CMS to cut hospital payments by 1.5% to recoup losses tied to coding

The Centers for Medicare and Medicaid Services announced on Tuesday a 1.5 percent cut to the amount it pays hospitals, a move designed to recover $11 billion in overpayments.

The American Taxpayer Relief Act of 2012 required CMS to recoup that amount fully by fiscal year 2017, making up for documentation and coding overpayments related to the transition to Medicare Severity-Diagnosis Related Groups that began in 2008.

For the past several years, the adjustments had been fixed at -0.8 percent, but that left $5.05 billion of the $11 billion requirement that still needs to be addressed. CMS finalized a -1.5 percent adjustment to make up the difference.

[Also: CMS proposes payment rule for inpatient stays, long-term care, rolls back two-midnight cuts]

CMS also issued a number of other changes on Tuesday. The agency is distributing close to $6 billion in uncompensated care payments over the next fiscal year, a decrease of about $400 million from fiscal year 2016. The Hospital Readmissions Reduction Program will also see some tweaks; starting in fiscal year 2017 and continuing into later years, reductions to a hospital's base DRG payment -- which accounts for excess readmissions for certain conditions -- will be based on a hospital's risk-adjusted readmission rate during a three-year period. The applicable conditions include acute myocardial infarction, heart failure, pneumonia, chronic obstructive pulmonary disease, total hip or knee arthroplasty and coronary artery bypass graft.

CMS will also delay changes to the way it distributes disproportionate-share payments to safety net hospitals. The new formula relies primarily on how much uncompensated and charitable care a hospital claims through Medicare, while previously it was based on the number of patients a hospital served who were Medicaid eligible, dual-eligible or disabled.

Also Tuesday, CMS said uncompensated care payments would drop about $400 million over the previous fiscal year, landing at around $6 billion.

Because off-campus hospital outpatient departments will be paid under Medicare Part B systems rather than outpatient prospective payment systems, long-term-care hospitals will see rates fall by about $363 million, a 7.1 percent decrease. That change takes effect in January.

And hospitals overall will receive $746 million more under the 2017 Inpatient Prospective Payment System than they did in the previous fiscal year. That's due to several changes, including a reversal of the 0.2 percent payment reduction under the two-midnight rule, as well as a one-time increase to offset the two-midnight cut applied in previous fiscal years.

Twitter: @JELagasse