. At the same time, the proposed rule recommended capping ASC payments at the physician non-facility practice expense payment rate for services that are frequently performed in the physician office setting and that would be new to the ASC list of covered procedures in CY 2008. CMS is reviewing the public comments on that proposed rule and expects to publish a final rule in the summer of 2007, with the revised ASC payment system to be implemented January 1, 2008.

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