United States: CMS Proposes IPPS/LTCH Payment and Policy Changes for FY 2018; Requests Comments on Broader Policy Issues

CMS has published its proposed rule to update the Medicare acute hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2018. CMS also solicits public comments on a range of policy issues related to impacting physician-owned hospitals, inpatient and outpatient payment differentials for similar services, and ways to reduce the regulatory burden for providers and promote high quality care, as discussed below.

Acute Hospital Rate Update. With regard to the IPPS, CMS projects that the cumulative rate and policy changes in the proposed rule would increase total IPPS payments by about $3.1 billion in FY 2018 compared to FY 2017 levels. Rate changes would result from a number of adjustments, including:  a 2.9% market basket update reduced by a -0.4% multifactor productivity adjustment and a 0.75% cut mandated by the Affordable Care Act (ACA); a -0.6% adjustment related to the two midnight policy; and a +0.4588% increase to adjust for documentation and coding under the 21st Century Cures Act. CMS also proposed changes in uncompensated care payments that are expected to increase IPPS operating payments by another 1.2%. 

Quality-Related Adjustments to Hospital Payment. Updates to acute hospitals are subject to several quality-related adjustments. The potential updates to standardized amounts for FY 2018 range from a high of 1.75% for a hospital that submits quality data under the Hospital Inpatient Quality Reporting (IQR) Program and is a meaningful Electronic Health Record (EHR) user, to a low of -1.15% for a hospital that does not submit quality data and is not a meaningful EHR user.  Specific hospital payments can be impacted by a variety of other factors, including penalties for excess readmissions under the Hospital Readmissions Reduction Program (HRRP), poor performance under the Hospital-Acquired Condition (HAC) Reduction Program (e.g., hospitals that perform in the lowest quartile for HACs will receive a 1% reduction in overall payments), and bonuses and penalties under the Hospital Value-Based Purchasing (VBP) Program. For instance, CMS estimates that 2,591 hospitals will have their base operating MS-DRG payments reduced under the HRRP in FY 2018, saving approximately $564 million.

Hospital Quality Programs. CMS proposes numerous changes to hospital quality programs, including updates to various quality measures and reporting periods.  CMS also proposes revisions to HRRP policies to account for a hospital's proportion of patients who are dually eligible for Medicare and Medicaid.  In addition, CMS requests comments on additional measures for potential future adoption that would account for various social risk factors in the IQR Program, the HAC Reduction Program, and the Hospital VBP Program.

The proposed rule also addresses, among many other things: proposed changes to MS-DRG classifications, new technology add-on payment applications, rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis, and distribution of Medicare uncompensated care payments.  Other policy proposals address:  changes relating to transparency of accrediting organization survey reports and plans of correction of providers and suppliers; electronic signature and electronic submission of the Certification and Settlement Summary page of Medicare cost reports; clarification of provider disposal of assets; proposed elimination of certain newspaper notices for the Medicare termination of various types of Medicare provider/suppliers;

LTCH Policy. With regard to LTCHs, CMS projects that FY 2018 LTCH PPS payments would decrease by 3.75% ($173 million) compared to FY 2017 levels. CMS attributes much of this reduction to continued phase-in of the Pathway for SGR Reform Act of 2013, which required CMS to establish an alternative site-neutral payment rate, generally based on IPPS rates, for Medicare inpatient discharges from an LTCH that fail to meet certain statutory-defined, patient-level clinical criteria.  CMS estimates that aggregate LTCH PPS payments for site neutral payment rate cases would decrease by approximately 22% in FY 2018.   CMS expects about 58% of LTCH cases to meet the patient-level criteria for exclusion from the site neutral payment rate in FY 2018, however; those cases would be paid based on the standard federal rate.  The proposed rule calls for a standard federal rate of $41,497 (compared to $42,476 in FY 2017), reflecting a 2.8% market basket increase partially offset by a -0.4% productivity adjustment and 0.75% reduction mandated by the ACA.  Note that the applicable annual update for any LTCH that does not submit required data under the LTCH Quality Reporting Program is reduced by 2 percentage points.

CMS also proposes other revisions to the LTCH PPS, including an increase in the fixed-loss amount for high cost outlier cases to $30,081 (compared to $22,728 in FY 2017); the fixed-loss amount under the site-neutral payment rate would be $26,713. In addition, CMS proposes changes to the short-stay outlier (SSO) payment policy, applicable to cases where the covered length of stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay for the MS–LTC–DRG.  While current regulations pay SSO cases based on the lesser of four payment thresholds, CMS proposes to pay all SSO a single graduated per diem rate representing a blend of 120% of the MS LTC DRG specific per diem amount and a per diem rate based on the general acute care hospital IPPS.

In addition, CMS is proposing a one-year regulatory moratorium on full implementation of the 25% threshold policy, under which an LTCH is allowed to admit up to 25% of its patients from a single general acute care hospital; for patients admitted past the 25% threshold, an LTCH faces a significant Medicare reimbursement reduction (with certain exceptions). CMS notes that commenters have suggested that the new site neutral payment rate would alleviate the policy concerns underlying the 25% threshold policy.  Accordingly, the regulatory moratorium would provide CMS with additional time to review the data to determine whether the site neutral payment rate removes the need for the 25% threshold policy.  If the moratorium is not finalized, however, CMS proposes to apply the 25% rule to discharges occurring on or after October 1, 2017.

Furthermore, CMS is proposing to revise its hospital-within-hospital (HwH) regulations so that the separateness and control requirements would only apply to IPPS-excluded HwHs that are co-located with IPPS hospitals.  According to CMS, this proposed change "is premised on the belief that the policy concerns that underlie our existing HwH regulations (that is, inappropriate patient shifting and hospitals acting as illegal de facto units) are sufficiently moderated in situations where IPPS-excluded hospitals are co-located with each other but not IPPS hospitals" given the IPPS-excluded hospital payment policy changes CMS has made over the intervening years.

Request for Public Comment. In the proposed rule, CMS also solicits public comments on a variety of broader topics, including:

  1. The appropriate role of physician-owned hospitals in the delivery system, and how the current scope of and restrictions on physician-owned hospitals affects healthcare delivery.
  2. Transparent ways to identify and eliminate inappropriate payment differentials for similar services provided in the inpatient and outpatient settings.
  3. Policies CMS could adopt to reduce burdens, improve quality of care, and decrease health care costs. CMS specifically invites comments regarding: payment system redesign; streamlining of reporting, monitoring and documentation requirements; aligning Medicare requirements with those of other payers; operational flexibility and data sharing; support of the physician-patient relationship in care delivery; facilitation of individual preferences; when and how CMS issues regulations and policies; simplification of CMS rules and policies; and proposals involving "novel legal questions

The rule was published on April 28, 2017. CMS will accept comments on the proposed rule until June 13, 2017.  Once finalized, the policies and rates generally will apply to discharges occurring on or after October 1, 2017.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.