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The Centers for Medicare and Medicaid Services today announced a new Medicare payment system for certain special hospitals that care for Medicare beneficiaries recovering from strokes, joint replacements or other conditions requiring inpatient rehabilitation.

The prospective payment system (PPS), required by the Balanced Budget Act of 1997, is scheduled to go into effect on Jan. 1, 2002. The PPS replaces the existing cost-based payment system.

The new payment system is designed to promote quality and efficient care at about 1,200 inpatient rehabilitation facilities, including both freestanding hospitals and special units in acute-care hospitals. Generally, inpatient rehabilitation facilities may transition into the new payment system over a one-year period, during which payment would be based on a blend of rates paid under the old and new systems, or the facilities may elect to go directly to the full PPS rates.

CMS, the former Health Care Financing Administration, will publish the final rule on the PPS in the Federal Register on August 7. The proposed rule was published in the Federal Register on Nov. 3, 2000, and received more than 400 comments during a 90-day comment period that ended Feb. 1.

Medicare has paid acute-care hospitals under a PPS since 1983. Rehabilitation facilities, which provide extensive occupational, physical and speech therapy services, are excluded from the PPS that applies to most acute-care hospitals. The Balanced Budget Act, however, established a PPS specific to inpatient rehabilitation services.

"The goal of case-mix adjusted, prospective payment systems is to provide a fair payment for health care services to beneficiaries," HHS Secretary Tommy G. Thompson said. "These rehab facilities across the country are helping many beneficiaries to be healthier, more productive citizens."

Under the new payment system, rehabilitation facilities will be paid based on the characteristics of each patient they admit. Medicare will pay hospitals more to care for patients with greater needs, as determined by a comprehensive assessment of their condition. The principal features of the PPS are:

• Rehabilitation hospitals will be paid on a per-discharge basis which is the same way acute-care hospitals are paid. Medicare prospective payments will cover all the costs of furnishing covered inpatient rehabilitation services - including routine, ancillary and capital costs - except for bad debt and certain other costs, which are paid for separately.
  
  
• Medicare will pay facilities at relatively higher rates to care for patients with more intensive needs. Payment rates will reflect each patient's rehabilitation conditions, functional status (both motor and cognitive), age, related illnesses, and other factors that help to explain the intensity of care required by different patients.
  
  
• Facilities will use a patient assessment to determine each beneficiary's needs and decide the appropriate payment category. These assessments also will allow HCFA and the facilities to monitor and improve the quality of care. The assessment is based on an instrument currently used by a majority of rehabilitation hospitals and will completed upon admission and discharge.
  
  
• Payments to rehabilitation facilities will be adjusted when a patient is transferred to another hospital or nursing home before completing the full course of care in order to ensure that beneficiaries receive adequate care. A similar policy is in place for acute-care hospitals.
  
  
• Payment rates for individual facilities will be adjusted to reflect geographic differences in wages and the care provided to a disproportionate number of low-income patients. Rural providers will also receive a payment adjustment to account for their higher costs.
  
  
• Medicare will make additional payments for "outlier" cases involving beneficiaries with extraordinary care needs to ensure appropriate care for the sickest beneficiaries.