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Date:  June 1, 1995
Contact:  HCFA Press Office (202) 690-6145

"These increases will provide incentives to keep down inflation in medical care costs, and at the same time give adequate compensation to our nation's hospitals," Secretary Shalala said.

The proposed rule on Medicare's payment rates for hospitals will be published in tomorrow's Federal Register for public comment. Comments can be received by the Health Care Financing Administration for 60 days following the proposed rule's publication. The rule announcing the final rates will be published Sept. 1.

Medicare paid $81.4 billion to inpatient hospitals providing acute, short-term care in FY 1994. Hospital payments are expected to grow by 7.7 percent from $86.9 billion in FY 1995 to $93.6 billion in FY 1996.

HCFA Administrator Bruce C. Vladeck, who oversees the Medicare program, said, "The overall increase in hospital payments under Medicare is due not only to increases in payment rates, but also to the growth in the number of hospital admissions and new beneficiaries entering the Medicare program, and changes in the types of cases hospitals are treating."

Medicare pays hospitals a predetermined rate for inpatient hospital services furnished to Medicare beneficiaries, using a hospital prospective payment system (PPS). Under PPS, base payment rates are multiplied by a measure, called a diagnosis related group, which reflects the severity of a patient's condition. Hospitals in large urban areas (cities with more than 1 million people) receive slightly higher base payment rates than those in other urban and rural areas.

The rate increases are based on projections of growth in the prices of goods and services purchased by hospitals, known as the hospital market-basket, minus 2 percentage points. The market basket is currently estimated to be 3.5 percent for fiscal year 1996, which begins Oct. 1.

The proposed 1.5 percent increase will be applied to the base payment rates, affecting payments to the approximately 5,200 hospitals paid under PPS -- virtually all the short-stay, acute-care hospitals in the United States.

Under the proposed rule, payment rates also would rise 1.5 percent for 720 community hospitals recognized as the sole source of hospital care in an area for Medicare beneficiaries.

Vladeck also announced a 2.6 percent increase in the rates for 2,000 Medicare hospitals excluded from PPS -- psychiatric, rehabilitation, long-term and children's facilities. The increase is based on an estimated 3.6 percent increase in the market-basket calculated exclusively for these hospitals, minus a 1 percent reduction.