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OVERVIEW: On July 31, 2009, the Centers for Medicare & Medicaid Services (CMS) issued a final rule updating payment rates and policies for services furnished to people with Medicare in inpatient rehabilitation facilities (IRFs). The payment rate updates are effective for discharges on or after October 1, 2009. The final rule also issues new regulations regarding IRF coverage criteria, including patient assessment, treatment planning, and care provision. The proposed rule would apply to more than 200 freestanding IRFs, and to almost 1,000 IRF units of acute care hospitals.

This fact sheet addresses the changes to IRF payment rates adopted in the fiscal 2010 final rule. CMS projects that the changes will increase aggregate payments to IRFs by $145 million for fiscal 2010 compared with FY 2009.

A separate fact sheet, also issued on July 31, 2009, addresses the rule’s new requirements for pre-admission screening, post-admission evaluations, and individualized treatment planning.

BACKGROUND: Prior to the introduction of the Inpatient Prospective Payment System (IPPS) in 1983, Medicare paid for hospital care based on the hospital’s reasonable costs, subject to a statutory limit. Beneficiaries who required closely supervised, resource intensive rehabilitation services in addition to the treatment of the acute care condition for which they were hospitalized generally received these rehabilitation services as part of the same inpatient hospital stay that addressed their acute care needs.

The IPPS replaced cost-based payment for acute inpatient hospital stays with a prospective payment system (PPS) basing payment rates on the average costs of treating a patient with a particular diagnosis. The diagnoses were, in turn, classified into new diagnostic related groups (DRGs) based on patients’ clinical conditions and treatment strategies. However, the DRGs did not fully address the many variables of the rehabilitation portion of a hospital stay. Therefore, these services were excluded from payment under the IPPS and continued to be reimbursed on a cost basis, either to freestanding IRFs or to IRF units within an acute care hospital. CMS, then called the Health Care Financing Administration, established a list of qualifying conditions and required that at least 75 percent of the patients served by IRFs or inpatient rehabilitation units in a year have one or more of the qualifying conditions.

In the Balanced Budget Act of 1997 (BBA), Congress required CMS to implement a PPS for both freestanding IRFs and IRF units within an acute care hospital, effective for cost reporting periods beginning on or after Jan. 1, 2002. The new IRF PPS was intended to encourage the efficient provision of intensive rehabilitation services in IRFs and to constrain costs while ensuring quality care. In order to be excluded from the IPPS and instead be paid the higher rates for providing rehabilitation services under the IRF PPS, current Medicare law requires an IRF to demonstrate that its annual patient population consists of at least 60 percent of patients with one or more of the qualifying conditions as a principal or secondary diagnosis. (See current list of qualifying conditions, attached).

DETERMINING PAYMENT RATES UNDER THE IRF PPS: CMS makes a single prospective payment to the facility for the inpatient rehabilitation stay based on the relative amount of resources that would typically be required to treat a patient’s medical conditions and provide rehabilitative services intended to restore or maximize the patient’s physical functioning.

Under the IRF PPS, each patient is assigned to a case mix group (CMG) and a tier within the CMG. The CMG assignment is based on the primary condition for which the patient was admitted to the IRF and on the patient’s functional and cognitive abilities at the time of admission. The tier assignment is based on the presence of one or more specified secondary diagnoses, or comorbidities, that affect the resources needed to treat the patient. Each CMG and tier is assigned a relative weight that serves as the basis for the payment rate. The payment rate is then adjusted at the facility level for teaching status, the applicable geographic wage index, and the percentage of low-income patients served by the facility. IRFs in rural areas receive an additional payment adjustment. Cases with extraordinarily high costs compared to the prospectively set payment may qualify for an outlier payment.

PAYMENT RATE CHANGES FOR THE FY 2010 IRF PPS: In the final IRF PPS rule, CMS has adopted the following updates to the payment rates for IRFs for fiscal 2010.

*Market Basket Update: CMS calculates the market basket update for fiscal 2010 at 2.5 percent, using a market basket specifically developed for inpatient rehabilitation facilities, inpatient psychiatric facilities, and long-term care hospitals (the RPL market basket).

*CMG Relative Weights: CMS updates the CMG relative weights and average length of stay values using fiscal 2008 claims data and the most recent available IRF cost report data, which reflect recent changes in IRF patient populations resulting from the 60 percent rule and medical review activities.

*High-Cost Outlier Threshold: CMS is setting the outlier threshold for fiscal 2010 at $10,652, the amount projected to maintain estimated outlier payments equal to 3.0 percent of total estimated payments for fiscal 2010.

*Wage Index Adjustment: As proposed, CMS is using the final pre-reclassified and pre-floor hospital wage data for fiscal 2009 to determine the final fiscal 2010 rates.

*Facility-Level Adjustments: CMS is updating the rural, low-income patient (LIP), and teaching status adjustment factors using the most recent three years of data (fiscal years 2006 through 2008).

*Collection of Patient Assessment Data on Medicare Advantage Patients: CMS is requiring submission of IRF patient assessment data on Medicare Part C (Medicare Advantage) patients in IRFs for use in calculating the compliance percentage.

Except as otherwise specified in the rule, the provisions of the final rule will apply to discharges on or after Oct. 1, 2009.

The final rule went on display on July 31, 2009 at the Office of the Federal Register’s Public Inspection Desk and will be available under “Special Filings,” at:

It will appear in the Aug. 7, 2009 Federal Register.

For more information, please see: