; Medicare Payment Reduction Cliff Looms
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Medicare Payment Reduction Cliff Looms

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In its Fiscal Year 2007 -- beginning Oct 1, 2006 -- the Centers for Medicare and Medicaid Services (CMS) began a multiyear process of making the most significant changes to Medicare's hospital inpatient prospective payment system's policies since 1985. CMS initiated a three-year process that changes the calculation of the diagnosis related group (DRG) weights from a method based on charge-data only to one that adjusts charges using Medicare cost report data. If one or more additional policy options under consideration by CMS are adopted in subsequent rule making, such action would further change the payment policy landscape. CMS anticipated that implementation of the MS-DRGs would be accompanied by an increase in the average case-mix due to more complete and accurate coding of secondary diagnoses to qualify for a higher payment amount.

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