Washington D.C. -- The Centers for Medicare & Medicaid Services (CMS) has proposed nearly $25 billion in cuts over five years to hospital payments for providing care to the elderly under Medicare, the American Hospital Association (AHA) has calculated. That figure was arrived at after a thorough analysis of a new 1,200-plus page rule from CMS, issued April 13.

The proposed rule, called the inpatient prospective payment system (IPPS) rule, sets payment rates for providing hospital inpatient services under Medicare. Under the IPPS, each patient's case is categorized into a diagnosis-related group (DRG) that has a set payment rate. The proposed rule calls for refinement of the DRGs, which will result in significant changes in Medicare payments. A key misstep in the proposed rule is the 2.4 percent so-called "behavioral offset" payment cut of $24 billion over five years. CMS proposed this cut to eliminate what the agency inaccurately claims will be the effect of greater use of coding for complications and co-morbidities as hospitals move to the new system.

"The rule proposed by CMS fails to put patients first," said Rich Umbdenstock, AHA president. "Cutting payments for services for America's seniors will put in jeopardy hospitals' ability to care not only for Medicare patients but also for anyone who come through the doors."
In the past, CMS significantly overreached by employing a similar policy when a new payment system was put into place for physicians, only to later find out the cut they implemented was much higher than what was needed. Hospitals believe the same will be true this time.

"CMS' latest proposal is misguided," said Umbdenstock. "The rules of thumb for hospital coding under the new DRGs are generally the same as what hospitals have been doing for over 20 years, making the justification for the proposed $24 billion cut to Medicare payments extremely hollow."

CMS has also proposed freezing capital payments to hospitals that allow for purchasing high-tech equipment such as MRIs and CT scanners as well as updating facilities and information systems, including eliminating the 3 percent add-on for hospitals in large urban areas. All told, proposed cuts to capital payments that keep the latest medical technology available for patients will reach nearly $1 billion over the next five years.

"CMS went well beyond its charge by recommending arbitrary and unnecessary changes to this proposal," Umbdenstock said. "Unfortunately, these backdoor budget cuts to hospital payments for providing care to 41 million elderly patients will further deplete scarce resources, ultimately making the hospitals' mission of caring for patients even more challenging. We'll continue to work with our hospital members and Congress to send a clear message-cuts to hospital services threaten care for the elderly and disabled covered by Medicare."

Comments on the proposed rule will be accepted until June 12, 2007. A final rule will be released by August 1, 2007, and the policies and payment rates will take effect October 1, 2007.

About AHA

The American Hospital Association (AHA) is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA is the national advocate for its members, which includes more than 5,000 hospitals, health care systems, networks, and other providers of care, and 37,000 individuals. Founded in 1898, the AHA provides education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA Web site at www.aha.org.

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