The Centers for Medicare and Medicaid Services issued its final inpatient payment rule for fiscal 2011 on Friday, keeping a 2.9 percent pay reduction for acute care and long-term care hospitals.

CMS is recovering overpayments from changes in hospital coding practices. Under the final rule, Medicare operating payments to acute care hospitals in FY 2011 are projected to decrease by $440 million, while payments to long-term care hospitals in FY 2011 are projected to increase by $22 million.

U.S. hospital groups slam CMS' decision.

"America's hospitals strongly disagree with the Centers for Medicare and Medicaid Services' final inpatient rule," Rich Umbdenstock, president and CEO of the American Hospital Association, said in a statement. "The rule cuts billions of dollars from the health care system at a time when patients are sicker, more people are losing coverage due to the economic downturn and hospitals are dealing with significant changes contained in the health reform bill."

The final rule applies to approximately 3,500 acute care hospitals, as well as 420 long-term care hospitals and satellite facilities, for discharges starting October 1, 2010.

Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups, or DRGs. The DRGs provide higher payment for more severely ill or injured patients.

According to CMS, the DRGs increased aggregate payments to hospitals, but did not reflect actual increases in patients' severity of illness. CMS must now recoup the entire amount of FY 2008 and 2009 excess spending due to the changes from DRGs in hospital coding practices by FY 2012.

The agency said a 5.8 percent cut is necessary to recoup these overpayments. The 2.9 percent payment cut for the coming fiscal year is one-half of that adjustment.

The $400 million decrease reflects the 0.4 percent decline in payments to general acute care hospitals for operating expenses in FY 2011, with all factors that would affect spending.

The $22 million increase for long-term care hospitals reflects rates that are updated by 2.5 percent for inflation, but reduced by 0.5 percentage points because of the coding changes, similar to the acute care hospital changes.

The AHA disputed CMS' reasoning, maintaining that its methodology is flawed because "hospital patients are increasingly sicker."

In addition, in the final rule CMS also offers psychiatric hospitals and hospitals with inpatient psychiatric programs increased flexibility in obtaining accreditation to participate in the Medicaid program. Those hospitals can either undergo a state survey or obtain accreditation from a national accrediting organization whose hospital accreditation program has been approved by CMS.

The final rule may be found here: http://www.ofr.gov/OFRUpload/OFRData/2010-19092_PI.pdf

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