CMS issued its annual rates and policy changes for the FY 2008 Inpatient Prospective Payment System (IPPS) on August 1, 2007. It is expected to be published in the August 22, 2007 Federal Register. Key changes this year include:

Medical Severity DRGs (MS-DRGs)

Hospitals will be paid more for sicker patients. CMS is replacing the 538 existing DRGs with 745 MS-DRGs, designed to result in more accurate payment for inpatient services by accounting for the severity of illnesses, to be phased in over two years.
CMS is reducing payments by 1.2 %, a so-called behavioral offset" to counter CMS's belief that hospitals will change coding practices to receive higher payments under the MS-DRGs. (Legislation is pending that would block this cut.)
FY 2008 is the second year of three year phase-in of cost-based relative DRG weights, replacing change-based weights.
Approximately 36 % of the MS-DRGs will be subject to the post-acute transfer rule, under which discharges to certain post-acute settings are treated as transfers rather than discharges.
The MS-DRG structure is also adopted for LTCH-PPS for FY 2008 (called MS-LTC-DRGs)

Hospital-Acquired Conditions

Hospitals must report secondary diagnoses present on admission. Unless eight specified secondary diagnoses are present on admission, the hospital will not receive the higher paying DRG these diagnoses would otherwise generate, beginning in 2009. This is to avoid paying hospitals for infections or conditions acquired while the patient is in the hospital.

Wage Index/Occupational Mix Adjustment

Wage index based on FY 2004 wage survey.
Includes contract services for management and A&G, housekeeping and dietary.
Occupational mix adjustment based on hospital survey data from January 1 – June 30, 2006.

Capital PPS

CMS eliminated large urban add-on, and will begin three-year phase-in of eliminating teaching adjustments.
All hospitals will receive full update; CMS did not adopt its proposal to provide a zero update for urban hospitals.
The comment period for changes to capital PPS extends through November 20th.

Disclosure of Physician Ownership and Patient Safety Measures

CMS revised the regulations on provider agreements to require hospitals to:
- disclose to patients, at the beginning of a hospital stay/visit, whether any physician have ownership interests in the hospital, and to make a list of such physicians available; and
- notify patients at the beginning of a stay/visit if a doctor is not present 24/7.

The Reporting Hospital Quality Data for Annual Payment Update Program

CMS added six new quality measures that hospitals must submit (for a total of 27) to receive the full FY 2008 payment update. Those measures involve the following areas: Surgical Care Improvement Project, Mortality Measures, and Patients' Experience of Care (Patient Survey).
CMS intends to continue to expand the requisite list of quality measures in subsequent years, pursuant to the Deficit Reduction Act of 2005, including for FY 2009.

EMTALA

CMS implemented two changes to the regulation affecting EMTALA implementation in emergency areas during an emergency period, as required by the Pandemic and All-Hazards Preparedness Act., Pub. L. 109-417:
- Sanctions may be waived for the direction or relocation of an individual for screening where, in the case of a public health emergency involving pandemic infectious disease, that direction or relocation occurs pursuant to a State pandemic preparedness plan.
- Such a waiver of the sanctions is not limited to 72 hours, but will remain in effect until the termination of the applicable declaration of a public health emergency.

Medical Devices Replaced

When a hospital obtains a replacement medical device and receives a credit for the cost of that device equal to 50 percent or more or the cost, the DRG payment to the hospital will also be reduced.

GME/IME

CMS increased the IME multiplier for FY 2008 from 1.32 to 1.35, as required by statute. This should result in a 5.5% increase in IME payments for every 10-percent increase in a hospital's resident to bed ratio.
CMS had proposed deleting from GME\IME FTE computation that time spent by residents using vacation or sick leave. In the final rule, CMS stated its belief that vacation time, sick leave and other types of approved leave are not appropriately labeled as patient care activities, much like didactic and research activities, and should be excluded from the FTE calculation. Nevertheless, the agency recognized that there would be significant administrative burdens in removing the time from the FTE computation and, given these burdens, decided not to implement its proposal at this time.
CMS further stated that it would continue to recognize orientation as "countable time" in the hospital setting and allow that time to be counted, as well, in non-provider settings effective with cost reporting periods beginning in FY 2008.

Patients "In Custody" of Penal Authorities

The Medicare statute excludes from coverage items or services for which a Medicare patient has no obligation to pay. CMS has long stated that, if a patient is in custody of penal authorities, these authorities – and not Medicare – should pay for the medical services furnished unless the state or local government requires (and the authorities enforce the requirement) that the individuals "in custody" repay the state or local government for the cost of those services. CMS, in this final rule, clarified that "in custody" means not just those who are incarcerated, but also those under arrest, required to reside in a mental health facility or halfway house, on probation (supervised release), home detention, "out on bail" or parole. This will likely impose an increased burden on hospitals to inquire into patients' "penal status" and recover the costs of care provided to such patients from the penal authorities and not Medicare.