The FY 2015 Inpatient Prospective Payment System final rule

On August 4, the Centers for Medicare & Medicaid Services (CMS) released the Inpatient Prospective Payment System (IPPS) final rule, which establishes federal fiscal year (FY) 2015 policies for Medicare payments to hospitals for inpatient stays. Under the final rule, the payment rate update to general acute care hospitals is 1.4 percent for FY 2015. The rule also updates payments for inpatient services provided by certain IPPS-exempt providers, such as cancer and children’s hospitals, and religious nonmedical health care institutions.

Most policy changes in the IPPS final rule took effect October 1. The American College of Surgeons (ACS) submitted comments to CMS on the proposed rule, which were taken into consideration as CMS crafted this final rule.

How does the IPPS affect surgeons?

Because the IPPS rule outlines coverage criteria for Medicare Part A inpatient hospital claims, and a large proportion of surgical care is provided in the inpatient setting, this rule directly and indirectly affects surgeons. The IPPS rule also contains hospital pay-for-performance and pay-for-reporting programs that center on quality metrics and are often related to surgical outcomes. In addition, the IPPS contains changes to indirect and direct graduate medical education (GME) payment policies that affect academic medicine and the general surgery workforce.

What is the Hospital IQR program, and what are the benefits of introducing measures into this type of pay-for-reporting program before their inclusion in pay-for-performance programs?

The Hospital Inpatient Quality Reporting (IQR) program is a pay-for-reporting program that requires hospitals to report on specific measures. Successful participation is determined by whether hospitals report on the IQR measures, but not how hospitals performed on those measures. Pay-for-reporting programs are different from pay-for-performance programs because the latter base reimbursement on a hospital’s performance with respect to specified measures. The IQR program provides an opportunity to further analyze and understand the usability of measures and their effects before they are incorporated into pay-for-performance programs, such as the hospital Value-Based Purchasing (VBP) program. Under the hospital IQR program, hospitals must meet the requirements for reporting specific quality information to receive the full market basket update for that year. (The CMS market baskets are used to update payments and cost limits in the various CMS payment systems. The CMS market baskets reflect input price inflation facing providers in the provision of medical services.) Hospitals that do not comply will receive a 2 percent reduction in that year’s inpatient hospital payment update.

One category of measures the ACS considers critical to further analyze in the IQR program is readmission. It is important to examine the distribution of performance between hospitals with varying proportions of patients with low socioeconomic status (SES) and to determine whether disparities are attributable to quality of care or nonclinical factors.
The College is of the mindset that the unexplained differences that have been identified in readmissions to hospitals that provide care to underserved populations should be used to drive improvement, and should not be included in pay-for-performance programs prior to resolving those differences. If included without accounting for differences in SES and other confounding factors, hospitals that provide care to underserved populations will be at an even greater disadvantage with respect to receiving appropriate reimbursement.

Another area of concern to the ACS is the use of measures based on claims data. Claims data do not address the nuances of comorbidities, severity, conditions present on admission, complications, SES-related factors, and patient experience. The ACS strongly supports measures drawn from clinical data, which generally yield more accurate and relevant information about the quality of care delivered and patient outcomes. Consequently, the ACS is closely tracking and providing feedback on claims-based measures included in the IQR program, such as hospital-wide all-cause readmission; hospital 30-day all-cause, unplanned, risk-standardized readmission rate following coronary artery bypass graft procedures; and hospital 30-day, all-cause, risk-standardized rate of readmission following acute ischemic stroke. Due to the constraints found in the use of claims data for this measure, the ACS encourages the use of measures based on data from clinical registries.

What changes did CMS make to the hospital VBP program?

Under the hospital Value-Based Purchasing (VBP) program, CMS calculates a hospital’s VBP incentive payment based on a hospital’s performance on specified measures. In the IPPS final rule, CMS made changes to the measures included in this program, some of which are relevant to the provision of surgical care. CMS finalized a proposal to continue including the current central-line blood stream infection measure in the hospital VBP program for FY 2017 and beyond. This measure was previously adopted for the hospital VBP program for FYs 2015 and 2016. However, it was not finalized for continuation for later years because the Centers for Disease Control and Prevention is developing a reliability-adjusted version of this measure that would allow for more meaningful differentiation among hospitals by accounting for differences in patient case mix, and other factors that contribute to variations in care among hospitals. The ACS comment letter encouraged CMS to include the reliability-adjusted version of this measure in the hospital VBP program when that measure is available.

CMS also discussed the use of condition-specific episode-of-care payment measures for the hospital VBP progam in the future. Three out of six of the possible future measures are surgical: (1) hip replacement/revision; (2) knee replacement/revision; and (3) lumbar/spine operations. CMS did not finalize this proposal in the IPPS final rule but did note that the six measures are designed to support more targeted assessments of hospital performance by using the cost of major clinically related services in the post-discharge period as an indicator of a hospital’s success in delivering high-quality care and services during the hospital stay. The ACS commented that CMS should proceed with caution when implementing episode-based measures in the hospital VBP program and allow for an opportunity for the agency to learn from other bundled payment programs, such as the Bundled Payment for Care Improvement initiative. The ACS also asserted that when developing such episode-based measures, CMS should use a methodology that is just as rigorous as the standards applied to traditional quality measures.

Final HAC reduction program measures

FY 2015 FY 2016 FY 2017

Domain 1: AHRQ Patient Safety Indicators (PSI)

PSI-90 (PSI-90 is a composite of eight PSI measures):PSI-3 (pressure ulcer rate)PSI-6 (iatrogenic pneumothorax)PSI-7 (central venous catheter-related blood stream infections rate)

PSI-8 (postoperative hip fracture rate)

PSI-12 (postoperative pulmonary embolism (PE) or DVT rate)

PSI-13 (postoperative sepsis rate)

PSI-14 (wound dehiscence rate)

PSI-15 (accidental puncture or laceration)


Domain 2: CDC HAI Measures

Central line-associated blood stream infection X X X
Catheter-associated urinary tract infection X X X
Surgical site infection (SSI):

  • SSI following colon surgery
  • SSI following abdominal hysterectomy
Methicillin-resistant staphylococcus aureus X
Clostridium difficile X

Does the FY 2015 IPPS final rule make any changes to the HAC reduction program?

Section 3008 of the Affordable Care Act (ACA) requires CMS to establish a program for IPPS hospitals to improve patient safety by imposing financial penalties on hospitals that rank toward the bottom with respect to hospital-acquired conditions (HACs) specified under this program.

Since October 1, hospitals that rank in the lowest-performing quartile of HACs, based on data collected two years prior, will be paid 99 percent of the payment that would otherwise apply. In other words, these hospitals would face a 1 percent payment reduction. This HAC Reduction Program adjustment will be applied after adjustments are made under the hospital VBP program and the Readmissions Reduction Program. The HAC Reduction Program is separate from and in addition to the HAC Program, which withholds payments to hospitals for select conditions not present upon admission to the hospital.

The FY 2015 IPPS final rule made no changes to the proposed rule and finalizes provisions adopted in last year’s rule for implementing the HAC Reduction Program. There will be eight measures grouped into two domains.

The ACS submitted comments on the following measures found in the table on this page: PSI-90 (composite measure), PSI-6 (iatrogenic pneumothorax), PSI-7 (central venous catheter-related blood stream infections rate), PSI-12 (postoperative PE or DVT rate), PSI-14 (wound dehiscence rate), central line-associated blood stream infection, catheter-associated urinary tract infection, methicillin-resistant staphylococcus aureus and clostridium difficile.

In particular, the ACS expressed concerns over the use of a composite measure, which makes it difficult to identify specific cases related to the measure; pointed out potential unintended consequences of trying to meet particular measures; and urged CMS to consider exclusions when development of the condition is independent of quality of care provided by the surgeon.

Did CMS make any changes to indirect and direct GME payments?

Yes, CMS made minor revisions to its policies for reimbursing hospitals for indirect and direct GME costs, and some of these changes affect general surgery residency programs. The ACA allows for redistribution of residency slots from closed teaching programs and includes provisions that indicated a preference for redistributed slots to go to new or expanding general surgery training programs. However, the previous rules gave preference to programs seeking to expand only general surgery programs and prevented those programs that were seeking to add both general surgery and non-general surgery slots from receiving preference for the redistributed slots for their general surgery programs.

Recognizing the potential consequences of these rules, the final regulation allows programs that are seeking to expand their general surgery residencies to receive a preference for redistributed slots from closed teaching hospitals, regardless of whether these programs are also expanding their non-general surgery programs as well. The ACS supported these changes, which are intended to bolster the general surgery workforce.

Did CMS make changes to the two-midnights policy or policies impacting short inpatient stays?

CMS did not revise the two-midnights policy in the IPPS final rule, but did solicit feedback on how to design a possible alternative Medicare payment methodology for short inpatient stays. The ACS comment letter stressed that in addressing short stays, CMS should first consider a system in which patients are assured that their care and financial obligations will not be adversely affected due to their admission status. Whereas a patient may receive the same care whether they are considered an inpatient or on observation, the difference in the financial impact on the patient for the two settings can be drastic. The ACS also urged CMS to preserve the primacy of the physician’s clinical judgment in making admissions decisions about individual patients. Policies that inadvertently pressure the treating physician into definitive decision making before a patient’s future clinical course is reliably predictable are not in the best interest of the patient. In addition, the ACS letter stressed that CMS should not withhold payment to physicians when there is a mismatch between the site-of-service on claims submitted by hospitals and by physicians.

There is no difference in physician work for the same service provided in the inpatient setting versus observation. The hospital’s designation of a patient should have no bearing on physician billing, and physician payment should not be denied for lack of agreement between the hospital and physician claims. The ACS recommended that CMS take these and other considerations into account in developing a short inpatient hospital stay policy.

The FY 2015 IPPS final rule can be accessed online. Contact the ACS Regulatory team for additional information at 202-337-2701.

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