CMS Scales Back on Payment Cuts

Andrea Kraynak, August 3, 2011

CMS included a major surprise when it released its final rule for the FY 2012 Inpatient Prospective Payment System integral to inpatient Medicare reimbursement at short-term and long-term acute care hospitals as announced in an August 1 press release.

The rule makers set a documentation and coding adjustment (DCA) of -2.0% instead of the proposed -3.15% for fiscal year (FY) 2012, according to the 2012 inpatient prospective payment system (IPPS) final rule released August 1.

CMS originally proposed a year-over-year reduction of 0.5% in payments to acute care hospitals under the FY 2012 IPPS, including a DCA of -3.15%. However, CMS finalized a cut of 2.0%, a decrease from 2.9% in FY 2011, which translates to $1.13 billion more in hospital payments in FY 2012 than they had received in the previous year.

“We’re very pleased to see that CMS has scaled back their proposed coding cuts,” says Joanna Kim, senior associate director for policy for the American Hospital Association (AHA) in Washington, DC. “We are quite disappointed that CMS did not change their methodology of analyzing documentation and coding, but are glad they recognized that the proposed 3.15% cut would be very difficult for hospitals to absorb all in one year.”

Kim suggests that hospitals look closely at the new payment rates and make sure they can budget appropriately.

James S. Kennedy, MD, CCS, managing director for FTI Healthcare in Atlanta, agrees that the temporary reprieve is a positive for hospitals. “The DCA is what it is. At least for next year, it’s good that we got a break,” he says. “But CMS will maintain its current methodology of calculating it and will continue to assess it to hospitals until they have recouped what they believe they have overpaid.”

“We recognize the concerns regarding possible financial disruption that may be caused by the proposed documentation and coding improvement payment adjustment,” CMS states in the rule. “We note, however, that these payment adjustments are necessary to correct past overpayments due solely to documentation and coding improvements. We have already delayed implementation of the required prospective adjustment amount, and we proposed only a portion of the remaining required adjustment to allow hospitals time to adjust to future payment differences and to moderate the effect of this adjustment in any given year.”

Andrea Kraynak

Andrea Kraynak, CPC, is senior managing editor of Medical Records Briefing and HIM Connection. She may be reached at



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