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Hospitals that serve Medicare beneficiaries who require intensive inpatient rehabilitation are slated to receive a 3.1 percent increase in their payment rates for fiscal year 2005, beginning October 1, 2004, the Centers for Medicare & Medicaid Services announced today.   Aggregate payments to these facilities in fiscal year 2005 are projected to be $5.7 billion, up 5.6 percent from a projected $5.4 billion in FY 2004.

“Inpatient rehabilitation services are an essential part of high-quality care for many Medicare beneficiaries with serious illnesses,” said CMS Administrator Mark B. McClellan, M.D., Ph.D.   “We are fully committed to making sure that all beneficiaries, including those living in rural areas, have access to needed rehabilitation services in appropriate settings in order to allow them to regain their health as quickly as possible.”

Medicare pays for services provided in inpatient rehabilitation facilities using a prospective payment system that went into effect in January 2002.   Under this system, payment rates are based on case-mix groups (CMGs) that reflect the clinical characteristics of the patient and the anticipated resources that will be needed for treatment.  There are a number of adjustments to the payment rates, including a 19 percent adjustment for rural facilities to offset the higher costs they incur because they have fewer cases, longer lengths of stay, and higher average costs per case.

CMS estimates that there will be approximately 483,000 Medicare admissions to Medicare-certified inpatient rehabilitation facilities around the country in FY 2005.   Of a total of 1,220 facilities, 215 facilities are freestanding, and 1005 facilities are special units in acute care hospitals. About ten percent are situated in rural areas.

Medicare covers high quality rehabilitation care in a variety of settings, including the home, outpatient centers, skilled nursing facilities, and hospitals.   Medicare has historically required that to qualify for the significantly higher payments provided to inpatient rehabilitation facilities, at least 75percent of the facility’s population had to have one of ten diagnoses generally associated with the need for intensive inpatient rehabilitation.   These included stroke, spinal cord injury, congenital deformity, amputation, major multiple traumas, fracture of the femur, brain injury, polyarthritis, neurological disorder, and burns. 

These payment increases come on top of a major effort by CMS to ensure that inpatient rehabilitation facilities are compensated appropriately for patients who need their services.   After extensive analysis and public consultation, CMS published revised regulations earlier this year expanding the criteria to be classified as an inpatient rehabilitation facility in several important ways.  First, it replaced the term polyarthritis with three clinically meaningful types of arthritis.  Second, it added a new qualifying condition associated with complex joint replacement cases.  It also allowed a facility to count toward the percentage threshold, patients who have a secondary medical condition that meets one of the qualifying diagnoses. 

Finally, to provide even greater flexibility for providers in their admissions practices, CMS has adopted a three-year transition of the compliance threshold.   The compliance threshold is 50 percent in the first year, and moves incrementally back to 75 percent after the third year.  Since a number of facilities were not in compliance with the pre-existing regulations, this will provide a long phase-in period before the new, more flexible and clinically-based regulations take effect.  During this period, CMS will also pursue research in this area to make sure that payments for rehabilitation services continue to be appropriate. 

The revised criteria are expected to support access to inpatient rehabilitation facility services for patients truly requiring the specialized and intensive rehabilitation care provided in inpatient rehabilitation facilities, in contrast to rehabilitation care that can be appropriately provided in other settings at a lower cost. 

“Medicare’s goal is to make sure that beneficiaries receive high-quality care in the most appropriate setting for their needs,” said Dr. McClellan.   “With the payment increases combined with more sophisticated approaches than ever to make sure that the payments are going to the right patients, we are able to achieve that goal more effectively than ever for inpatient rehabilitation care.”

The notice of the payment increase will be published in the July 30 Federal Register. 

Note: For more information, visit the CMS Website at: www.cms.hhs.gov/providers/irfpps/.