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Healthcare Update: CMS Releases FY 2012 Proposed Rules for Hospitals and Rehab Facilities; Supreme Court Decides Not To Fast-Track Healthcare Lawsuit

May 2, 2011


The Centers for Medicare and Medicaid Services (CMS) recently released its annual inpatient prospective payment system (IPPS) proposed rule that determines Medicare reimbursements for the upcoming fiscal year. Under the proposed rule, Medicare payments to acute care hospitals for inpatient services in fiscal year (FY) 2012 would decrease by a projected $498 million, or 0.5 percent.

Such cuts were derived from adjustments to a projected market basket increase of 2.8 percent, in addition to a productivity adjustment authorized by the healthcare reform law – the Patient Protection and Affordable Care Act (PPACA) – and reductions to account for overpayments to hospitals due to previous coding issues.

The proposal applies to roughly 3,400 acute care hospitals and was met with concern from the American Hospital Association and the Federation of American Hospitals. Hospital officials fear that reimbursement cuts will jeopardize their ability to invest in recent proposals designed to make healthcare more efficient and increase patient safety – such as the formation of Accountable Care Organizations (ACOs) and investments in health information technology.

The FY 2012 IPPS proposed rule is due to be published in the Federal Register on May 5. Comments will be accepted through June 20, and the final rule is expected to be issued by early August.


CMS also recently released its proposed rule for payments to inpatient rehabilitation facilities (IRFs) for FY 2012. Under the proposed rule, IRF reimbursement rates would increase by 1.5 percent and a new quality reporting system authorized by PPACA would be established.

The payment update is estimated to be $120 million and will apply to more than 1,200 IRF sites, including both freestanding facilities and units within hospitals. The quality reporting provisions will require IRFs to submit data on two quality measures – two of nine conditions identified by a new patient safety initiative. Beginning in FY 2014, IRFs that do not provide such data will have their reimbursement cut by two percentage points.

Comments on the FY 2012 proposed rule for IRF payments will be accepted until June 21, and the final rule is expected to be issued by early August.


The U.S. Supreme Court recently declined a request from Virginia Attorney General Kenneth Cuccinelli that it bypass the appeals process and immediately take up his state’s challenge to the healthcare reform law (PPACA).

The decision was not surprising, given that such requests are rarely granted and that Members of the Court were on record stating that the healthcare reform law’s constitutionality would not be fast-tracked. Nevertheless, Attorney General Cuccinelli called the decision “disappointing.” Virginia Governor Bob McDonnell stated, “The high court will undoubtedly become the venue for determining if the requirement for every citizen to purchase health insurance violates the Constitution. It would serve all sides better if that determination could be made sooner rather than later.”

Arguments in the Court of Appeals for the 4th Circuit in Richmond are scheduled to begin on May 10, and a decision is likely to be reached by later this summer. This timeline would allow arguments before the Supreme Court to come during the term that begins in September.

On a separate but similar note, the multi-state challenge to PPACA that Northern District of Florida Federal District Judge Roger Vinson ruled in favor of earlier this year will go before the Court of Appeals for the 11th Circuit in Atlanta in early June.


Congress returns from its spring recess this week and will prepare itself for another round of fierce debate in the coming weeks over budgetary matters such as deficit reduction and the need to raise the federal debt limit. We continue to follow this and healthcare-related news from Capitol Hill and will provide timely updates as developments occur. We will also continue to offer additional analyses and views on ACOs and the Medicare Shared Savings Program in the coming weeks.

Edwards Angell Palmer & Dodge LLP is pleased to provide regular updates on issues affecting the Healthcare industry. Our lawyers not only provide sophisticated legal services to a broad array of clients in the healthcare industry, we also monitor and analyze federal and state legislative and regulatory processes to ensure that our clients are informed of government actions and initiatives.

Should you have any questions on the content of this advisory, or wish to discuss any other healthcare related issue, please contact Les Levinson or call the Edwards Angell Palmer & Dodge LLP attorney responsible for your affairs.


Les Levinson, Partner,
Chair, Healthcare Services                                

+1 212 912 2772         

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