CMS Releases Final 2008 IPPS (Medicare Inpatient Prospective Payment System) Rule for Hospitals

The final rule for the Inpatient Prospective Payment System (IPPS) for fiscal year (FY) 2008 from the Centers for Medicare and Medicaid Services (CMS) was published in the Federal Register today, August 22. The IPPS, which finalizes many of the payment reforms proposed in April, will become effective on October 1, 2007 and applies to discharges occurring on or after that date. 
          << Download CMS Final Rule, Adobe PDF, 26M >>

Highlights of the Final Rule include:

• Under the final rule, payments to all hospitals will increase by an estimated average of 3.5% or by more than $3.8 billion in FY 2008 when all provisions of the rule are taken into account.
• CMS is adopting, as proposed, the MS-DRG classification system that expands the current number of DRGs from 538 to 745 (see details below). Weighting factors will be phased-in over a two-year period.
• CMS will not pay for devices replaced at no cost or more than 50% credit to the hospital as part of a recall or warranty-period servicing. Devices affected by the policy include pacemakers and defibrillators (see details below).
• CMS has identified eight conditions that will not be paid at a higher rate unless they were present on admission, including three serious preventable events labeled "never events" that meet the statutory criteria (see details below). This change takes effect beginning in FY 2009.
• CMS will continue to use hospital costs rather than charges to set payment rates (see details below).
• CMS is adopting a high cost outlier threshold of $22,650, down from $24,485 in FY 2007 (see details below).
• The final rule adds new quality measures for a total of 32 measures that hospitals would need to report in calendar year (CY) 2008 in order to qualify for the full market basket update in FY 2009.
• CMS will measure 30-day mortality for Medicare patients with pneumonia and plans to adopt two measures relating to surgical care improvement in the CY 2008 outpatient prospective payment system final rule. In addition, CMS will finalize two additional surgical care improvement measures by program notice after they receive NQF endorsement.
• The provision of the law specifies that Medicare payments for inpatient hospital services be adjusted if hospitals fail to report this quality information. Hospitals that report quality information will receive the full market basket update. For those that do not report, the market basket update will be reduced by 2.0% points.

If you have questions or comments about the FY 2008 final rule for IPPS, please contact Lisa Miller-Jones, Director of Reimbursement and Regulatory Affairs at lmiller-jones@hrsonline.org or 202-464-3433.

Details on the MS-DRG classification system
CMS adopted as final its proposal to restructure the current 538 diagnosis-related groups (DRGs) to 745 MS-DRGs (severity-adjusted diagnosis related groups) to better recognize severity of patient illness. The MS-DRGs more accurately capture resource utilization by splitting a large number of current DRGs into three different categories based on the presence or absence of diagnoses classified as “major complication or comorbidities” (MCC), “complications or comorbidities” (CC), or “without MCC/CC” (Non-CC). Because cardiac specialty hospitals generally treat the healthiest and least costly patients, payments are projected to decline by nearly 3% due to the new MS-DRGs classifications and the continuing adoption of cost weights in FY 2008. These changes are in addition to reductions of over 5% that CMS estimated last year occurring from FY 2006 to FY 2009.

The MS-DRGs will be phased in over a two-year period, rather than at one time, as originally proposed. For the first year of the transition (FY 2008) half of the relative weight for each MS-DRG will be based on the current DRG relative weight and half will be based on the new MS-DRG relative weight. For the second year (FY 2009), the relative weights will be based entirely on the MS-DRG relative weight. (To review a table depicting the final FY 2008 IPPS national MS-DRG rates as compared to FY 2007 DRG rates, download our Adobe PDF document, 117K)

2007 DRG	Procedure	2008 MS-DRG	Procedure	2008 Payment
515	Cardiac Defibrillator Implant w/o cardiac catheterization	226	Cardiac Defibrillator Implant w/o Cardiac Catheterization with MCC	$31,849
		227	Cardiac Defibrillator Implant w/o Cardiac Catheterization w/o MCC	$27,156
535	Permanent Pacemaker Implant with Major CV Diagnosis or AICD Lead or Generator	222	Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC	$43,222
		223	Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock w/o MCC	$37,067
536	Other Permanent Pacemaker Implant w/o Major CV Diagonsis	224	Cardiac Defibrillator Implant with Cardiac Catheterization w/o AMI/HF/Shock with MCC	$39,421
		225	Cardiac Defibrillator Implant with Cardiac Catheterization w/o AMI/HF/Shock w/o MCC	$33,914
551	Permanent Cardiac pacemaker with Major CV DX or AICD Replacement	245	AICD lead & generator procedures	$16,739
		242	Permanent Cardiac Pacemaker Implant with MCC	$17,554
		243	Permanent Cardiac Pacemaker Implant with CC	$13,728
552	Other Permanent Pacemaker w/o Major CV Diagnosis	244	Permanent Cardiac Pacemaker Implant w/o CC/MCC	$11,510
117	Cardiac Pacemaker Revision Except Device Replacement	260	Cardiac Pacemaker revision except device replacement with MCC	$11,649
		261	Cardiac Pacemaker revision except device replacement with CC	$7,117
		262	Cardiac Pacemaker revision except device replacement w/o CC/ MCC	$6,058
118	Cardiac Pacemaker Device Replacement	258	Cardiac Pacemaker Device Replacement with MCC	$12,350
		259	Cardiac Pacemaker Device Replacement w/o MCC	$8,917
518	Percutaneous Cardiovascular Procedures w/o Acute Myocardial Infarction w/o Coronary Artery Stent Implant	250	Percutaneous Cardiovascular Procedure w/o Coronary Artery Stent or AMI with MCC	$13,397
555	Percutaneous cardiovascular Procedure with Major Cardiovascular Diagnosis	251	Percutaneous Cardiovascular Procedure w/o Coronary Artery Stent or AMI w/o MCC	$9,416

CMS adopted its proposal to reduce the IPPS standardized amounts by 4.8% to maintain budget neutrality and account for expected changes in coding and documentation. Instead of applying a 2.4% adjustment over a two year period as proposed, CMS will apply an adjustment of -1.2% for FY 2008 and based on current projections will apply adjustments of -1.8% each year to the IPPS standardized amounts for FYs 2009 and 2010.

Details on Recall/No Cost/Partial Credit Devices
For FY 2008, CMS finalized its policy to reduce the amount of the IPPS payment when a full or partial credit towards a replacement device is made or the device is replaced without cost to the hospital or with full credit for the removed device. However, CMS does not believe that the IPPS policy should apply to all DRGs and all situations in which a device is replaced without cost to the hospital for the device or with full or partial credit for the removed device. For this reason, CMS is applying the policy only to those DRGs under the IPPS where the implantation of the device determines the base DRG assignment and situations where the hospital received a credit equal to 50% or more of the cost of the device. Heart rhythm related MS-DRGs subject to the final policy are as follows:

MS-DRG	Procedure
226	Cardiac Defibrillator Implant w/o Cardiac Catheterization with MCC
227	Cardiac Defibrillator Implant w/o Cardiac Catheterization w/o MCC
222	Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC
223	Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock without MCC
224	Cardiac Defibrillator Implant with Cardiac Catheterization without AMI/HF/Shock with MCC
225	Cardiac Defibrillator Implant with Cardiac Catheterization without AMI/HF/Shock without MCC
245	AICD lead & generator procedures
242	Permanent Cardiac Pacemaker Implant with MCC
243	Permanent Cardiac Pacemaker Implant with CC
244	Permanent Cardiac Pacemaker Implant w/o CC/MCC
260	Cardiac Pacemaker revision except device replacement with MCC
261	Cardiac Pacemaker revision except device replacement with CC
262	Cardiac Pacemaker revision except device replacement w/o CC/MCC
258	Cardiac Pacemaker Device Replacement with MCC
259	Cardiac Pacemaker Device Replacement w/o MCC

Details on Hospital Acquired Conditions
The final rule will implement Section 5001(c) of the Deficit Reduction Act of 2005 (DRA), which requires the secretary to select at least two conditions that are (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence-based guidelines by October 1, 2007. Beginning in FY 2009 (October 1, 2008), hospitals will not receive additional payment for cases in which one of the selected six conditions unless they were present on admission. Below is the list of conditions that CMS selected in the FY 2008 final rule.

1. Serious Preventable Event — Object Left in Surgery
2. Serious Preventable Event — Air Embolism
3. Serious Preventable Event — Blood Incompatibility
4. Catherther-associated Urinary Tract Infections
5. Pressure Ulcers (Decubitus Ulcers)
6. Vascular Catheter-Associated Infection
7. Surgical Site Infection — Mediastinitis After Coronary Artery Bypass Graft (CABG) Surgery
8. Hospital-Acquired Injuries — Fractures, Dislocations, Intracranial Injury, Crushing Injury, Burn and Other Unspecified Effects of External Causes

Details on Cost-Based Weights
CMS will continue to use hospital costs rather than charges to set payment rates. The change was introduced in FY 2007 to better align payment with the costs of care by using estimated hospital costs, rather than list changes to establish relative weights for the DRGs. In FY 2008, hospitals will be paid based on a blend of 1/3 charge-based weights and 2/3 hospital cost-based weights for DRGs. In 2009, hospital will be paid 100% based on cost-based DRG weights.

Details on Outlier Threshold
In addition to the base payment for the DRGs, the law requires Medicare to make a supplemental payment to a hospital if its costs for treating a particular case exceed the usual Medicare payment for that case by a set threshold. Medicare sets the threshold for high cost cases at an amount that is projected to make total “outlier payments” equal to 5.1% of the total inpatient payments. For FY 2008, CMS adopted a high cost outlier threshold of $22,650, down from $24,485 in FY 2007. By better recognizing severity of illness in the DRG reforms that are part of the final rule, fewer cases would be paid as outliers if CMS did not reduce the fixed loss amount.