Fiscal Year (FY) 2014 Inpatient Prospective Payment System (IPPS) Proposed Rule

On April 26, 2013, the Centers for Medicare and Medicaid Services (CMS) released the FY 2014 proposed rule that would update payment policies and rates for inpatient stays at general acute care and long-term care hospitals (LTCHs). Apart from the annual adjustment of payment rates, other provisions are focused on laying the framework for an Affordable Care Act (ACA) patient safety program to be launched in FY 2015 aimed at lowering the number of hospital-acquired conditions (HACs), and providing clarification of inpatient admission and medical review criteria. Some of the most significant details include:

Proposed Changes and Additions:


  • A net increase in IPPS payments by 0.8%.
  • A temporary IPPS reduction of 0.8% as required by the American Taxpayer Relief Act to recover $11 billion of overpayments from prior years due to a new patient classification system that better recognizes patient severity of illness. CMS expects to make similar adjustments in FY 2015, 2016 and 2017.
  • A net increase of LTCH PPS payments by 1.1%.
  • The Value-Based Purchasing Program (VBPP) incentive payments and applicable percent reduction would increase from 1% in FY 2013 to 1.25% in FY 2014.
  • As required by law, the maximum reduction in payments under the Hospital Readmissions Reduction Program would increase from 1% to 2%.
  • Hospitals that serve a disproportionate share of low-income patients and receive an upward adjustment would see a reduction of the adjustment to 25% of the amount Medicare would pay under the current policy. The remaining 75% would be adjusted to reflect the decrease of nationally uninsured individuals, and then distributed to disproportionate share hospitals (DSH) based on their share of uncompensated care relative to all Medicare DSH hospitals.

Inpatient Stays:

  • Clarification of medical review criteria which presumes appropriate inpatient status for payment if a Medicare Part A beneficiary is admitted to the hospital pursuant to a physician order and receives care for a minimum of two nights. Conversely, hospital inpatient admissions spanning less than two nights will presumptively be inappropriate for payment under Medicare Part A. This presumption may be overcome by documentation in the medical record supporting the admitting physician’s expectation that the patient would need care spanning at least two nights and an unforeseen circumstance results in a shorter stay.


  • Criteria and methodology CMS would use to score hospitals that have a high rate of HACs. If a hospital is scored in the lowest performing 25%, payment will be reduced to 99% of what they would otherwise be paid under IPPS beginning in FY 2015.
  • CMS plans to divide the HACs into two domains. The first would include:
    • Rates of pressure ulcers
    • Number (not rate) of foreign surgical objects left inside patients
    • Rate of iatrogenic pneumothorax
    • Rate of postoperative physiologic and metabolic derangement
    • Rate of postoperative pulmonary embolism or deep vein thrombosis
    • Rate of accidental puncture and laceration

The second domain would include rates of central line-associated bloodstream infections and catheter-associated urinary tract infections. The domain score will be calculated for each hospital with each domain consisting of 50% of the score. Patient’s age, gender and comorbidities will also be factored in so that hospitals serving a larger proportion of sicker patients would not be unfairly penalized.


  • In the IPPS final rules for FY 2009 and 2011, CMS created new cost centers for implantable devices charged to patients, MRIs, CT scans, and cardiac catheterization. It was stated that CMS would consider creating separate cost to charge ratios (CCRs) for the new cost centers to calculate relative weights. It has been proposed for FY 2014 to implement the four new cost centers increasing the number of CCRs used to calculate the proposed relative weights from 15 to 19.
  • CMS has proposed to move stroke cases with ICD-9-CM code V45.88 (status post administration of tPA [rtPA] in a different facility within the last 24 hours prior to admission to current facility) as a secondary diagnosis from MS-DRG 066 to MS-DRG 065. The title of MS-DRG 065 would change to Intracranial Hemorrhage or Cerebral Infarction with CC or tPA in 24 Hours.
  • It is proposed to reassign the following diagnosis codes from MS-DRG 794 to MS-DRG 795 to:
    • V64.00, vaccination not carried out, unspecified reaso
    • V64.01, vaccination not carried out because of acute illness
    • V64.02, vaccination not carried out because of chronic illness or condition
    • V64.04, vaccination not carried out because of allergy to vaccine or component
    • V64.06, vaccination not carried out because of patient refusal

In addition, all diagnosis codes currently assigned to MS-DRG 794 would be added to the “only secondary diagnosis” list for MS-DRG 795.

CC/MCC Changes:

  • Add diagnosis code 575.0, acute cholecystitis to the CC Exclusion List when reported as a secondary diagnosis code with a principal diagnosis code 574.00, calculus of gallbladder with acute cholecystitis without mention of obstruction.
  • Remove the following diagnosis codes from the CC Exclusion List for diagnosis code 440.4, chronic total occlusion of artery of the extremities:
    • Atherosclerosis codes 440.20 – 440.32, 443.22, and 443.29
    • Aneurysm codes 441.00 – 441.03, 441.1 – 441.7, 441.9, 442.0, 442.2, 442.3, 442.9

Discharge Status Codes:

  • Add new patient discharge status code 69, discharged/transferred to a designated disaster alternative care site, to the following MS-DRGs:
    • 280, acute myocardial infarction discharged alive with MCC
    • 281, acute myocardial infarction discharged alive with CC
    • 282, acute myocardial infarction discharged alive without CC/MCC
  • Add 15 new discharge status codes for MS-DRGs 280, 281 and 282 to identify patients who are discharged with a planned acute care hospital inpatient readmission.

The proposed rule will be published in the Federal Register on May 10, 2013. CMS is soliciting feedback and will accept comments until June 25, 2013. On August 1, 2013, the final ruling will be released, effective for discharges on or after October 1, 2013. All hospitals are strongly encouraged to thoroughly review the proposed ruling and evaluate the potential implications. To view the proposed rule in its entirety, go to the following link:

HC Healthcare Consulting has extensive expertise in coding and billing compliance. Our staff includes certified coders, consultants Certified in Healthcare Compliance, and CPAs that are available to provide expert assistance with compliance programs.

DISCLAIMER: This post contains only summary information and highlights; it should be read in conjunction with the full article or document provided as a link. Any advice or recommendations given is general and specific questions should be directed to professional counsel.

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