Practice Economics

Medicare Outlines Anticipated Funding Changes Under Affordable Care Act


The Centers for Medicare & Medicaid Services (CMS) recently released a few Fact Sheets on how they anticipate funding changes on a few of their programs that were implemented (or sustained) under the Affordable Care Act. As a background, CMS pays most acute-care hospitals by prospectively determining payment based on a patient’s diagnosis and the severity of illness within that diagnosis (e.g. “MS-DRG”). These payment amounts are updated annually after evaluating several factors, including the costs associated with the delivery of care.

One of the most major changes described in the Fact Sheet that will affect hospitalists is how CMS will review inpatient stays based on the number of nights in the hospital. CMS has proposed that any patient who stays in the hospital for two or more “midnights” should be appropriate for payment under Medicare Part A. For those who stay in the hospital for only one (or zero) midnights, payment under Medicare Part A will only be appropriate if:

  1. There is sufficient documentation at the time of admission that the anticipated length of stay is two or more nights; and.
  2. Further documentation that circumstances changed, and the hospital stay ended prematurely because of those changes.

Overall for hospitalists, this should substantially simplify the admitting process, whereby most inpatients being admitted with the anticipation of two or more nights should qualify for an inpatient stay. This also reduces the administrative burden of correcting the “inpatient” versus “observation” designation, which keeps many hospital staffs entirely too busy. This change also should relieve a significant burden from the patients and their families, who if kept in observation for a period of time, may have to pay substantially out of pocket to make up for the difference between the cost of the stay and the reimbursement from CMS for observation status. So this is one of the moves that CMS is making to simplify (and not complicate) an already too-complicated payment system. This should go into effect October 2013 and will be a sigh of much relief from many of us.

Overall for hospitalists, this should substantially simplify the admitting process, whereby most inpatients being admitted with the anticipation of two or more nights should qualify for an inpatient stay.

A few other anticipated changes that will affect hospitalists include:

Payments for Unfunded Care

Another major change that will go into affect October 2013 is the amount of monies received by hospitals that care for unfunded patients. These payments historically have been made to “Disproportionate Share Hospitals” (DSH), which are hospitals that care for a higher percentage of unfunded patients. Under the Affordable Care Act, only 25% of these payments will be distributed to DSH hospitals; the remaining 75% will be reduced based on the number of uninsured in the U.S., then redistributed to DSH hospitals based on their portion of uninsured care delivered.

Most DSH hospitals should expect a decrease in DSH payments, the amount of which will depend on their share of unfunded patients.

Any reduction in the “bottom line” to the hospital can affect hospitalists, especially those who are directly employed by the hospital.

Hospital-Acquired Conditions

CMS has long had the Hospital-Acquired Condition (HAC) program in effect, which has the ability to reduce the amount of payment for inpatients who acquire a HAC during their hospital stay. Starting in October 2014, CMS will impose additional financial penalties for hospitals with high HAC rates.

Specifically, those hospitals in the highest 25th percentile of HAC rates will be penalized 1% of their overall CMS payments. Another proposed change is that the following be included in the HAC reduction plan (two “domains” of measures):

  • Domain No. 1: Six of the AHRQ Patient Safety Indicators (PSIs), including pressure ulcers, foreign bodies left in after surgery, iatrogenic pneumothorax, postoperative physiologic or metabolic derangements, postoperative VTE, and accidental puncture/laceration.
  • Domain No. 2: Central-line-associated bloodstream infections (CLABSI) and catheter-associated urinary tract infections (CAUTIs).

The domains will be weighted equally, and an average score will determine the total score. There will be some methodology for risk adjustment, and hospitals will be given a review and comment period to validate their own scores.

Most hospitalists have at least indirect control over many of these HACs,and all need to pay very close attention to their hospital’s rates of these now and in the future.


As we all know, the Hospital Readmission Reduction program went into effect October 2012; it placed 1% of CMS payments at risk. This will increase to 2% of payments as of October 2013. CMS will continue to use AMI, CHF, and pneumonia as the three conditions under which the readmissions are measured but will put in some methodology to account for planned readmissions.

In addition, in October 2014, they plan to add readmission rates for COPD and for hip/knee arthroplasty.

Hospitalists will continue to need to progress their transitions of care programs, at least for these five patients conditions but more likely (and more effectively) for all hospital discharges.

Quality Measures

Currently more than 99% of acute-care hospitals participate in the pay-for-reporting quality program through CMS, the results of which have been displayed on the Hospital Compare website ( for years. The program started in 2004 with 10 quality metrics and now includes 57 metrics. These include process and outcome measures for AMI, CHF, and pneumonia, as well as process measures for surgical care, HACs, and patient-satisfaction surveys, among others.

This program will continue to expand over time, including hospital-acquired MRSA and Clostridium difficile rates. The few hospitals not participating will have their CMS annual payments reduced by 2%.

EHR Incentives

CMS is evaluating ways to reduce the burden of reporting by aligning EHR incentives with the Inpatient Quality Reporting program.


After an open commentary period, the Final Rule will be published Aug. 1, and will become effective for discharges on or after Oct. 1. Although CMS will continue to expand the total number of measures that need to be reported, and the penalties for non-reporting or low performance will continue to escalate, CMS is at least attempting to reduce the overall burden of reporting by combining measures and programs over time and using EHRs to facilitate the bulk of reporting over time.

The global message to hospitalists is: Continue to focus on reducing the burden of HACs, enhance throughput, and carefully and thoughtfully transition patients to the next provider after their hospital discharge. All in all, although at times this can feel overwhelming, these changes represent the right direction to move for high-quality and safe patient care.

Dr. Scheurer is a hospitalist and chief quality officer at the Medical University of South Carolina in Charleston. She is physician editor of The Hospitalist. Email her at


  1. Centers for Medicare & Medicaid. Fact Sheets: CMS proposals to improve quality of care during hospital inpatient stays. Centers for Medicare & Medicaid website. Available at: Accessed May 1, 2013.

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