American College Of Surgeons - Inspiring Quality: Highest Standards, Better Outcomes

Inpatient Prospective Payment System Rule

Medicare payment for acute care hospital inpatient stays is based on set rates under Medicare Part A. The system for payment, known as the Inpatient Prospective Payment System (IPPS), categorizes cases into diagnoses-related groups (DRGs) that are then weighted based on resources used to treat Medicare beneficiaries in those groups. The Centers for Medicare & Medicaid Services (CMS) updates the IPPS regulations annually, with comment periods open prior to implementation of the final rule. Because a large percentage of surgical care takes place in the inpatient hospital environment, the American College of Surgeons (ACS) has a strong interest in CMS’ IPPS and the hospital quality improvement efforts addressed in the IPPS rules.

ACS Comment Letters

Medicare Outpatient Observation Notice

Beginning March 8, CMS will require hospitals—including critical access hospitals—to deliver the standardized Medicare Outpatient Observation Notice (MOON) to Medicare beneficiaries who are being treated as outpatients for observation and not admitted as inpatients. The notice, required under the Notice of Observation Treatment and Implication for Care Eligibility Act of 2015, was included in CMS’ 2017 IPPS final rule released in August 2016.

Under the rule, hospitals must provide both the standardized written MOON and oral notification to Medicare fee-for-service and Medicare Advantage beneficiaries who receive outpatient observation services in a hospital for longer than 24 hours. This also includes beneficiaries in the following circumstances:

  • Beneficiaries who do not have Part B coverage
  • Beneficiaries who are subsequently admitted as an inpatient prior to the required delivery of the MOON
  • Beneficiaries for whom Medicare is either the primary or secondary payor

The notice must be delivered to the patient or their representative no later than 36 hours after observation services began. The MOON is intended to give Medicare beneficiaries advance warning about the implications that their admission status may have on Medicare coverage and payment for care after they leave the hospital. Because hospitals provide observation care on an outpatient basis, the financial burden of the cumulative copayments for each outpatient service beneficiaries receive under observation status could far exceed the deductible patients would have paid under inpatient status. If a beneficiary is not admitted to a hospital as an inpatient for at least three days, Medicare will deny Part A payment for stays at skilled nursing facilities.

In addition to warning Medicare beneficiaries about Part B copayments and the three-day minimum inpatient stay requirement for Part A reimbursement, the MOON informs beneficiaries about CMS’ two-midnight rule. Under the two-midnight rule, which CMS implemented in 2013, inpatient status is generally not considered appropriate for hospital stays lasting less than two midnights unless a physician specifically orders inpatient status. A physician may order inpatient status for any hospital stay.

MOON Instructions


Medicare Physician Fee Schedule Rule

Medicare payment for physicians, and some non-physician practitioners (NPPs), is based on set rates under Medicare Part B. The system for payment, known as the Medicare Physician Fee Schedule (MPFS), is used when paying for: professional services of physicians and some NPPs; covered services incident to physicians’ services (other than certain drugs covered as incident to services); diagnostic tests (other than clinical laboratory tests); and radiology services. The MPFS also addresses various quality issues, fraud and abuse issues, and other issues that impact physicians. CMS updates the MPFS regulations annually, with comment periods open prior to implementation of the final rule. ACS has a strong interest in CMS’ MPFS and the physician quality improvement efforts addressed in the MPFS rules.

ACS Comment Letters

ACS MPFS Articles

MPFS Policies

Outpatient Prospective Payment System/Ambulatory Surgical Center Rule

Medicare payment for outpatient services provided in hospitals is based on set rates under Medicare Part B. The system for payment, known as the Outpatient Prospective Payment System (OPPS) is used when paying for services such as X rays, emergency department visits, and partial hospitalization services in hospital outpatient departments. Payment for ambulatory surgical center (ASC) services is also based on rates set under Medicare Part B. This system for payment is called the ASC Payment System and is used when paying for covered surgical procedures, including ASC facility services that are furnished in connection with the covered surgical procedure. CMS updates the OPPS/ASC regulations together in one rule annually, with comment periods open prior to implementation of the final rule. Because a significant amount of surgical care takes place in hospital outpatient departments and ASCs, ACS has a strong interest in CMS’ OPPS and ASC Payment System and the quality improvement efforts addressed in the OPPS/ASC rule.

ACS Comment Letters

Pre-Rulemaking Activities: Measure Applications Partnership

For the first time in national quality measure development, the Affordable Care Act (ACA) made way for significant enhancements to the traditional federal rulemaking process by providing a forum for public and private partnerships to provide feedback prior to federal rulemaking. The U.S. Department of Health and Human Services (HHS) selected the National Quality Forum (NQF) to provide prerulemaking input guided by the three-part aim of the National Quality Strategy—better care and better health at lower cost. The NQF is an independent not-for-profit organization that has set the standard for the science of quality measurement validation and provides quality measures with “NQF endorsement” based on a rigorous multistakeholder consensus-based measure review.

To fulfill the ACA mandate, the NQF convened the Measure Applications Partnership (MAP), which is charged with identifying core measures and prioritization of measure gaps in federal quality programs. The MAP provides guidance to foster alignment across programs, settings, levels of analysis, populations, and between public and private sector programs. ACS has strong interest in the MAP-provided quality measure recommendations that span more than 20 federal programs.

ACS Comment Letters


NQF MAP Final Pre-Rulemaking Reports can be found on the NQF MAP website.

For further information, please contact Vinita Ollapally at, or Lauren Foe at