Recalibrating Medicare Payments for Inpatient Care

This article explores the decision made by the Centers for Medicare and Medicaid Services (CMS) in 2005 to change payment rates for inpatient care so that they more accurately reflect the charges involved. The alignment of payment rates for different services with the relative costs will make it less attractive for hospitals to focus on more profitable services at the expense of less profitable ones. Shortcomings in the way payment rates were calculated have created discrepancies in care and have even encouraged some physicians to set up specialized hospitals that offer the most lucrative services. For instance, physician-owned heart, orthopedic and surgical hospitals are springing up in many communities. Although CMS had initially recommended implementing the full changes to payments in cost weights in 2007, the final rule will phase in the change over three years. The authors describe the interests of different stakeholders in this process.

There is caution from hospital administrators who are concerned CMS will make adjustments that are too large, and reluctance from specialty hospitals. Without policies, however, that ensure more accurate payments, the treatment of patients may be more influenced by their effect on the health care system's bottom line than on what people need.