Executive Summary

The Centers for Medicare & Medicaid Services’ (CMS’) 2016 proposed rule for the Inpatient Prospective Payment System (IPPS) continues to shift the Medicare program to reimbursing providers based on quality metrics.

  • CMS continues to raise the bar for hospitals by adding new metrics to Value-Based Purchasing, the Hospital Readmission Reduction program, and the Hospital-Acquired Condition Reduction program.
  • Case managers should continue to educate physicians on the effect that the quality metrics have on the hospital bottom line and work with the multidisciplinary team to ensure that patients get the care they need in a timely manner and that documentation reflects the patient’s condition and services received.
  • In the proposed rule, CMS announced that it is considering feedback it has received on the two-midnight rule and will include a further discussion of the issue in the Outpatient Prospective Payment System final rule.


The Inpatient Prospective Payment System (IPPS) proposed rule for fiscal 2016 continues the Centers for Medicare & Medicaid Services’ commitment to shift the Medicare program to reimbursing providers based on the quality, rather than the quantity, of care they give to patients.

“The proposed rule is a mixture of more of the same and an expanded push toward quality. It is well over 1,000 pages and covers a lot of ground,” says Kurt Hopfensperger, MD, JD, senior medical director of audit, compliance, and education at Executive Health Resources, a Newtown Square, PA, healthcare consulting firm. “It reaffirms that ICD-10 will start Oct. 1, expands inpatient quality reporting, modifies the Value-Based Purchasing and readmission reductions programs, and asks for comments on expanding the bundled payments initiative.”

What it doesn’t do is address the two-midnight rule or set a payment system for short inpatient stays, he adds. Instead, CMS stated that it is considering feedback it has received, including the recommendation from the Medicare Payment Advisory Commission (MedPAC) that it do away with the rule entirely.

CMS says that it expects to include a further discussion of “the broader set of issues related to short inpatient hospital stays, long outpatient stays with observation services” in the Outpatient Prospective Payment System final rule for 2016, which is issued at the end of October and goes into effect Jan. 1, 2016. Hospitals are still being audited for compliance with the two-midnight rule through the Probe and Educate program administered by the Medicare Administrative Contractors (MACs).

There is a precedent for CMS to clarify the Inpatient Prospective Payment System rules in the OPPS, Hopfensperger points out. Last fall, CMS made changes to the inpatient certification requirements for physicians in the OPPS, he adds.

None of the changes announced in the proposed rule are a surprise, says James Ketterhagen, MD, principal, and safety and quality practice lead for Novia Strategies, a national healthcare consulting firm.

“CMS is continuing its emphasis on quality through Value-Based Purchasing, the hospital-acquired condition reduction program, and the readmission reduction program,” he says.

In the proposed rule, CMS is continuing to raise the bar for hospitals, says Theresa Brandon, CPA, SPHR, managing director and revenue cycle practice lead for Novia Strategies.

“In this rule, they have taken away some measures and added new ones. The fact that they are continuing to reassess significant measures gives us clarity about how seriously they take them and how payments will continue to be tied to performance,” Brandon says.

CMS has started with a low percentage of reimbursement tied to quality and is ratcheting up, Ketterhagen points out. “They are tweaking the programs by dropping one metric and going on to the next one. Accountable care organizations are becoming more common. The bundled payment initiative is going to expand, and at some point, there will be no such thing as fee-for-service.”

“When you look at the direction Medicare is moving, there’s no question that in five or 10 years or so, the payment method for healthcare providers will not look anything it does today. We’ve seen only the first foray into the idea of pay-per-performance,” Ketterhagen continues.

Rule highlights

Highlights of the proposed rule include the following:

  • • CMS proposes to add eight new measures to the Hospital Inpatient Quality Reporting program in fiscal 2018 and to remove nine measures.
  • • The agency also states its intention to add a care coordination measure to Value-Based Purchasing in fiscal 2018. The measure, which has been in the Hospital Inpatient Quality Reporting program, is a combination of metrics from three questions on the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) that focus on patients’ understanding of their care when they left the hospital.
  • The proposed rule includes a proposal to increase the weight of the Patient Safety domain in Value-Based Purchasing from 20% to 25% in fiscal 2018 and to add a 30-day mortality rate for chronic obstructive pulmonary disease in fiscal 2021. The payment reduction for the Value-Based Purchasing program is slated to rise from 1.5% to 1.75% in fiscal 2016.
  • For fiscal 2017, CMS is proposing to expand the population of patients with pneumonia in the readmission reduction program to include patients with a principal discharge diagnosis of aspiratory pneumonia and sepsis, or respiratory diagnoses with a secondary diagnosis of pneumonia. Currently, only patients with a principal discharge diagnosis of viral or bacterial pneumonia are part of the population, Brandon says.
  • The Hospital-Acquired Condition penalty remains at 1%, but the weight of the domains has changed. In 2015, 35% of a hospital’s score is based on the Patient Safety Indicator 90, a composite of eight measures. The remaining 65% is based on two healthcare-associated infection measures: central line-associated bloodstream infections and catheter-associated urinary tract infections. In fiscal 2016, CMS proposes to reduce the Patient Safety Indicator 90 domain’s weight to 25% and to 15% in 2017. “CMS is focusing more on infections than general patient safety indicators,” Ketterhagen says.
  • The proposed rule adds surgical site infection for colon surgery and abdominal hysterectomy to the Hospital-Acquired Condition prevention program in fiscal 2016, and methicillin-resistant Staphylococcus aureus (MRSA) and Clostridium difficile colitis (C. diff) in fiscal 2017.
  • CMS is seeking comments on the potential future expansion of the Bundled Payments for Care Improvement initiative it launched in 2011. The pilot project pays a fixed price for a wide range of health services by multiple providers over a specified period of time or episode of care. (For details on bundled payments, see Hospital Case Management, October 2014, Vol. 22, No. 10)

The emphasis on quality and improving care for patients makes the role of the case manager more important than ever before, Hopfensperger says.

“As long as we have inpatients and outpatients, as long as we have documentation issues, performance measures, and quality reporting, we will always need case managers. What we’re seeing is that utilization review and utilization management are more important than they were five to seven years ago and the trend is going to continue,” he says.

Many physicians may not have a thorough understanding of the CMS quality improvement programs and their impact on the hospital, but CMS is already planning similar programs for physician practices, Ketterhagen says. “Hospital case managers are in a position to educate physicians about the performance metrics and the significant impact on the hospital’s bottom line while reminding physicians that similar programs will affect their practices in the future,” he says.

The changes in the healthcare environment are leading to the breakdown of silos that have existed for many years within hospital operations, Brandon says.

“Regulations, rules, and reporting requirements have become so complicated that it takes a collaborative effort of case managers, social workers, nurses, physicians, and finance professionals to determine how to deliver the right amount of care and get reimbursed for as much of that as is permissible,” Brandon adds.