Medicare Proposes Increase In Payment Rates For Hospital Inpatient Care

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

OnMay 12, 2003, CMS proposed a rule for FY 2004, beginning October 1, 2003, thatwill include a 3.5 percent increase in payment rates to hospitals for inpatientservices 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 byacute care hospitals.  CMS will payapproximately $100.2 billion to roughly 4,800 acute care hospitals for FY2004.  This is an increase of $5.7billion from FY 2003 payment rates.  Theincrease is due to payment rate and other policy changes ($2.1 billion)as well as expected increases in inpatient services ($3.6 billion). Theproposed rule would also relax the requisite criteria for hospitals to receiveadd-on payments for new technologies by reducing the high-cost threshold foradd-on payments for new technologies. This lower threshold would apply to applications for new technologyadd-on payments for FY 2005. In addition, the proposed rule would expand thepost-acute transfer policy to an additional 19 DRGs.  The policy currently applies to 10 DRGs, and treats dischargesinvolving the designated DRGs as transfers from an acute-care hospital to apost-acute setting.  Under this policy,the transferring hospital is paid a per diem rate which is not to exceed thefull payment of the DRG.  The outlierthreshold 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 limitoutlier payments to 5.1 percent of total payments under inpatient PPS.  CMS estimated that for the first threemonths of FY 2003, the outlier spending percentage was 5.5 percent and was 7.9percent of total payments for FY 2002. CMS is planning to revise the rules governing outlier payments in aseparate rulemaking procedure that should be finalized during the commentperiod for the proposed inpatient PPS rule. The final outlier payment rule may significantly lower the...

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