CMS releases FY15 hospital inpatient payment proposed rule Last Updated: February 17, 2015
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The Centers for Medicare & Medicaid Services (CMS) today issued its FY15 Medicare inpatient prospective payment system (PPS)/long-term care hospital (LTCH) PPS proposed rule. A Premier summary and further analysis of the rule are forthcoming. Comments are due to CMS by June 30, 2014.

Under the proposed rule, hospitals would face an average payment decrease of 0.8% between FY14 and FY15 as a result of statutory changes and other adjustments. These include, among other provisions a:

  • 2.7% market basket increase;
  • 0.2% decrease to the market basket and a 0.4 percent reduction for productivity mandated by the Affordable Care Act (ACA);
  • 0.8% decrease for the second year’s installment of a four-year recovery of past alleged overpayments for documentation and coding improvement. Under law, CMS must recover $11 billion in past overpayments over four years;
  • 0.4% reduction from the Readmissions Reduction Program;
  • 0.3% reduction from the Hospital-acquired Condition (HAC) Reduction Program;
  • 1.0% reduction to Medicare disproportionate share hospital (DSH) payments; and
  • 0.1% increase as a result of the application of the frontier wage index and out-migration adjustment.

Hospital value-based purchasing (VBP) program

Proposals for FY15 hospital VBP program

In 2015, CMS proposes to increase to 1.5% of base operating DRG payments at risk depending upon a hospital’s performance on a set of quality measures under the hospital VBP program. CMS estimates a value-based incentive payment pool of approximately $1.4 billion in FY15.

Proposals for FY17 hospital VBP program

CMS proposes to update the FY17 measures in the Clinical Care/Process and Safety, Domains. The proposed changes for Clinical Care/Process removes six ‘topped-out’ measures:

  • PN-6 Initial Antibiotic Selection for CAP Immunocompetent Patient
  • SCIP-Card-2 Surgery Patients on Beta-blocker Therapy Prior to Arrival Who Received a Beta-blocker During the Perioperative Procedure
  • SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients
  • SCIP-Inf-3 Prophylactic Antibiotic Discontinued within 24 Hours After Surgery End Time
  • SCIP-Inf-9 Urinary Catheter Removed on Postoperative Day 2
  • SCIP-VTE-2 Surgery Patients Who Received Appropriate VTE Prophylaxis

CMS also proposes to add PC-01 Elective Delivery.

For the Safety Domain CMS proposes to add Methicillin-Resistant Staphylococcus aureus (MRSA) and Clostridium difficile and readopt Central Line-Associated Bloodstream Infection (CLABSI).

CMS proposes performance and baseline periods, as well as performance standards for the following domains, Clinical Care/Process, Patient Experience, Safety NHSN measures and Efficiency and Cost Reduction.

CMS proposes to revise the domain weighting adopted in the FY14 rule-making by decreasing Clinical Care/Process to 5 percent and increase Safety domain from 15 percent to 20 percent.

Proposals for FY18-FY20 hospital VBP program

CMS considers adding the Care Transition Measure to the Patient Experience for FY 2018 and is seeking comments on how to include it in the scoring methodology.

CMS proposes performance standards and timelines for 2019 -2020 for Clinical/Outcomes measures. For FY 2019 CMS proposes to adopt the Surgical Complication Total Hip and Total Knee Arthroplasty. FY 2018 performance standards will be addressed in future rule-making.

Reduced payment for readmissions

In FY15, the maximum penalty increases to up to 3 percent of inpatient payments based on each hospital’s readmission rates for acute myocardial infarction, chronic heart failure, pneumonia, chronic obstructive pulmonary disease (COPD) and elective total hip/total knee arthoplasty. CMS estimates that, under this proposal, overall payments will decrease by approximately 0.4 percent.

For FY16, CMS does not propose to expand the applicable conditions for the program. However, in FY17, CMS proposes to add coronary artery bypass graft (CABG). This measure has been conditionally supported by the National Quality Forum Measure Applications Partnership for use in the program.

Hospital-acquired condition reduction program

The ACA required CMS to reduce inpatient payments by 1 percent in FY15 for the quartile of hospitals with the highest hospital-acquired conditions. The 1 percent reduction applies to the total inpatient payment that would otherwise be made including all adjustments (IME, DSH, etc.) as well as after adjustments for VBP and readmissions. CMS estimates that, under this proposal, 753 hospitals would be subject to the 1 percent reduction, and that overall payments will decrease approximately 0.3 percent or $330 million.

Two-midnight policy

CMS does not suggest any alternative payment policies for short inpatient hospital stays. Instead, CMS solicits feedback from stakeholders on how such a payment methodology might be designed.

Medicare extenders

CMS proposes to extend the payment adjustments for Medicare dependent hospitals and low-volume hospitals for an additional year (through March 31, 2015) to conform to changes made in the Protecting Access to Medicare Act of 2014. CMS also proposes that critical access hospitals (CAHs) that are affected by the recent Office of Management and Budget’s redesignations be given two years from the date the redesignation becomes effective to reclassify as rural and retain their CAH status.

Hospital inpatient quality reporting (IQR) proposed measures

For FY17, CMS is proposing to remove 15 measures; however CMS is proposing to retain the eMeasure versions for ten chart-abstracted measures.

  • CMS proposes to remove the following chart abstracted measures because they are “topped out”:
    • AMI-1 Aspirin at arrival (NQF #0132)
    • AMI-3 ACEI/ARB for left ventricular systolic dysfunction (NQF #0137)
    • AMI-5 Beta-blocker prescribed at discharge (NQF #0160)
    • AMI-8a: Primary PCI received within 90 minutes of hospital arrival (NQF #0163)
    • HF-2: Evaluation of left ventricular systolic function (NQF #0135)
    • PN-6: Initial antibiotic selection for community-acquired pneumonia (CAP) in immunocompetent patients (NQF #0147)
    • SCIP-Inf-1: Prophylactic antibiotic received within one hour prior to surgical incision (NQF #0527)
    • SCIP-Inf-2: Prophylactic antibiotic selection for surgical patients (NQF #0528)
    • SCIP-Inf-4: Cardiac surgery patients with controlled postoperative blood glucose (NQF #0300)
    • SCIP-Inf-6: Surgery patients with appropriate hair removal (previously suspended) (NQF #0301)
    • SCIP-Inf-9: Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day zero (NQF #0453)
    • SCIP-Card-2: Surgery patients on beta blocker therapy prior to arrival who received a beta blocker during the perioperative period (NQF #0284)
    • SCIP-VTE-2: Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery (NQF #0218)
    • STK-2: Discharged on antithrombotic therapy (NQF #0435)
    • STK-3: Anticoagulation therapy for atrial fibrillation/flutter (NQF #0436)
    • STK-5: Antithrombotic therapy by the end of hospital day two (NQF #0438)
    • STK-10: Assessed for rehabilitation (NQF #0441)
    • VTE-4: Patients receiving un-fractionated Heparin with doses/labs monitored by protocol
  • CMS proposes to retain the eMeasure versions for 10 chart-abstracted measures, including:
    • AMI-8a: Primary PCI received within 90 minutes of hospital arrival (NQF #0163)
    • PN-6: Initial antibiotic selection for community-acquired pneumonia (CAP) inimmunocompetent patients (NQF #0147)
    • SCIP-Inf-1: Prophylactic antibiotic received within one hour prior to surgical incision (NQF #0527)
    • SCIP-Inf-2: Prophylactic antibiotic selection for surgical patients (NQF #0528)
    • SCIP-Inf-9: Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day zero (NQF #0453)
    • STK-2: Discharged on antithrombotic therapy (NQF #0435) o STK-3: Anticoagulation therapy for atrial fibrillation/flutter (NQF #0436)
    • STK-5: Antithrombotic therapy by the end of hospital day two (NQF #0438)
    • STK-10: Assessed for rehabilitation (NQF #0441)
    • VTE-4: Patients receiving un-fractionated Heparin with doses/labs monitored by protocol.
  • CMS proposes to remove one structural measure per the National Quality Forum’s Measures Application Partnership recommendation, Participation in a systematic database for cardiac surgery (NQF #0113).
  • CMS proposes to add:
    • 4 new outcome claims-based measures:
      • 30-day, all-cause, unplanned, risk-standardized readmission rate (RSRR)following coronary artery bypass graft (CABG) surgery
      • 30-day, all-cause, risk-standardized mortality rate (RSMR) following coronary arterybypass graft (CABG) surgery)
      • Hospital-level, risk-standardized 30-day episode-of-care payment measure for pneumonia
      • Hospital-level, risk-standardized 30-day episode-of-care payment measure for heart failure
    • 1 chart abstracted measure Severe Sepsis and Septic Shock: Management Bundle (NQF #0500)
    • 6 voluntary electronic health record based measures
      • EHDI-1a Hearing Screening Prior to Hospital Discharge (NQF #1354)
      • PPC-05 Exclusive Breast Milk Feeding and the subset measure PC-05a Exclusive Breast Milk Feeding Considering Mother’s Choice (NQF #0480)
      • CAC-3 Home Management Plan of Care (HMPC) Document Given to Patient/Caregiver/li>
      • Healthy Term Newborn (NQF #0716)
      • AMI-2 Aspirin Prescribed at Discharge for AMI (NQF)
      • AMI-10 Statin Prescribed at Discharge (NQF #0639)

CMS also proposes modifications to the planned readmission algorithm for all seven readmission measures, the hip/knee readmission and complication measure cohorts to exclude index admissions with a secondary fracture diagnosis; and e hip/knee complication measure to not count as complications coded as “present on admission” (POA) during the index admission.

Hospital-acquired condition (HAC) payment policy

CMS does not propose any new conditions for the existing payment penalty where a given set of HACs cannot qualify a case for a higher tier DRG payment for FY15.

Outlier fixed-loss cost threshold

CMS proposes a FY15 outlier fixed-loss cost threshold for cases that have unusually high costs that is equal to the proposed prospective payment rate for the MS-DRG, plus any IME, empirically justified Medicare DSH payments, estimated uncompensated care payment, and any add-on payments for new technology, plus $25,799.

Medicare DSH reductions

The ACA mandates a reduction in Medicare disproportion share hospital (DSH) payments, beginning in FY14. CMS proposes to adjust the 75% of the amount that would have otherwise been paid as Medicare DSH payments in FY15 by the change in the percentage of individuals that are uninsured. Since the percent of uninsured has decreased, as estimated by the Congressional Budget Office and a statutory factor to determine the amount available for uncompensated care payments, the Medicare DSH payment reductions will result in a 1% reduction to inpatient payments.

Alignment of Medicare EHR incentive program and hospital IQR program

CMS has proposed to align the timelines for reporting and submission for clinical quality measures between the Medicare EHR Incentive Program and Hospital IQR Program. Currently, the Hospital IQR Program reports based on a calendar year timelines, while the EHR incentive program reports based on fiscal year timelines. CMS recognizes that this approach creates additional burden and potential confusion among providers. Thus, CMS proposes to incrementally align the data reporting and submission periods on a calendar year basis to match the IQR program. For CY15 (2017 payment) and 2016 (2018 payment), CMS proposes to require EHR Incentive program CY reporting, but only for the first three calendar quarters.


CMS estimates Medicare payment rates to LTCHs in FY15 will increase by approximately 0.8%. This includes the proposed an update of 2.1%, the “one-time” budget neutrality adjustment to standard federal rate of approximately – 1.3% under the last year of a three-year phase-in and projected decrease in estimated high cost outlier payments.

CMS also proposes delaying the application of the 25% patient threshold under the LTCH PPS for four years, consistent with the mandate in the Pathway for SGR Reform Act of 2013. The moratorium is retroactive to the expiration of the previous statutory delay. CMS currently has nine quality measures and proposes to add the following three new measures to the LTCH Quality Reporting Program (QRP):

  • Ventilator-Associated Event outcome measure
  • Functional outcome measure Change in Mobility among LTCH Patients Requiring Ventilator Support
  • Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function

CMS proposes a reconsideration process and a new data validation process for the LTCH QRP that would require randomly selected LTCH provides to meet a 90 percent data reliability score for the CARE Data Set items.


Premier will be sending out a detailed summary of the proposed rule in the coming days. In the meantime, please see the following resources for additional information: