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Medicare Ups Inpatient Rates

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April 20, 2016


Medicare will increase DRG rates 0.9% for Fiscal Year (FY) 2017, refund past payment reductions made under the two-midnight rule, and continue its drive toward policies that link payment to quality, rather than volume. That was the message that the Centers for Medicare & Medicaid Services (CMS) conveyed in announcing its proposed payment rates and policies for FY 2017, which begins October 1, 2016.


CMS will accept comments on the proposed rule, which applies to about 3,300 acute care hospitals, until June 16, 2016 and will issue a final determination by August 1, 2016.




  • Rates: The 0.9% proposed update in payment rates will apply to those hospitals paid under the inpatient prospective payment system that successfully report the quality of their performance to CMS and are considered to be meaningful users of electronic health records (EHR).
  • Reductions: Hospitals that do not successfully participate in quality reporting will face a one-fourth reduction in their market basket rate increase. Hospitals that are not meaningful EHR users will be subject to a three-fourths reduction.
  • Two Midnight Policy: CMS is proposing to reverse its policy of reducing inpatient rates to make up for anticipated increases in spending due to the controversial two-midnight rule. It said it intends to permanently remove the downward adjustment and make payment adjustments in FY 2017 to refund past cuts.
  • Hospital Acquired Conditions: Hospitals in the worst performing 25% of hospitals in reducing hospital acquired conditions will continue to experience a payment penalty of 1%. In FY 2017, CMS is proposing to add a new composite patient safety measure which incorporates pressure ulcer rates and post-operative hip fractures, among others.
  • Readmissions: Beginning in FY 2017, CMS will add coronary artery bypass graft to the list of conditions it will use in evaluating excessive readmission rates. It said it will also improve the speed of publically posting a hospital’s readmission performance.
  • Value-Based Purchasing: CMS is proposing to add two new condition-specific payment measures—acute myocardial infarction and heart failure—starting in FY 2021. It also proposes adding a 30-day mortality measure for coronary bypass surgery starting in FY 2022.


View CMS press release

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