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Final IPPS Rule Elicits Objections from Hospital Groups

Cheryl Clark, for HealthLeaders Media, August 5, 2013

The Inpatient Prospective Payment System rule establishes controversial terms that distinguish an inpatient admission from "observation" status, for which hospitals receive lower rates of Medicare reimbursement.

Hospital groups are angrily objecting to the final Inpatient Prospective Payment System rule specifying how hospitals are to be paid for Medicare beneficiaries' inpatient care starting Oct. 1. One group says one part of the rule "adds insult to injury" and another threatening to "proceed with our lawsuit."

The final rule, released late Friday, increases overall hospital payments by $1.2 billion, and slows the rate of anticipated cuts to hospitals that treat larger shares of the poor, a payment called disproportionate share or DSH funding.

But new requirements for the second phase of the readmission penalty mean a loss of up to 2% or $227 million total, for 2,225 hospitals— although only 18 hospitals will be fined the full 2% of the Medicare DRG rate and 153 will be penalized between 1% and 2%.


See Also: How IPPS Final Rule Affects Medical Coding


The rule also establishes controversial terms that define an inpatient admission as opposed to "observation" status, a category for which hospitals receive much lower rates because "observation" is considered an outpatient stay.

The final word on IPPS also finalizes the 1% hospital-acquired condition (HAC) penalty, required under Section 3008 of the Patient Protection and Affordable Care Act. The penalty kicks in on Oct. 1, 2014, affecting eligible hospitals whose percentage of certain reasonably preventable adverse events rank in the highest 25%. 

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