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Changes to Medicare Market Basket Updates

One of many reductions to provider payments enacted by the 2010 Health Care Reform Legislation is related to the annual market basket updates. The law reduces market basket updates for inpatient and outpatient hospital services, as well as for Inpatient Psychiatric Facilities (IPF's), Inpatient Rehabilitation Facilities (IRF's) and Long Term Care Hospitals (LTCH's).  Market basket reductions are estimated to save an estimated $112 billion over 10 years. These reductions are retroactive to January 1, 2010, and extend for a period of 10 years, and beyond.

For federal years 2010 and 2011, the market basket update will be reduced by 0.25 percent, for all hospitals, IPF and IRF services. For LTCH services, the market basket update will be reduced by 0.25 percent for federal year 2010 and 0.50 percent for federal year 2011. For federal years 2012 forward, the market basket update will instead be reduced by a productivity adjustment for hospitals, IPF's, IRF's and LTCH's. This adjustment factor is based on a 10-year moving average of changes in the economy, as determined by the Secretary. This productivity growth reduction is permanent, and may actually result in a negative market basket update, in years where the productivity adjustment exceeds the market basket update.

Market basket reductions for inpatient and outpatient hospital services, as well as IPF's, IRF's and LTCH's are as follows:

For federal year 2010, these reductions will be implemented for discharges on or after:
January 1, 2010 for outpatient PPS services
April 1, 2010 for inpatient PPS services, IRF services and LTCH services
July 1, 2010 for IPF services

Examples of reimbursement reductions:

Based on these examples, the bulk of the impact on reimbursements will occur in federal years 2014 through 2019, when there is a higher potential for either flat market basket updates, or negative market basket updates.

HORNE LLP can assist you with operational assessments of the impacts of Healthcare Reform on your facility.  For more information, please contact HORNE Partner David Williams at david.williams@horne-llp.com or 601.326.1320.