CMS Adopts Medicare IRF Payment Rules for 2012
The Centers for Medicare and Medicaid Services (CMS) has released the federal fiscal year (FFY) 2012 final
payment rules for the Medicare Inpatient Rehabilitation Facility (IRF) Prospective Payment System (PPS).
The final rule updates IRF payment rates and policies and implements provisions of the Affordable Care
Act (ACA) of 2010.
Resources related to the IRF PPS are available on the CMS Web site at
Highlights of the IRF PPS final rule include:
Payment Rate Update: CMS’ final rate updates, along with adjustments for budget neutrality, result in an
IRF standardized payment conversion factor of $14,076 for FFY 2012 compared to $13,860 for FFY 2011, a
1.6% increase. CMS’ proposed updates would have resulted in a rate increase of 4.8%. The change in the
rate from the proposed to final rule is due to CMS’ decision to withdraw its proposal to decrease the value
of the IRF facility-level adjustments (see “Facility Level Adjustments” below).
The final FFY 2012 conversion factor will be updated as follows (updates shown do not include budget
Plus 2.9% (proposed at plus 2.8%): CMS will update the conversion factor by a marketbasket of 2.9%.
The 2.9% reflects a newly rebased and revised marketbasket value. Without these modifications, the
update for FFY 2012 would have been 3.0%.
Minus 1.0 percentage point (proposed at minus 1.2 percentage points): Offsetting the marketbasket is
an ACA-mandated productivity reduction of 1.0 percentage point.
Minus 0.1 percentage points (no change from proposed to final): Offsetting the marketbasket is an
ACA-mandated pre-determined reduction of 0.1 percentage points.
Labor Share and Wage Index: Based on the newly rebased and revised marketbasket used under the IRF
PPS, CMS is decreasing the labor-related share of the conversion factor from 75.271% for FFY 2011 to
70.199% for FFY 2012. This change will increase payments to IRFs with a wage index less than 1.0. Also,
as has been the case in prior years, CMS will use the hospital wage index, the FFY 2011 pre-rural floor and
pre-reclassified hospital wage index, for the FFY 2012 IRF PPS.
Facility-Level Adjustments: CMS will not adopt a proposed methodology change that would have
significantly reduced the value of two IRF facility-level adjustments: the Low-Income Patient (LIP)
adjustment and the teaching adjustment. Based on comments from the field, CMS will maintain the
current adjustments and conduct additional research to determine the best approach for calculating
these adjustment factors in the future. For FFY 2012, the facility-level adjustment factors will be
calculated as follows:
Rural Adjustment: Payments to IRFs in rural areas will continue to be increased by 18.4%.
LIP Adjustment: Payments to IRFs eligible for the LIP adjustment will continue to be increased under
the following formula: (1 + Disproportionate Share Hospital (DSH) patient percentage) ^ 0.4613.
Teaching Adjustment: Payments to IRFs eligible for the teaching adjustment will continue to be
increased under the following formula: (1 + IRF’s full-time equivalent (FTE) resident to Average Daily
Census (ADC) ratio) ^ 0.6876.
Outlier Threshold Amount: To maintain total outlier payment under the IRF PPS at 3.0% of total PPS
payments, CMS will decrease the outlier threshold by 6.6% from $11,410 in FFY 2011 to $10,660 in FFY
2012. This threshold decrease will increase the number of cases eligible for outlier payments.
Resident Cap Used for the Teaching Adjustment: CMS is adopting its proposal to change the FTE resident
cap used to calculate the IRF PPS teaching adjustment. A similar change was recently adopted under the
Inpatient PPS and Inpatient Psychiatric Facility PPS. Effective for cost reporting periods beginning on or
after October 1, 2011, the change will permit an IRF’s residency cap to be temporarily increased when an
IRF trains displaced residents due to a closure of an IRF or a closure of an IRF’s medical residency training
program(s). The temporary increase will be resident-specific and will only apply to the displaced
resident(s) until the resident(s) completes training. Modifying its proposal slightly in a favorable way,
CMS will allow IRFs currently training displaced residents due to closures/program closures before
October 1, 2011 to be included in the temporary cap increase.
Establishment of a Quality Reporting Program: As required by the ACA, CMS is implementing a “pay-for-
reporting” program under the IRF PPS. The IRF Quality Reporting Program will require IRFs to successfully
submit quality data on selected measures. Beginning FFY 2014, providers that do not successfully
participate in the program will be subject to a 2.0 percentage point reduction to the marketbasket used
under the IRF PPS for the applicable year. As proposed, for FFY 2014 payment determinations, CMS is
adopting the following 2 quality measures:
Urinary Catheter-Associated Urinary Tract Infections (CAUTI); and
Pressure Ulcers that are New or Have Worsened.
Similar to the quality measures collected under the Inpatient PPS, IRFs will be required to collect quality
data for the two adopted measures on all patients, regardless of payer.
Included in the rule are data submission timeframes and requirements for data collection and reporting
for each measure.
Also, CMS reiterates in the final rule its intention to propose a 30-day comprehensive all-cause risk-
standardized readmission measures for use under the IRF Quality Reporting Program once the measure is
fully developed. CMS indicated that this measure could potentially be available for use for FFY 2014
The FFY 2012 IRF PPS final rule was published in the August 5, 2011 Federal Register available online at