The 2017 Inpatient Prospective Payment System: What it means for surgery

The Centers for Medicare & Medicaid Services (CMS) released the Inpatient Prospective Payment System (IPPS) final rule August 2. The final rule establishes fiscal year (FY) 2017 (October 1, 2016, through September 30, 2017) policies for Medicare payments to hospitals for inpatient stays. Under the IPPS final rule, the payment rate update to general acute care hospitals is 0.95 percent for FY 2017. The rule also updates payments for inpatient services provided by certain IPPS-exempt providers, such as cancer centers and children’s hospitals and religious nonmedical health care institutions. The American College of Surgeons (ACS) submitted comments to CMS on the proposed IPPS rule released in April, which CMS took into consideration when drafting the final regulation.

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 is likely to affect many surgical practices. The IPPS rule contains hospital pay-for-performance and pay-for-reporting programs that require the reporting of quality metrics, many of which measure surgical outcomes. For example, hospitals that fail to participate successfully in the Hospital Inpatient Quality Reporting (IQR) program or are not meaningful users of electronic health records (EHRs) are ineligible for the full percentage increase. CMS finalized a few changes to the measures used in these programs. This article describes some of the future measure changes that CMS finalized.

Changes to the IQR program

The Hospital IQR program is a pay-for-reporting program that requires hospitals to report specific quality measures to CMS. Successful participation is determined based on whether hospitals report the Hospital IQR measures—not how hospitals performed on those measures. Pay-for-reporting programs differ from pay-for-performance programs in that pay-for-performance programs determine 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.

In the rule, CMS has finalized both the removal and adoption of surgical measures from the IQR program for FY 2019. CMS finalized the removal of the surgical measure Participation in a Systematic Clinical Database Registry for General Surgery because it is purely structural and does not provide information on patient outcomes, given that hospitals only state whether they participate in registries. Additionally, CMS has added two surgery-related measures to the IQR program for FY 2019 and subsequent years. The first is a clinical episode-based payment measure, Cholecystectomy and Common Duct Exploration Clinical Episode-Based Payment, which was added because of the high costs and substantial variation associated with these services, according to the final rule. The second is an outcome measure Excess Days in Acute Care after Hospitalization for Pneumonia that was added because of concerns that readmissions are costly, expose patients to additional risks, interfere with work and family care, and impose significant burden on caregivers. CMS also supports limiting the measure to inpatient utilization because a lack of restrictions may make the measure susceptible to gaming, or manipulating reporting, that could distort a provider’s performance.

Changes to the VBP

The hospital VBP program is a pay-for-performance program and part of CMS’ effort to link payment and value to improve the quality of care provided in an inpatient hospital setting. Under the hospital VBP program, CMS calculates a hospital’s incentive payment based on performance on specified measures that were reported on for the IQR.

In the IPPS final rule, CMS made changes to the measures included in this program for FY 2018, one of which is relevant to surgical care. CMS finalized a reporting change for the patient safety indicator-90 (PSI-90): Patient Safety for Selected Indicators composite measure to accommodate the 10th revision of the International Classification of Diseases (ICD-10) transition. The PSI-90 measure steward, the Agency for Healthcare Research and Quality, is reviewing any potential issues related to ICD-10 conversion of coded operating room procedures; while that effort is being completed, CMS will only use ICD-9 codes. The new performance period for PSI-90 will measure 15 months instead of the previously adopted 24 months. The shortened performance period will apply only in the FY 2018 program year.

In addition, CMS has adopted new measures for FY 2021 that include risk-standardized payment associated with a 30-day episode of care for acute myocardial infarction (AMI) and risk-standardized payment associated with a 30-day episode of care for heart failure (HF). Both AMI and HF are high-volume conditions, and evidence of variation in hospital payments shows variation in payment for patients with these conditions among hospitals. CMS supports the position that these measures cover topics of critical importance to quality improvement in the inpatient hospital setting and that it is appropriate to offer strong incentives for hospitals to provide high-value and efficient care.

Changes to the HAC Reduction Program

Since October 1, 2014, the Affordable Care Act has required that CMS establish an incentive for hospitals to reduce the incidence of hospital-acquired conditions (HACs) and improve patient safety by imposing financial penalties on hospitals with high instances of the HACs specified under this program. A 1 percent payment reduction applies to a hospital with poor performance whose ranking is in the top 25 percent of all applicable hospitals relative to the national average. The HAC Reduction Program adjustment is applied after adjustments are made under the hospital VBP program and the Readmissions Reduction Program. The HAC Reduction Program is separate from, and an adjunct to, the HAC program, which withholds payments to hospitals for select conditions not present upon a patient’s admission to the hospital.

The HAC Reduction Program also requires hospitals to report PSI-90. Several changes were made to PSI-90, including:

  • Addition of PSI-9 (perioperative hemorrhage or hematoma rate), PSI-10 (physiologic and metabolic derangement rate), and PSI-11 (postoperative respiratory failure rate)
  • Removal of PSI-7 (central venous catheter-related blood stream infection rate)
  • Specification changes to PSI-12 (perioperative pulmonary embolism) and PSI-15 (accidental puncture or laceration rate)
  • Weighting of individual measures based on both volume of the adverse event and harm associated with adverse event

PSI-9, PSI-10, and PSI-11 were added to the composite to better capture the range of PSI events. PSI-7 was removed due to concerns that the measure overlapped with another similar measure that addresses the same condition (central line infections) within the HAC Reduction Program. Changes were made to the specifications of PSI-12 and PSI-15 to help identify events that are more statistically significant. Additionally, PSI-90 was reweighted so that the measures were not based solely on volume, but also on the level of excess clinical harm and outcome severity.

The ACS supports CMS’ decision to remove PSI-7 and the reweighting of PSI-90. The new weighting mechanism, along with the addition of indicators and the removal of PSI-7, more equally distributes the component weights compared to earlier versions. The revised weighting approach offers a better measure of adverse events that patients experience in U.S. hospitals, supporting performance comparisons based on a hospital’s ability to safeguard patients from these incidents.

The FY 2017 IPPS final rule can be accessed on the CMS website. Background information and IPPS resources are available on the ACS website. If you have questions regarding IPPS, contact Molly Peltzman, Quality Associate, ACS Division of Advocacy and Health Policy, at

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