Medicare Proposes Increase In Payment Rates For Hospital Inpatient Care

Author:Ms Amanda Brino
Profession:Vinson & Elkins L.L.P.


May 12, 2003, CMS proposed a rule for FY 2004, beginning October 1, 2003, that

will include a 3.5 percent increase in payment rates to hospitals for inpatient

services furnished to Medicare beneficiaries.†

This increase is the projected FY 2004 increase for the full estimated

"hospital market basket"--the costs of goods and services used by

acute care hospitals.† CMS will pay

approximately $100.2 billion to roughly 4,800 acute care hospitals for FY

  1. † This is an increase of $5.7

    billion from FY 2003 payment rates.† The

    increase is due to payment rate and other policy changes ($2.1 billion)

    as well as expected increases in inpatient services ($3.6 billion). The

    proposed rule would also relax the requisite criteria for hospitals to receive

    add-on payments for new technologies by reducing the high-cost threshold for

    add-on payments for new technologies.†

    This lower threshold would apply to applications for new technology

    add-on payments for FY 2005. In addition, the proposed rule would expand the

    post-acute transfer policy to an additional 19 DRGs.† The policy currently applies to 10 DRGs, and treats discharges

    involving the designated DRGs as transfers from an acute-care hospital to a

    post-acute setting.† Under this policy,

    the transferring hospital is paid a per diem rate which is not to exceed the

    full payment of the DRG.† The outlier

    threshold will also be increased under the proposed rule.† It would increase from $33,560 in FY 2003 to

    $50,645 for FY 2004.† This would limit

    outlier payments to 5.1 percent of total payments under inpatient PPS.† CMS estimated that for the first three

    months of FY 2003, the outlier spending percentage was 5.5 percent and was 7.9

    percent of total payments for FY 2002.†

    CMS is planning to revise the rules governing outlier payments in a

    separate rulemaking procedure that should be finalized during the comment

    period for the proposed inpatient PPS rule.†

    The final outlier payment rule may significantly lower the outlier

    threshold in the inpatient PPS final rule.†

    The proposed inpatient PPS rule will be published in the Federal

    Register on May 21, 2003, and the comment period for the rule ends July 8,

  2. This material is not intended to create, and does not create, an

    attorney-client relationship between you and Vinson & Elkins L.L.P., and

    you should not act or rely on any of this information. As legal advice must be tailored

    to the specific circumstances of each case, nothing provided herein should be


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