Hospitals across the United States would see a 2.55 percent increase in Medicare payment rates in fiscal year 2002, according to a proposed rule issued today by the Health Care Financing Administration for publication in the May 4 Federal Register.

The proposed increase, which would become effective October 1, 2001, will affect some 4800 acute care hospitals that are paid under the prospective payment system (PPS). The size of the proposed increase is based on a formula enacted into law.

Under the Medicare statute, the annual updates for PPS hospitals are pegged to the estimated increase in the "hospital market basket" -- the inflation rate for goods and services used by acute care hospitals. For 2002, the hospital market basket is projected to increase by 3.1 percent. For acute care hospitals, the update is set by statute at the market basket minus 0.55 percent, or 2.55 percent under current estimates.

The proposed rule also contains provisions to implement a number of mandates in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), that will become effective October 1, 2001. Among these is a proposed mechanism to facilitate access to high-cost new services and technologies by authorizing special payments to cover increased costs.

In accordance with BIPA, the proposed rule outlines proposed steps to speed the incorporation of new medical services and technologies into the inpatient PPS payment methodology. HCFA proposes a methodology for identifying and making additional payments for new medical services and technologies.

The proposed rule also makes a number of revisions to the diagnosis-related group (DRG) classifications - the classifications which determine how much a hospital will be paid for an inpatient stay. For example, the proposed rule would create two new pancreas transplant DRGs and would create new DRGs for cardiac defibrillator cases and for percutaneous transluminal coronary angioplasty cases.

The proposed rule also provides for a 3-year hospital geographic wage index reclassification, the use of 3-year averages of the average hourly wages in qualifying for geographic reclassification, and the option to use a statewide index instead of individual wage indexes for the geographic area of a state. HCFA plans to publish a final inpatient PPS rule by August 1, for implementation October 1, 2001.

HCFA also plans to publish a separate interim final rule with comment period addressing in regulation policies that have already been adopted to implement BIPA provisions that went into effect April 1, 2001.

The text of the proposed inpatient PPS rule can be found on HCFA's web site, http://www.hcfa.gov, under "What's New."