Changes in FY 2017 Proposed Rule

by Kimberly Anderwood Hoy Baker, JD

On April 18, CMS issued the much anticipated proposed rule for FY 2017. This year’s proposed rule is very dense, with something for everyone, including multiple coding fixes and updates, changes to payment provisions, quality updates, and even something for utilization review. The rule also contains the proposals for long term care hospitals, including the prospective payment system and quality programs. This article will focus on the IPPS proposals and will not address the long term care hospital provisions.

There were a far greater number of coding changes than we typically see in a proposed IPPS rule, undoubtedly due to the ICD-10 code freeze the last couple of years. The code “freeze” was supposed to allow coders time to adapt to the new coding system by not having a regular annual update and adopting only limited updates for new technology and diseases in the first year of implementation. But with the multiple extensions to the implementation of ICD-10, the code freeze went on for several years and there is a back log of regular updates and necessary changes to the codes. 

In addition, after the first year of implementation, CMS is making a number of tweaks to the grouping of the MS-DRGs and related coding policies. This will be an active year for training coding staff and clinical documentation improvement staff. Additionally, compliance should focus some of their annual efforts around these changes due to the increased risk this volume of changes presents.

For the finance side of the house, CMS is proposing a 0.9% increase in payment rates for FY 2017, but this includes many adjustments. The market basket update (an adjustment for the rate of inflation in healthcare) is rather high at 2.8%. CMS will make a negative adjustment to this update of -1.25% as required by the Affordable Care Act (ACA). Additionally, CMS is also making the final documentation and coding adjustment for shifts in payment due to the implementation of the MS-DRG system in 2007.  This adjustment of -1.5% is more than double the -0.8% adjustment the last three years, and together with the ACA adjustments, nearly eats up the entire market basket update. 

But CMS is also making a surprising positive adjustment related the implementation of the 2-Midnight Rule back in FY 2014. At that time, CMS took 0.2% away from overall payments to account for an anticipated increase in inpatient admission due to the new rule. CMS is returning 0.8% to the payment rates this year to account for the impact of the initial 0.2% adjustment in FY 2014 through FY 2016 and prospectively in FY 2017, effectively zeroing out the original adjustment. The original adjustment has been the topic of a court case and publishing of a separate proposed rule, and it is being returned even though CMS states they believe the assumptions it was based on were correct.