FY 2015 IPPS Proposed Rule Focus on Quality

on Tuesday, 06 May 2014. All News Items | Case Management | Quality | Medicare Coverage | Coding

Late on April 30th, the Centers for Medicare and Medicaid Services (CMS) released the FY 2015 Inpatient Prospective Payment System (IPPS) Proposed Rule. This proposed rule’s main focus is quality initiatives. Unfortunately for hospitals the proposed rule provides no additional clarity or relief from the 2-Midnight Benchmark and Physician Certification regulations finalized in the FY 2014 Final Rule. Taking into account the vast array of professions that read our newsletter and after reviewing this 1,688 page document, I believe there is something of interest in this Proposed Rule for everyone.

By the Numbers

  • Total IPPS payments (capital and operating payments) are projected to decrease by $241 million.
  • Long Term Care Hospitals (LTCHS) Medicare payments in FY 2015 are projected to increase by approximately 0.8 percent compared to FY 2014 Medicare payments.
  • Total Medicare spending for inpatient hospital services is projected to decrease by about $241 million in FY 2015.
  • CMS is required to recover $11 billion by 2017 to “fully recoup documentation and coding overpayments related to the transition to the MS-DRGs that began in FY 2008.” For FY 2015, CMS has proposed a -0.8 percent adjustment to continue the recovery process.




  • There is a proposal to create a new DRG with two severity levels for endovascular cardiac valve replacements “to better reflect the differences in patients receiving endovascular cardiac valve replacements from patients who undergo an open chest cardiac valve replacement.” The two new proposed MS-DRGs are:
    • MS-DRG 266: Endovascular Cardiac Valve Replacement with MCC; and
    • MS-DRG 267: Endovascular Cardiac Valve Replacement without MCC.
  • CMS found that claims data no longer support two severity levels for MS-DRG 483 and MS-DRG 484. Therefore, they have proposed “to collapse MS-DRGs 483 and 484 into a single MS-DRG by deleting MS-DRG 484 and revising the title of MS-DRG 483 to read ‘Major Joint/Limb Reattachment Procedure of Upper Extremities.”
    • In a related statement, CMS is proposing to maintain the current MS-DRG assignments for revisions of upper extremity replacement procedures in MS-DRGs 515, 516, and 517.
  • There is a proposal to delete MS-DRGs 490 (Back & Neck Procedure Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) and 491 (Back & Neck Procedure Except Spinal Fusion without CC/MCC). These two MS-DRGs would be replaced by the following new proposed MS-DRGs:
    • MS-DRG 518: Back & Neck Procedures Except Spinal Fusion with MCC or Disc Device/Neurostimulator
    • MS-DRG 519: Back & Neck Procedures Except Spinal Fusion with CC
    • MS-DRG 520: Back & Neck Procedures Except Spinal Fusion without CC/MCC
  • In response to a commenter, CMS is proposing to reassign the following seven diagnoses to the “only secondary diagnosis list” under MS-DRG 795 (Normal Newborn) so that they will no longer be assigned to MS-DRG 794 (Neonate with Other Significant Problems):
  • There are no proposed additions or deletions to the MS-DRG MCC or CC list for FY 2015

MS-DRGs Subject to the Postacute Care Transfer Policy

Per the 2014 OPTUM DRG Expert, “CMS established a postacute care transfer policy effective October 1, 1998. The purpose of the IPPS postacute care transfer payment policy is to avoid providing an incentive for a hospital to transfer patients to another hospital early in the patient’s stay in order to minimize costs while still receiving the full DRG payment. The transfer policy adjusts the payments to approximate the reduced costs of transfer cases.”

CMS evaluated the new proposed MS-DRGs for FY 2015 against the transfer policy criteria and under the special payment methodology criteria. Based on their evaluation they are proposing the following changes:

  • Update the list of MS-DRGs subject to the postacute care transfer policy to include the proposed new MS-DRGs 266, 267, 518, 519, and 520.
  • Remove the revised MS-DRG 483 from the list of MS-DRGs subject to the postacute care transfer policy.
  • MS-DRGs 266, 267, 518, 519, and 520 also meet the criteria for special payment methodology and CMS is proposing that they be subject to the methodology effective October 1, 2014.


Hospital Readmission Reduction Program


  • This program began in FY 2013 with an initial 1% payment reduction to hospitals with excessive 30 day readmission rates for Acute Myocardial Infarction (AMI), Heart Failure (HF) and Pneumonia (PN). In FY 2015 payment reduction increases to 3% of payment amounts.
  • The FY 2014 Final Rule finalized two new readmission measures to be included in the program in FY 2015. The two new readmission measures are:
    • Hospital-level 30-day all-cause risk standardized readmission rate following elective total hip arthroplasty (THA) and total knee arthroplasty (TKA), and
    • Hospital-level 30-day all-cause risk-standardized readmission rate following COPD.
  • CMS has proposed expanding the program conditions to include CABG in FY 2017.
    • “In 2007, the Medicare Payment Advisory Committee (MedPAC) published a report to Congress in which it identified the seven conditions associated with the most costly potentially preventable readmissions in the U.S. Among these seven, CABG ranked as having the highest potentially preventable readmission rate within 15 days following discharge (13.5 percent) and the second highest average Medicare payment per readmission ($8,136). The annual cost to Medicare for potentially preventable CABG readmissions was estimated at $151 million.”
  • You can learn more about this program by accessing the QualityNet Hospital Readmission Reduction Program


Hospital Value-Based Purchasing (VBP) Program


  • This program also began in FY 2013. Unlike the Hospital Readmission Reduction Program this program is an incentive program that is funded by reductions in participating hospitals base operating DRG payment amounts. For FY 2015 this reduction will increase to 1.50%.
  • The total estimated amount available for value-based incentive payments for FY 2015 is approximately $1.4 billion.
  • Measures finalized in the FY 2014 Final Rule to be included in the FY 2016 program includes influenza immunization, catheter associated urinary tract infections (CAUTI) and surgical site infections (colon and abdominal hysterectomy).
  • CMS is proposing three new measures for FY 2017. Initial data for all three measures was posted to Hospital Compare in December 2013. The proposed measures are:
    • Two new Outcome Measures for the new Safety Domain
      • Hospital-onset methicillin-resistant staphylococcus aureus (MRSA) bacteremia
      • Clostridium difficile infection
    • One new Clinical Process of Care measure
      • Elective delivery prior to 30 completed weeks gestation
  • CMS is also seeking comment on possible future adoption of new items from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey.
  • CMS has included possible measure topics for future program years in this proposed rule. Noteworthy are 3 medical (kidney/urinary tract infection, cellulitis & GI hemorrhage) and 3 surgical (hip replacement/revision, knee replacement/revision & lumbar spine fusion/revision) episode-based payment measures.

CMS indicates that “the aim of including these episode-based payment measures in the Hospital VBP Program would be to differentiate between hospitals that provide care efficiently (that is, high quality care at a lower cost to Medicare). We believe that risk-adjusted standardized Medicare payments are an appropriate indicator of efficiency as they allow us to compare hospitals without regard to such factors as geography and teaching status. This comparison is particularly important with clinically coherent episodes because it distinguishes the degree to which practice pattern variation influences the cost of care. We believe that creating incentives for appropriately reducing practice pattern variation is an important part of our aims to lower the cost of care appropriately and create better coordinated care for Medicare beneficiaries.”

Preventable Hospital Acquired Conditions (HACs):

Hospital-Acquired Condition (HAC) Reduction Program:

This program’s aim is to improve patient safety and is set to begin in FY 2015. Unlike the Hospital VBP Program where a higher score means better performance, the more points a hospital received on a measure corresponds with a poorer score performance.

This proposed rule provides a framework for the payment adjustment within this program. “Section 1886(p)(1) of the Act sets forth the requirements by which payments to “applicable hospitals” will be adjusted to account for HACs with discharges beginning on October 1, 2014. Section 1886(p)(1) of the Act specifies that the amount of payment shall be equal to 99 percent of the amount of payment that would otherwise apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable. As specified in the statute, this payment adjustment is calculated and made after payment adjustments under sections 1886(o) and 1886(q) of the Act, the Hospital VBP Program and the Hospital Readmissions Reduction Program respectively, are calculated and made.”

Requirement for Transparency of Hospital Charges under the Affordable Care Act

“Hospitals determine their charges for items and services provided to patients. While Medicare does not pay billed charges, hospital reported charges are used in determining Medicare’s national payment rates (for example, billed charges are adjusted to cost to determine how much to pay for one type of case relative to another). Although the Medicare payment amount for a discharge under the IPPS or a service furnished under the OPPS is not based directly on the hospital’s charges for the individual services provided, we believe that hospital charges nevertheless remain an important component of our healthcare system. For example, hospital charges are often billed, in full, to uninsured patients who cannot benefit from discounts negotiated by insurance companies. Hospital charges also vary significantly by hospital, making it challenging for patients to compare the cost of similar services across hospitals.”

In 2013 CMS released charges data at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/

“We encourage hospitals to undertake efforts to engage in consumer friendly communication of their charges to help patients understand what their potential financial liability might be for services they obtain at the hospital, and to enable patients to compare charges for similar services across hospitals. We expect that hospitals will update the information at least annually, or more often as appropriate, to reflect current charges. “

Medicare Payment for Short Inpatient Hospital Stays

There are no proposed revisions to the 2-Midnight Rule requirements finalized in the FY 2014 Final Rule. However, CMS has expressed an interest in public comment regarding an alternative payment methodology for short inpatient hospital stays. Specific questions/considerations outlined in this proposed rule include:

  • Defining short or low cost inpatient hospital care, and
  • Determining appropriate payment for short inpatient hospital stays


CMS also continues to invite further feedback regarding potential exceptions to the 2-Midnight Benchmark. Suggestions can be sent to CMS either in writing or email at This email address is being protected from spambots. You need JavaScript enabled to view it. with “Suggested Exceptions to the 2-Midnight Benchmark” in the subject line.

CMS has proposed a revision to the Physician Certification requirement for Critical Access Hospitals (CAHs). Prior to FY 2014 CAHs were required to complete the Physician Certification no later than 1 day before the date on which the claim for payment for the inpatient CAH service is submitted. The 2014 Final rule changed the timing to require that it be completed, signed, and documented in the record prior to a patient’s discharge. CMS is proposing to amend the regulations to reinstate the timing requirement in place prior to October 1, 2013 to allow CAHs greater flexibility to meet the requirement.

MMP would like to remind you that that the CMS will be accepting comments on the proposed rule through June 30, 2014 and will respond to all comments in the final rule to be issued on August 1, 2014.



Article by Beth Cobb

Beth Cobb, RN, BSN, ACM, CCDS, is the Manager of Clinical Services at Medical Management Plus, Inc. Beth has over twenty-three years of experience in healthcare including eleven years in Case Management at a large multi-facility health system. In her current position, Beth monitors, interprets and communicates current and upcoming Case Management / Clinical Documentation issues as they relate to specific entities concerning Medicare. You may contact Beth at This email address is being protected from spambots. You need JavaScript enabled to view it..

This material was compiled to share information. MMP, Inc. is not offering legal advice. Every reasonable effort has been taken to ensure the information is accurate and useful.

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