In FY 2008, CMS adopted a new, more accurate classification system for inpatient stays. The Medicare Severity Diagnosis-Related Groups (MS-DRGs) are designed to better take into account the severity of the patient's illness by providing higher payments for treating sicker patients - treatments that are more costly - and lower payments for other, less severe conditions.

"We understand hospitals will be concerned about lower than historical update amounts" said Charlene Frizzera, CMS Acting Administrator. "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. We are asking for comments from the public to help us ensure that these proposals are the best ways to meet the requirements of the law."


As required by the TMA [Transitional Medical Assistance], Abstinence Education and QI Programs Extension Act of 2007 (TMA), CMS has already applied adjustments of -0.6 percent in FY 2008, and -0.9 percent in FY 2009 to the acute care hospital rates. However, if CMS's review of claims data shows that the adjustments set by the TMA were too low to maintain budget neutrality under the new classification system, the TMA requires CMS to adjust payment rates to account for that difference in subsequent years. This means that CMS must adjust payment rates between FYs 2010 and 2012 as necessary to recapture any excess payments made to hospitals in FYs 2008 and 2009 that resulted from changes in hospitals' coding practices.

The Medicare Actuary found based on analysis of 2008 data that additional coding that did not reflect actual changes in the severity of patients' illnesses increased total payments under IPPS by 2.5 percent in FY 2008 and will further increase total payments in FY 2009. Based on current estimates, the Medicare Actuary estimates that total adjustments of approximately 8.5 percent would have to be made to the acute care hospital rates to address changes in hospitals' coding practices, including the increase in FY 2008 payments and the estimated increase in FY 2009 payments. CMS is proposing a prospective adjustment of 1.9 percentage points for FY 2010, which means additional adjustments of approximately 6.6 percentage points, will be needed in FY 2011 and FY 2012. CMS is requesting public comment on whether to apply a different documentation and coding adjustment than the one being proposed for FY 2010.

Under current Medicare law, hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program will get the full update. Hospitals that do not participate in the quality reporting program will get the update less two percentage points. Ninety-seven percent of participating hospitals received the full update last year. The proposed rule adds four new measures for which hospitals must submit data under the RHQDAPU program to receive the full market basket update. Two of these measures are additions to the existing Surgical Care Improvement Project (SCIP) measure set, and CMS believes that the other two measures will promote hospital participation in nursing-sensitive care and stroke care registries.

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