Healthcare News & Insights

Payments may increase for hospitals – but there’s a catch

Good news: Medicare payments for inpatient services are expected to increase next year, according to a new proposed rule from the Centers for Medicare & Medicaid Services (CMS). But because of several federal regulations, some facilities may not see a huge increase in reimbursement – and some may even see a decrease. 

ThinkstockPhotos-455230671The new CMS proposed rule will update the terms of the Medicare inpatient prospective payment system (IPPS) to provide increases for operating and capital-related costs for acute care hospitals and other hospitals that aren’t paid under the IPPS, according to a notice from the Federal Register.

Due to increases in these costs, CMS proposed a general payment update of 2.7%.

However, as described in the rule, this increase will be adjusted downward for several reasons. There will be a 0.6% cut due to productivity in the healthcare market, and a 0.2% cut because of the terms of the Affordable Care Act. And hospitals will lose an additional 0.8% due to a combination of regulations in the American Taxpayer Relief Act of 2012, and documentation and coding changes for reporting various services.

Overall, this means most acute care hospitals will only see a payment increase of about 1.1%, per an article written in Fierce Health Finance.

Mixed bag for long term care hospitals

For long term care hospitals, which were specifically singled out in the proposed rule, the news is even more somber. Taking all the cuts into account, plus a new site-neutral payment system that would decrease reimbursement for some long term care facilities, payments will actually be lower than those received in 2015.

An article on the American Hospital Association’s (AHA) website lays out the new payment system for long term care hospitals.

Instead of the site neutral payment system, CMS will establish a two-tiered system where approximately half of long term care facilities will be paid the site-neutral amount, which will be determined based on the IPPS. The other half will be paid higher rates under the old system.

Long term care hospitals that will be eligible for the higher payment rates must meet three specific criteria when billing services:

  1. The patient must be “immediately discharged” from an inpatient hospital paid under the IPPS to the long term care hospital.
  2. The patient can’t have a principal diagnosis related to a psychiatric or rehabilitation condition.
  3. The patient must have either received at least three days of care in an intensive care unit or a critical care unit during the previous inpatient hospital stay, or have a condition requiring over 96 hours of ventilator care.

If patients don’t meet these requirements, the hospital will receive the lower, site-neutral payment for their care.

When considering these changes, the AHA estimates that payments to long term care hospitals could be almost 5% lower than those distributed in FY 2015.

Overall effect on payment

So while many inpatient hospitals will have a bit of wiggle room in their budgets with a payment increase, long term care facilities may have to take a closer look at their patient mix to see whether they’ll be losing money or experiencing a jump in reimbursement due to CMS’ proposed rule.

The rule won’t go into effect until mid-summer, and CMS is still accepting comments from hospitals and other affected parties. If you’d like to lobby on behalf of your hospital’s interests, contact CMS directly by leaving a comment about the proposal at

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