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CMS policy themes are prevalent across Inpatient Prospective Payment System, other recent rules

On August 8, 2018, the Centers for Medicare and Medicaid Services (CMS) published a final rule providing updates to Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital Prospective Payment System (LTCH PPS), capping off a series of final rules on prospective payment systems for inpatient care that includes Inpatient Psychiatric Facilities, Inpatient Rehabilitation Facilities, Skilled Nursing Facilities, and the Hospice Wage Index.

August 23, 2018 | Health care

In addition to the payment rate updates, CMS used the final rules as vehicles for administration priorities related to interoperability, price transparency, and burden reduction for providers.

The final rule for IPPS and for Skilled Nursing Facilities (SNFs) were published in the Federal Register on August 8. Inpatient Psychiatric, Inpatient Rehabilitation Facilities, and the Hospice Wage Index final rules were published on August 6. Each rule will take effect on October 1, 2018.

Highlights of key provisions of the final rule are summarized below.

Hospital Inpatient Prospective Payment System (IPPS)

IPPS is the primary means for Medicare to pay acute care hospitals for inpatient stays. A hospital typically receives a single payment for the case based on the payment classification—Medicare Severity Diagnosis-Related Groups (MS-DRGs) under the IPPS, with payment rates adjusted annually.

Rate changes and cost reporting audits

For 2019, IPPS hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program (IQR) and are meaningful users of Electronic Health Records (EHRs) will receive an increase in payment rates of 1.85 percent, after other standard adjustments are taken into account. The rule notes that there is a continued 1 percent penalty for hospitals with the highest rates of hospital-acquired conditions, as well as for excess readmissions.

Upward and downward adjustments also continue as a function of the Hospital Value-Based Purchasing Program.

Audits of cost data under Worksheet S-10 of the Medicare cost report will begin in the fall of 2018 with the goal of ensuring the accuracy of data used to calculate uncompensated care payments.


The proposed rule requested feedback on policies to accelerate and enhance interoperability of health records and data systems. In the final rule, CMS made changes to the Promoting Interoperability Programs (formerly called the EHR Incentive programs) in an effort to facilitate this effort, ease the overall burden on hospitals and clinicians, and improve patient access to information.

Importantly, the final rule reiterates that all eligible hospitals and critical access hospitals (CAHs) must use the 2015 Edition of Certified Electronic Health Record Technology (CEHRT) beginning with an EHR reporting period in calendar year 2019. In addition, the final rules provides for an EHR reporting period defined as any continuous 90-day period in calendar years 2019 and 2020.

Other changes to the PI program include modifications to the proposed performance-based scoring methodology, with a smaller set of objectives and a smaller set of new and modified measures, and the removal of certain electronic Clinical Quality Measures (eCQMs) beginning with the reporting period in CY 2020.


CMS finalized a change to policy that will require hospitals to make public a list of their standard charges via the Internet in a machine readable format, and to update this information at least annually. The information could take the form of the chargemaster itself, or another form of the hospital’s choice. Hospitals currently are required to make standard charges available to the public, although the format is not specified.

CMS states that it is reviewing public comment from the proposed rule on how best to define standard charges, what information would be most useful to beneficiaries, and other operational aspects of achieving broad-based price transparency in health care. CMS said any further policy changes related to price transparency would be made via notice and comment rulemaking.

Meaningful measures

The final rule removes a total of 18 measures, and de-duplicates 25 measures that acute care hospitals must report across the four quality and value-based purchasing programs: Inpatient Quality Reporting (IQR), Value-Based Purchasing, Hospital-Acquired Conditions (HAC) Reduction, and the Readmissions Reduction Programs.

As part of CMS burden reduction efforts, CMS is adding an additional cost-benefit calculation across all its inpatient reporting programs to factor into whether a measure will continue in future years.

Hospital Inpatient Quality Reporting (IQR) Program

The hospital IQR program pays for reporting on quality measures, and publishes data on quality measures applicable to an inpatient care setting. In the final rule, CMS finalized proposals to remove several measures from the program, although certain measures continue to be tracked in one of the other reporting programs under IPPS.

Notably, several Healthcare-Associated Infection (HAI) measures are now scheduled for removal from the IQR program in 2020, leaving an additional year for the measures to be reintegrated into the Hospital Value-Based Purchasing Program and the Hospital-Acquired Conditions Program, through which quarterly updates are published on the Hospital Compare website.

Hospital Value-Based Purchasing Program (VBP)

The VBP makes payment adjustments according to performance across a series of value-based measures. The final rule removes four measures considered duplicative, but the rule did not finalize the removal of the six patient safety measures also found in the Hospital-Acquired Condition Reduction Program measure set “due to their critical importance to quality improvement and patient safety in the hospital setting and to strongly incentivize hospitals to continually strive for both improvement and high performance on these measures.”

Citing public comment, CMS also opted not to finalize the removal of the safety domain or revised weighting of the Hospital VBP Program domains.

Hospital-Acquired Conditions Reduction Program (HAC)

The HAC program provides the basis for a 1 percent payment reduction for hospitals within the lowest-performing 25 percent of hospitals with regard to hospital-acquired conditions. While the overall measure set is unchanged, CMS finalized three new policies:

  1. Specify the dates of the time period used to calculate hospital performance for the FY 2021 HAC Reduction Program:
    1. For the CMS PSI 90 (Patient Safety and Adverse Events) program, the time period is the 24-month period from July 1, 2017, through June 30, 2019
    2. For National Healthcare Safety Network (NHSN) HAI measures, the time period is the 24-month period from January 1, 2018, through December 31, 2019
  2. Adopt administrative processes to receive and validate NHSN HAI data that is submitted by hospitals to the Centers for Disease Control and Prevention (CDC) beginning CY 2020; and
  3. Adopt a new scoring methodology, which gives equal weight to all measures in a hospital’s program score

Hospital Readmissions Reduction Program (HRRP)

The HRRP reduces IPPS hospital payments by up to three percent for excess readmissions within hospital peer groups in six clinical areas. The final rule establishes the applicable periods for the FY 2019–FY 2021 program years, with the three-year lookback for the 2019 period set at July 1, 2014, to June 30, 2017, and subsequent years’ lookbacks defined accordingly. The rule also finalizes clarifications on the definitions of dual-eligible patients, proportion of dual-eligibles, and applicable period for dual-eligibility.

The HRRP measures themselves remain unchanged, with payment reductions based on a hospital’s risk-adjusted readmission rate during a three-year period for acute myocardial infarction (AMI), heart failure (HF), pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty (THA/TKA), and coronary artery bypass graft (CABG).

PPS-Exempt Cancer Hospital Quality Reporting Program (PCHQR)

The PCHQR program is a specific dataset for 11 PPS-exempt cancer hospitals. The final rule adds one new measure and removes four.

The new measure is claims-based, tracking the 30-day unplanned readmissions for cancer patients, as a substitute for more specific proxy measures on radiation dose limits and prostate cancer treatments.

Long-Term Care Hospital Prospective Payment System (LTCH PPS)

LTCHs are certified under Medicare as short-term acute care hospitals and generally treat medically complex patients who require long-stay hospital-level care. LTCHs are generally defined as having an average inpatient Length of Stay (LOS) of more than 25 days. Similar to acute care hospitals, long-term care hospitals (LTCHs) are paid through Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs) under the LTCH PPS.

Rate changes

In the final rule, CMS updated the LTCH PPS standard Medicare payment rate by 0.9 percent after accounting for technical adjustments.

CMS also finalized a proposal to eliminate the LTCH 25 percent threshold policy, which was intended to help ensure that LTCHs do not function as units of acute care hospitals and that decisions about admission, treatment, and discharge in acute care hospitals and LTCHs are made for clinical rather than financial reasons. Under the 25 percent policy, payments to certain LTCH “Hospitals within Hospitals” or co-located satellites were reduced to the lesser of the standard LTCH payment amount or what Medicare would have otherwise paid under the IPPS once transfers from certain referring facilities exceeded 25 percent of the LTCH’s annual cases.

Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

Under the LTCH QRP, rates are reduced by two percent for LTCHs that do not submit data in alignment with CMS requirements. The final rule removes three measures found to be overly burdensome or duplicative. The final rule also makes changes to how LTCHs are notified of non-compliance with reporting requirements and adds cost-benefit analysis to the criteria CMS uses for removal of quality measures.

Skilled nursing facilities (SNFs)

The Bipartisan Budget Act of 2018 sets the FY 2019 SNF market basket update at 2.4 percent.

As part of the CMS initiative to pay more directly for value, effective October 1, 2019, CMS will begin using a new Patient-Driven Payment Model (PDPM), which focuses on the patient’s condition and resulting care needs rather than on the amount of care provided in order to determine Medicare payment.

The PDPM uses International Classification of Disease (ICD)-10 diagnosis codes and other patient characteristics as the basis for patient classification. The new payment model adjusts Medicare payments for Non-Therapy Ancillaries (NTAs), which are items and services not related to the provision of therapy such as drugs and medical supplies.

The final rule adds a cost-benefit analysis to the ongoing evaluation of measures to be reported under the SNF Quality Reporting Program (QRP) and Value-Based Purchasing Program (VBP).

Starting on October 1, 2018, the SNF VBP Program will apply positive or negative incentive payments to skilled nursing facilities based on their performance on the program’s single claims-based 30-day hospital readmissions measure.

Inpatient psychiatric facilities (IPF)

The 2019 IPF PPS increases payments by 1.1 percent when factoring in all adjustments.

CMS also finalized the removal of five measures from the Inpatient Psychiatric Facility Quality Reporting System, while retaining three measures that had been proposed for removal, but received strong support in public comment. In all instances where a measure was withdrawn, the rationale was that costs associated with the measure outweigh the benefits to the program, or that the measure was topped out.

Inpatient rehabilitation facilities (IRF)

For 2019, CMS finalized IRF PPS payments with a 1.35 percent increase, after taking into account various adjustment factors.

CMS also finalized revisions to IRF coverage criteria to:

  • Allow the post-admission physician evaluation to count as one of the three face-to-face physician visits required in the first week of IRF admission.
  • Allow the rehabilitation physician to lead the interdisciplinary team meeting remotely without any additional documentation requirements.
  • Remove admission order documentation requirements in an effort to reduce duplicative documentation requirements, citing ongoing enforcement of the hospital conditions of participation, as well as the hospital admission order payment requirements.

The final rule reduces the number of measures that IRFs are required to report on under the IRF Quality Reporting Program, citing the cost-benefit of ongoing reporting.

Hospice wage index

CMS finalized a 1.8 percent increase in hospice payments for FY 2019, while payments are reduced by two percent for hospices that do not meet quality reporting requirements.

The final rule also reflects a statutory change from the BBA to expand the definition of a hospice attending physician to include physician assistants alongside physicians and nurse practitioners.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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