Please note on August 1, CMS displayed an advance copy of the IPPS Final Rule. Click here to be directed to the IPPS Final Rule PYA Alert dated August 10, 2007

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Proposed Rule for Inpatient Prospective Payment System (IPPS) Includes New MS-DRG's

(PYA Alert dated April 27, 2007)

On April 13, 2007, CMS displayed an advance copy of the proposed rule for Medicare's IPPS effective for discharges on or after October 1, 2007. The proposed rule contained the annual updates to IPPS rates and wage index. The rule also included significant changes to the diagnosis-related group (DRG) weighting system. The changes to the DRG weights are the most significant changes in IPPS since 1983.

The proposed rule continues to phase in a change introduced in FY 2007 which bases DRG relative weights on estimated hospital costs, rather than charges. During 2008, hospitals will be paid on a blend of 1/3 charge-based weights and 2/3 cost-based weights. In 2009, hospitals will be paid entirely on cost-based DRG weights. Additionally, CMS is proposing to further refine the DRG weighting system to better recognize severity of illness among patients. The proposed rule would replace the current 538 DRG’s with 745 “new” Medicare Severity DRG’s (MS-DRG’s). CMS states the new MS-DRG’s will further reduce incentives for hospitals that attempt to treat only the healthiest and most profitable patients.

CMS estimates overall hospital payments will increase an average of 3.3%. Payments to individual hospitals will vary depending on physical location and the types of patients served. The reimbursement professionals at PYA have analyzed the proposed rule to quantify the financial impact resulting from changes to the standardized operating rates and geographic wage indices when applied to the most frequently utilized DRG’s and their corresponding new MS-DRG’s. If you would like to obtain a free evaluation of how your hospital may be impacted by these changes, please click here and submit your hospital’s provider number. We will utilize publicly available information to derive an estimate of how these changes may impact your reimbursement for highly utilized DRG’s and MS-DRG’s.

The proposed rule also identifies other changes. The cost outlier threshold is now $23,015, down from $24,475 in FY 2007. By utilizing the new MS-DRGs there will be fewer cases meeting outlier status, thus the CMS has lowered the threshold to meet regulatory requirements. The proposed rule also adds five new quality measures, which hospitals need to report in FY 2008 in order to qualify for the full hospital market basket update in FY 2009.

Comments on the proposed rule will be accepted until June 12, 2007. A final rule will be published later this summer.

If you have questions on the proposed rule, please contact Lisa Price or Butch Bullock at (800) 270-9629.

If you would like to obtain a free evaluation of how your hospital may be impacted by these changes, please click here and submit your hospital’s provider number.

The information provided via PYA Alert, Tax Planning Alert, or Audit and Accounting Alert should not be construed as accounting, auditing, consulting, or legal advice on any specific facts or circumstances. The contents are intended for general information purposes only.  Please contact us at (800) 270-9629 to discuss your specific situation or to discuss any specific questions you may have.

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