Inpatient Acute PPS FY 2017 – Summary of Major Provisions of Final Rule

From: Federal Register – CMS-1655F; 8/22/16





























MS-DRG Documentation and Coding Adjustment

Section 631 of ATRA requires the Secretary to make a recoupment adjustment to the standardized amount of Medicare payment to Acute Care Hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014 – 2017.

For FY2017 CMS is proposing a (1.5%) coding adjustment reduction to be applied to the PPS Base rate.  This is the last year of this coding adjustment implementation.

The following is the history of this Coding Adjustment Reduction:


FFY Reduction
2008 -.60%
2009 -.90%
2011 -2.90%
2012 -2.00%
2013 Reversal +2.90%
2013 -1.90%
2014 -.80%
2015 -.80%
2016 -.80%
2017 -1.50%


Adjustment to Inpatient PPS Rates Resulting from 2-Midnight Policy

As a result of successful court action, CMS is essentially giving up on the 2-Midnight Rule Policy.  We have a separate post regarding the 2-Midnight Rule to update you on the status Toyon’s group appeals for this issue.

CMS is permanently adjusting standardized payment rate to effectively remove the .2% midnight rule reduction originally implemented in FY2014:

Factor = 1/.998

CMS is further applying a one-time .6% increase to operating and capital PPS rates to address the effects of the .2% reduction to the rate made for FY 2014, 2015, & 2016.

Reduction of Hospital Payments for Excess Readmissions (HRR)

CMS is making changes to policies for the HRR program. For FY2017 and subsequent years, the reduction is based on a hospital’s risk-adjusted readmission rate during a 3-year period for:

  • Acute Myocardial Infarction (AMI)
  • Heart Failure (HF)
  • Pneumonia, Chronic Obstructive Pulmonary Disease (COPD)
  • Total Hip Arthoplasty/Total Knee Arthoplasty (THA/TKA)
  • Coronary Bypass Graft (CABG)

Hospital Value-Based Purchasing (VBP) Program

CMS is updating the number of adopted measures for FY2019 – 2022

Hospital Acquired Conditions (HAC)

Beginning October 1, 2014 this incentive applies a 1% payment reduction for hospitals whose ranking is in the top quartile (25%) of all applicable hospitals, relative to the national average, of conditions acquired during the applicable period and on all of the hospital discharges for the specified fiscal year.

For FY2017 CMS is promulgating the following:

  1. Establishing NHSN CDC HAI data submissions for newly opened hospitals
  2. Clarifying data requirements for Domain 1 scoring
  3. Establishing performance periods for the FY2018 & FY2019 HAC Reduction Programs, including revising our regulations to accommodate variable timeframes
  4. Adopting the refined PSI 90: Patient Safety & Adverse Events Composite
  5. Changing the program scoring methodology form the current decile-based scoring to a continuous scoring methodology.

DSH Payment Adjustment & Additional Payment for Uncompensated Care

For FY2017 CMS updated their estimates of the three factors used to determine uncompensated care payments.

  • Continuing Use of a Hospital’s Share of Insured Low-Income Days for Purposes of determining Factor 3
  • CMS is expanding the time period of the data used to calculate the uncompensated care payment amounts to be distributed from one cost reporting period to three cost reporting periods
  • CMS is not finalizing the proposed rule intention to use Worksheet S-10 data to determine the amounts and distribution of uncompensated care payments that would have started in FY2018.
  • CMS intends to institute certain additional quality control and data improvement measures to the Worksheet S-10 instructions and data prior to moving forward with incorporation of Worksheet S-10 data into the calculation of Factor 3.
  • CMS expects that the modified Worksheet S-10 and instructions will be available in the near future and that the use of Worksheet S-10 will be implemented no later than FY2021.
  • CMS will explore whether there is an appropriate proxy for uncompensated care that could be used to calculate Factor 3 until the Worksheet S-10 data is ready for use.

The following table summarizes the continued reduction in the DSH Uncompensated Care Payment Pool.  The factor 2 formula of the DSH Uncompensated Care reduces the available dollars as the uninsured population declines.  Based on the CMS Actuary estimates, the uninsured population declined from 11.5% in FY2016 to 10% in the FY2017 final rules.

Inpatient Acute PPS FY 2017 – Summary of Major Provisions of Final Rule


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