Medicare Provides Payment Increase, Policy Changes For Inpatient Psychiatric Facilities

Armen Hareyan's picture

Medicare drug coverage

Inpatient psychiatric facilities (IPFs) will receive an average 4 percent increase in Medicare payments, beginning in July.

The higher payments, for discharges occurring July 1 or later, will be under a final rule announced today by the Centers for Medicare & Medicaid Services (CMS). This increase includes the effects of market basket updates resulting in a 4.5 percent increase in total payments for Rate Year 2007, July 1, 2006 to June 30, 2007. The market basket shows how much the costs of goods and services used by a particular industry have changed over time.

Within this average, government-operated psychiatric hospitals receive the largest share of the total increase. The final rule also includes several changes in payment policies for these facilities.

The payment increase will go to approximately 1,800 inpatient psychiatric facilities, including hospitals limited to psychiatric treatment, distinct part psychiatric units of acute care hospitals, and critical access hospitals that are paid under a prospective payment system (PPS). This system, which was mandated by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and made effective Jan. 1, 2005, is intended to foster higher quality and more efficient care for Medicare beneficiaries with severe mental illnesses.


"Many beneficiaries, after receiving appropriate psychiatric care in an inpatient facility, can return home or move to an alternative setting," said CMS Administrator Mark B. McClellan, M.D., Ph.D. "The changes in this final rule support our continuing efforts to improve the quality of mental health care for Medicare beneficiaries. The IPF prospective payment system is helping to support effective care in the appropriate setting for patients with mental illnesses."

Payments under the IPF PPS are based on a single federal per diem rate that includes both inpatient operating costs and capital-related costs, including routine and ancillary services. The per diem rate for Rate Year 2007 is $595.09, up from $575.95 in Rate Year 2006.

This base rate is adjusted for four patient characteristics: age, diagnostic-related group assignment, the presence of certain other diseases or conditions (comorbidities), and the patient's length of stay.

Adjustments also are made to the base rate to reflect these facility characteristics: the presence of a qualifying emergency department, teaching status, rural location, and each facility's wage index. Facilities in Alaska and Hawaii also receive a cost-of-living adjustment. In addition, the IPF PPS provides additional payment for each electroconvulsive therapy treatment furnished during a stay.

Medicare also continues to pay separately for certain costs, including physician and non-physician practitioner services paid under the Medicare physician fee schedule, bad debt and direct graduate medical education costs.

In this first update to the PPS for inpatient psychiatric facilities, CMS is adopting a number of refinements to the payment policies affecting these facilities, including:

  • Adoption of a new market basket to estimate inflation in the costs of goods and services provided in inpatient psychiatric facilities. The new market basket is based on data from three types of hospitals excluded from the inpatient PPS for acute care hospitals