The 2018 Inpatient Prospective Payment System final rule

The Centers for Medicare & Medicaid Services (CMS) released the Inpatient Prospective Payment System (IPPS) final rule August 2. The rule establishes fiscal year (FY) 2018 policies for Medicare payments to hospitals for inpatient stays occurring between October 1, 2017, and September 30, 2018. Under the final rule, the payment rate update for general acute care hospitals paid under the IPPS is 1.2 percent. 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.

How does the 2018 IPPS final rule affect surgeons?

The IPPS rule sets reimbursement rates and coverage criteria for Medicare Part A claims for services provided in the inpatient hospital setting. In addition, the IPPS rule contains modifications to hospital pay-for-reporting and pay-for-performance programs used to determine hospital payment adjustments. The IPPS rule does not directly update Medicare Part B physician payments; however, because a large proportion of surgical care is furnished in the acute care setting, changes to payment policies for inpatient facilities have an effect on surgeons who practice in hospitals. In the final rule, CMS made a number of changes to Medicare payment, coverage, and quality reporting policies for inpatient hospital services.

What changes were made to the VBP program relevant to surgical care?

Under the hospital Value-Based Purchasing (VBP) program, CMS calculates incentive payments made to hospitals based on their 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 remove the patient safety indicator (PSI)-90 composite safety measure from the VBP program, effective for FY 2019, and to adopt a modified version of this measure, the PSI-90 Patient Safety and Adverse Event Composite measure, for FY 2023 and subsequent years. The modified measure includes:

  • PSI-03 Pressure ulcer rate
  • PSI-06 Iatrogenic pneumothorax rate
  • PSI-08 In-hospital fall with hip fracture rate
  • PSI-09 Perioperative hemorrhage or hematoma rate
  • PSI-10 Postoperative acute kidney injury rate
  • PSI-11 Postoperative respiratory failure rate
  • PSI-12 Perioperative pulmonary embolism or deep vein thrombosis rate
  • PSI-13 Postoperative sepsis rate
  • PSI-14 Postoperative wound dehiscence rate
  • PSI-15 Unrecognized abdominopelvic accidental puncture/laceration rate

In addition to the name change, the number of indicators in the composite increased from eight to 10. PSIs 9, 10, and 11 were added to better capture the range of patient safety events, while PSI-7 (central line-related bloodstream infection rate) was removed.

PSI-15 was re-specified to focus on the most serious intraoperative injuries due to an accidental puncture or laceration and only includes abdominal and pelvic surgery in the denominator. To reflect these changes, the name of the PSI changed from accidental puncture or laceration rate to unrecognized abdominopelvic accidental puncture/laceration rate. The numerator has also been updated to only include accidental punctures or lacerations that result in a patient returning to the operating room at least one day after the index procedure.1 The ACS supported these changes.

The PSI-90 measure also was changed to account for harm in how the components of the measure are weighted. The previous version of PSI-90 determined the weight of each PSI based on volume weights. The new weighting methodology improves measure validity and reliability, and now accounts for both the frequency and severity of the harms associated with each patient safety event, in addition to volume weights. PSI-15, for example, previously was weighted at 44 percent, but after incorporating harm is valued at <1 percent.1

Have changes been made to the Hospital IQR program that will affect quality reporting for surgeons?

The Hospital Inpatient Quality Reporting (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; however, the payments made to hospitals under this program are not related to a hospital’s performance on those measures. The IQR program primarily functions to publicly report hospitals’ quality performance on Hospital Compare. It also provides an opportunity to further analyze and understand the usability and outcomes of new quality measures before they are incorporated into pay-for-performance programs, such as the hospital VBP program. Under the IQR program, hospitals must meet the requirements for reporting specific quality information to receive the full market basket update for that year.

In response to concerns raised by stakeholders about the opioid epidemic in the U.S., CMS finalized a series of changes to the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey.2 The agency is replacing the three pain management questions included in the HCAHPS with three new communication about pain questions. Under the IPPS final rule, this change, applicable to surveys administered to patients when they are discharged beginning January 1, is a response to stakeholder concerns that the pain management questions could have the unintended consequence of incentivizing hospital staff to overprescribe opioids to optimize their HCAHPS score. The three new questions address the constructs: effective communication with patients about pain management issues, discussion of treatment options, and patient understanding of pain management options.

Were there any changes to the measures in the PCHQR program?

The Prospective Payment System (PPS)-exempt Cancer Hospital Quality Reporting (PCHQR) program began in 2014 as a pay-for-reporting program under which there are no penalties for the 11 PPS-exempt cancer hospitals (PCH) that fail to meet the reporting requirements. The initial program included five quality measures and subsequent rulemaking has modified the measure set. A total of 17 measures were adopted for implementation in 2019.

For 2018, CMS finalized the removal of three cancer-specific process measures:

  • Adjuvant chemotherapy is considered or administered within 4 months (120 days) of diagnosis to patients under the age of 80 with AJCC III (lymph node-positive) colon cancer (PCH-01/NQF #0223)
  • Combination chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70 with AJCC T1c, or stage II or III hormone receptor-negative breast cancer (PCH-02/NQF #0559)
  • Adjuvant hormonal therapy (PCH-03/NQF #0220)

CMS’ rationale for removing these measures is that they are topped out, which means measure performance is high and unvarying and, therefore, no meaningful distinctions can be made from one provider to the next.

The ACS opposes the removal of these measures because measuring these high-value processes together can be more meaningful and tell a more complete story of patient care while allowing hospitals to continue to track disparities in cancer care. The ACS will continue to advocate for retention of these measures as part of a composite measure.

Did the IPPS final rule include any modifications to the EHR Incentive Program for providers?

The CMS Medicare Electronic Health Record (EHR) Incentive Program is divided into three stages, each intended to incentivize providers to demonstrate meaningful use of an EHR system through a progression of measures and objectives. Stage 1 established the foundation for the program by instituting requirements for the electronic capture of clinical data and by providing patients with electronic access to their health information. Stage 2 expands on Stage 1 by encouraging the use of health information technology for continuous quality improvement at the point of care and the exchange of information in a structured format. Stage 3 focuses on improving clinical outcomes. For clinicians, the EHR Incentive Program has transitioned to the Advancing Care Information component of the Merit-based Incentive Payment System.

The 21st Century Cures Act, enacted in December 2016, allows for the expansion of protections from payment adjustments under the EHR Incentive Program. Under this authority, CMS finalized its proposal to add a new exception for the 2018 payment adjustment for providers who have been unable to comply with reporting requirements because their certified EHR technology (CEHRT) has been decertified by the Office of the National Coordinator (ONC) for Health Information Technology. Providers eligible for this program may qualify for this exception if their CEHRT was decertified either in the 12-month period preceding the EHR reporting period for the 2018 payment adjustment year or during the EHR reporting period for the 2018 payment adjustment year, which is any continuous 90-day period in 2016 or 2017. When applying for this exception, providers must demonstrate that they intended to attest to meaningful use for a certain EHR reporting period and that they made a good-faith effort to adopt and implement another CEHRT in advance of that EHR reporting period. The ACS recommends that providers seeking to use this exception retain any evidence of efforts to obtain new CEHRT.

Also under the authority of the 21st Century Cures Act, CMS finalized an exemption for ambulatory surgical center (ASC)-based providers. ASC-based providers include those who deliver 75 percent or more of their covered professional services in an ASC (as identified by place of service code 24 listed on claims). Whether a provider qualifies for the ASC-based exemption for a payment adjustment year is based on the provider’s services furnished years prior to the payment adjustment year. The ACS supported this proposal to ensure that providers are not penalized for circumstances beyond their control, including those physicians who have little influence over EHR decisions in their practice.

CMS additionally finalized a policy to allow providers to use either 2014 edition or 2015 edition CEHRT, or a combination of the two, for an EHR reporting period in 2018. CMS took this step to provide more flexibility in reporting options for clinicians and their practices. The ACS supported this flexibility in its comments on the proposed rule.

Do the measures in these programs account for social risk factors?

Measures across IPPS quality and value-based purchasing programs do not account for social risk factors. To identify the best path forward, CMS is assessing the appropriateness of accounting for social risk factors across its inpatient programs. The goal is to incentivize improvements in health outcomes for patients with low socioeconomic status (SES) while ensuring access to care for these patients. There have been some initial investments in research to identify how to account for social risk factors in value-based programs by the National Quality Forum, the U.S. Department of Health and Human Services (HHS) Assistant Secretary for Planning and Evaluation, and the National Academies of Sciences, Engineering, and Medicine.3-5 Many of the findings indicate the need for further research in the area. CMS will continue to seek stakeholder input on the most appropriate social factors to include in risk adjustment or for the stratification of performance scoring, how to account for these risk factors, and which data sources are best suited to identify social risk variables.

CMS indicated that much of the feedback received in the rulemaking process is conflicting. Some stakeholders recommended risk adjustment as the best approach to account for social risk factors, while others expressed concern that adjusting for social risk factors may mask disparities or minimize incentives to improve the outcomes of disadvantaged patients. The ACS has advocated for SES risk adjustment for measures used in accountability applications (such as public reporting and pay-for-performance) on a case-by-case basis, and when they demonstrate a conceptual and empirical basis for adjustment.3 Without the use of appropriate risk adjustment for certain measures, clinical outcomes will be less reliable due to SES confounding variables. The ACS also has noted the importance of stratified results because they can demonstrate to CMS where more resources are needed to overcome the challenges vulnerable populations face from their SES. The ACS recommended that the Secretary of the HHS encourage CMS to work with other agencies to prioritize research efforts in this area and to examine the broader social determinants of health.

How will CMS enforce the critical access hospital (CAH) 96-hour certification requirement in FY 2018?

For inpatient services furnished in CAHs to be payable under Medicare Part A, CMS requires that a physician certify that a patient admitted to a CAH may reasonably be expected to be discharged or transferred to another hospital within 96 hours of admission. The ACS has expressed to CMS that the 96-hour certification requirement imposes significant burdens on the surgical community and believes that strict enforcement of this policy may violate the Emergency Medical Treatment and Labor Act, under which hospitals and physicians must treat patients until their condition has been stabilized or resolved.

In the IPPS final rule, CMS indicated that the CAH 96-hour certification requirement will not be stringently enforced or reviewed. CMS directed its auditors, including quality improvement organizations (QIOs), Medicare administrative contractors (MACs), supplemental medical review contractors (SMRCs), and recovery audit contractors (RACs), to make the CAH 96-hour certification requirement a low priority for medical record reviews as of October 1. CAHs should not expect to receive medical record requests from QIOs, MACs, SMRCs, or RACs related to the 96-hour certification requirement in the absence of evidence of potential fraud, waste, or abuse.

The ACS supports CMS’ decision to make the 96-hour certification requirement a low priority for medical record reviews, as this change indicates that CMS is aware of the problems inherent in this payment policy. However, the ACS continues to advocate on behalf of physicians who provide essential surgical care to Medicare’s rural beneficiaries and urges CMS to provide a definitive remedy for the problems associated with the 96-hour certification requirement that goes beyond instructing audit entities to forgo reviews of this certification in medical records.

Have changes been made to national health care accrediting organization requirements?

Section 1865 of the Social Security Act allows health care facilities, providers, and suppliers to demonstrate compliance with Medicare conditions of participation, coverage, and certification through accreditation by a private national accrediting organization (AO). CMS has responsibility for overseeing and approving AO programs used for Medicare certification purposes and for ensuring that providers and suppliers accredited under a CMS-approved AO program meet Medicare’s quality and safety standards.

In the IPPS proposed rule, CMS proposed to require AOs to make all Medicare provider and supplier accreditation survey reports, which measure compliance with Medicare quality and safety standards, publicly available on their websites. The ACS opposed this proposal and encouraged CMS to instead improve collaboration with AOs to ensure that accreditation surveys are designed and implemented to best identify needed areas of improvement for health care facilities, providers, and suppliers. Citing public feedback on this issue, CMS withdrew its proposal in the IPPS final rule. CMS indicated that it will further review and refine methods to share health quality and safety information with consumers.

The FY 2018 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 the IPPS, contact the ACS Division of Advocacy and Health Policy at


  1. Agency for Healthcare Research and Quality (AHRQ) Quality Indicators (QIs) Fact Sheet. PSI 90 Fact Sheet. August 31, 2016. Available at: Accessed October 9, 2017.
  2. Centers for Disease Control and Prevention (CDC). New data show continuing opioid epidemic in the United States. Available at: Accessed October 9, 2017.
  3. National Quality Forum. Evaluation of the NQF trial period for risk adjustment for social risk factors final report. July 18, 2017. Available at: Accessed October 9, 2017.
  4. Office of the Assistant Secretary for Planning and Evaluation. Report to Congress: Social Risk Factors and Performance Under Medicare’s Value-Based Purchasing Programs. December 21, 2016. Available at: Accessed October 9, 2017.
  5. National Academies of Sciences, Engineering, and Medicine. Accounting for Social Risk Factors in Medicare Payment: Criteria, Factors, and Methods. Washington, DC: National Academies Press. 2016.

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