Prospective Payment Changes for Fiscal Year (FY) 2003

The PPS changes for FY2003 were published in the Federal Register on August 1, 2002. All changes are effective for hospital discharges occurring on or after October 1, 2002, unless otherwise noted.

ICD-9-CM coding changes are effective October 1, 2002. The new ICD-9-CM codes are listed, along with their diagnosis-related group (DRG) classifications in Tables 6a and 6b in the final rule for PPS changes for FY 2003. The ICD-9-CM codes that have been replaced by expanded codes or other codes, or have been deleted are included in Tables 6c and 6d. The revised code titles are in Tables 6e and 6f of the same final rule. GROUPER 20.0 assigns each case into a DRG on the basis of the diagnosis and procedure codes and demographic information (that is age, sex, and discharge status) and is effective with discharges occurring on or after October 1, 2002. Medicare Code Editor (MCE) 19.0 and Outpatient Code Editor (OCE) versions 18.0 and 3.20 use the new ICD-9-CM codes to validate coding for discharges and outpatient services effective October 1, 2002.

Additional changes for FY 2003 are:

• The standardized amount update factor is 2.95 percent for all hospitals. 

• The hospital specific update factor is 2.95 percent for all hospitals. 

• The common fixed loss cost outlier threshold in FY 2003 is equal to the PPS rate for the DRG, Indirect Medical Education (IME), and Disproportionate Share Hospital (DSH) plus $33,560. 

• The marginal cost factor for cost outliers remains 80 percent. 

• The 2003 Federal capital rate is $407.01 and the Puerto Rico capital rate is $198.29. 

• The FY 2003 outlier adjustment factor is 0.948999 for the operating standardized amount. 

• The FY 2003 outlier adjustment factor for Puerto Rico is 0.981651 for the operating standardized amount. Also new for FY 03, there is an outlier adjustment factor of 0.965325 for operating national/Puerto Rican blend. 

• Payments under the DSH provision are not reduced in FY 2003. 

• The IME formula is 1.35*[(1+ resident-to-bed ratio)**. 405-1] for FY 2003.

• The revised hospital wage indexes and geographic adjustment factors are contained in Tables 4a (urban areas), 4b (rural areas) and 4c (redesignated hospitals) of section VI of the addendum to the PPS final rule.

 • Grouper 20.0 and MCE 19.0 for discharges occurring on or after October 1, 2002 replace earlier versions of the software.

Prospective Payment Changes for Fiscal Year (FY) 2004 and Beyond (Rev. 3431, Issued: 12-29-15, Effective: 10-01-15, Implementation: 10-05-15)

The IPPS changes for FY 2004 were published in the Federal Register on August 1, 2003. All changes are effective for hospital discharges occurring on or after October 1, 2003. Additional changes were listed in a Correction Notice to the Federal Register on October 6, 2003, and a One Time Notification (Pub. 100-20, Transmittal 16, published on October 31, 2003). 

Fiscal year changes to the inpatient prospective payment system occur every October. Specific instructions will be published shortly after the publication of the IPPS Final Rule each year. In addition, other changes to the inpatient prospective payment system may occur in January, April or July as necessary.

Hospital Capital Payments Under PPS

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The Omnibus Budget Reconciliation Act of 1987 established an effective date of October 1, 1991, for capital PPS. Capital PPS will pay hospitals a fixed amount for each Medicare admission upon completion of a 10-year transition period.

 Hospitals and hospital distinct part units that are excluded from PPS for operating costs are also excluded from PPS for capital costs. They continue to be paid for capital-related costs on a reasonable cost basis.

 Capital payments are based on the same DRG designations and weights, outlier guidelines, geographic classifications, wage indexes, and disproportionate share percentages that apply to PPS for operating costs. The indirect teaching adjustment is based on the ratio of residents to average daily census. The hospital split bill, adjustment bill, waiver of liability and remaining guidelines in §§40, also apply to capital PPS payments. Outlier thresholds and computation methods have been combined effective with FY 1993 for operating and capital costs. 

Capital transfer cases are paid on a per diem basis analogous to the manner in which operating PPS payments are made for transfer cases. 

Beneficiary deductible and coinsurance obligations do not apply to capital costs. Ancillary costs paid under Part B do not impact capital PPS payments. The 10-year transition period was established to protect hospitals that had incurred capital obligations in excess of the standardized national rate from major disruption. These high capital cost hospitals are known as "hold harmless" hospitals. The transition period also provides for phase-in of the national rate for those hospitals with capital obligations that are less than the national rate.

 A combined payment is made for both operating costs and capital costs under PPS, but the value of the payment for each must be separately identified in the remittance advice for accounting purposes.