On August 1, 2016, CMS released the Medicare Program's 2017 Acute Care Hospital Inpatient Prospective Payment Systems ("IPPS") final rule. Published in the August 22, 2016 Federal Register, the final rule implements upcoming changes to the IPPS operating and capital rates as required by the statutory provisions of the Affordable Care Act ("ACA"); in addition to establishing new, as well as revising existing, quality reporting initiatives for discharges occurring on or after October 1, 2016.
I. Medicare Base PPS Payment Rates
Medicare is estimated to increase overall operating payments to hospitals by a net update factor of 0.9%, or $680 million in FY 2017. This increase reflects a 2.7% market basket increase, along with the following adjustments:
- Statutory adjustment mandated by the ACA of -0.75%;
- Productivity adjustment as required by the ACA of 0.30%
These adjustments will provide hospitals, who submit quality data and are meaningful users, with a market basket increase of 1.65%. Hospitals who do not submit quality data and are not meaningful users will experience a market basket decrease of 1.05%.
The FY 2017 Medicare base rates will further be updated by:
- American Taxpayer Relief Act of 2012 document and coding adjustment
- Removal of the adjustment to offset costs of the Two Midnight Rule
- Frontier State Wage Index and outmigration adjustment
- DSH and uncompensated care factor
- Outlier payment factor
The total net effect for those hospitals who submit quality data, and are meaningful users, will be an approximate increase of 0.9%.
II. Document and Coding Adjustment
CMS has finalized a 1.5% decrease in the FY 2017 standardized rates to recoup the remaining $5.05 billion of document and coding overpayments. This will be the final year of the four-year recovery required by the American Tax Payer Relief Act of 2012.
III. Two-Midnight Rule
CMS originally estimated that the two-midnight rule would increase expenditures, resulting in a 0.2% reduction to the prior Medicare standardized rates. Since the two-midnight rule was not implemented, CMS will make a one-time increase in the FY 2017 base rate of 0.8% to offset the FY 2014, 2015 and 2016 payment reductions and restore payments to hospitals.
IV. Outlier Threshold
The final regulations increase the high cost outlier threshold effective October 1, 2016 to $23,570, a slight increase over the FY 2016 rate. Hospital outlier payments for FY 2017 were calculated to be 5.1% of the total Medicare DRG payments.
V. Federal Capital Rate
The FY 2017 final Federal capital rate of $446.81 is slightly higher than both the FY 2017 proposed rate of $446.35 and FY 2016 final rate of $437.75 prior to the application of the geographical adjustment factors and hospital case mix.
VI. Uncompensated Care and Disproportionate Share
In the final rule, CMS will continue to apply the same methodology to DSH hospitals for uncompensated care payments as in previous years with 25% based on the original disproportionate share method and 75% on the uncompensated care data in accordance with the ACA. For FY 2017, the total disproportionate share pool allocated is $14.396 billion. The empirically justified portion, 25% of the total pool or $3.599 billion, will continue to be distributed based on the Medical Assistance eligible days and current SSI information reported on the FY 2017 cost report. The remaining 75% of available disproportionate share funds, $10.797 billion, will be reduced by the Factor 2 adjustment. This reduction, calculated for FY 2017 at 55.36%, reflects the change in the number of uninsured individuals under the age of 65. The final FY 2017 Factor 3 uncompensated care pool available for distribution will be $5.977 billion.
In the FY 2017 proposed rules, CMS planned to incorporate the Worksheet S-10 data from the FY 2014 cost reports, along with the hospital's low-income utilization to distribute the uncompensated care funds beginning in FY 2018. After considering the overwhelming number of comments received urging for a delay in the implementation of the Worksheet S-10 data, CMS is not finalizing their proposal to incorporate the Worksheet S-10 data into the Factor 3 computation. CMS plans to further consider concerns raised by the commenters and expects to re-propose on this policy with a target implementation date no later than FY 2021.
In light of the fact that CMS postponed the use of Worksheet S-10 to calculate the uncompensated care pool distribution, the FY 2017 Factor 3 allocation will continue to be based on a proxy using Medical Assistance and SSI days. CMS will base its estimates on utilization data for Medical Assistance patients using HCRIS data from the 2011, 2012 and 2013 cost reports and the three most recent years of Medicare SSI utilization, currently FY 2012, 2013 and 2014.
VII. Wage Index
CMS continues the third and final implementation of the 3-year transition for those hospitals located in an urban county, now designated as rural under the OMB delineations in FY 2017. The 2013 Occupational Mix survey results will continue to be used for the FY 2017 wage index. The final occupation mixed adjusted average hourly rate is $41.1615, slightly higher than the proposed rate of $41.0651.
The 2013 Occupational Mix Survey will continue to be used through FY 2018. The Occupational Mix survey will be completed again in early 2017 using calendar year 2016 information, which will be used for the FY 2019 wage index.
VIII. Notice of Observation Treatment - MOON
On August 6, 2015, the Notice of Observation Treatment and Implication for Care Eligibility Act ("the NOTICE Act") was enacted, requiring hospitals and Critical Access Hospitals ("CAHs") to provide written notification and an oral explanation to individuals who receive more than 24 hours of outpatient observation services. Individuals who receive observation services as an outpatient for more than 24 hours must be provided notice no later than 36 hours after the observation services are ordered by the physician. This notice, the Medicare Outpatient Observation Notice ("MOON") will serve as an explanation to patients regarding the reasons they are receiving outpatient care and potential financial liability for copayments or costs of services not covered under Medicare Part B. The MOON will enforce observation services that do not meet the post-hospitalization eligibility for skilled nursing coverage under Medicare. The MOON is currently going through the PRA approval process and is subject to a 30-day public comment period that begins on the publication date of the 2017 final IPPS rule. Following review of comments and final approval, hospitals and CAHs must fully implement the MOON no later than 90 calendar days from approval date.
IX. Quality Initiatives
CMS continues to adopt numerous changes for quality initiatives as Medicare payments shift focus from volume to value. In the final FY 2017 IPPS rules, CMS continues to refine quality measures, adding new and removing measures for FY 2019 and subsequent years.
Hospital Acquired Condition Program ("HAC") - in FY 2017, CMS is establishing data submission requirements for new hospitals, clarifying data requirements for Domain 1 scoring, establishing performance periods for FY 2018 and FY 2019, and adopting the refined PSI 90 - Patient Safety for Selected Indicators Composite Measure. The program scoring methodology from the current decile-based scoring method to a continuous scoring methodology is also being introduced to enable CMS to more precisely distinguish top performers from low performers, and to reduce scoring anomalies.
Hospital Readmission Reduction Program ("HRRP") - this program requires a reduction to a hospital's base operating rate up to 3%, based on a hospital's risk-adjusted readmission rate during a 3-year period. CMS has finalized the public reporting policy so that excess readmission rates will be posted to the Hospital Compare website, as soon as feasible, following the hospital's review period.
Hospital Value Based Purchasing Program ("VBP") - CMS estimates the pool for value based incentive payments for FY 2017 to be $1.8 billion and believes the number of hospitals who receive an increase will be greater than the number that receive a decrease.
X. Long Term Acute Care
Long Term Care Hospitals ("LTCHs") who submit quality reporting data will receive a net market basket increase of 1.75% in their PPS payments, while those who do not submit will incur a 2% reduction.
The Pathway for SGR Reform Act of 2013 established criteria for a Site Neutral Payment effective for cost reporting periods beginning on or after October 1, 2015. The Act established two different types of LTCH payments based on the individual patient's clinical criteria. CMS finalized the two-year blended payment to be calculated at 50% of the site neutral payment and 50% of the applicable LTCH PPA payment rate. Effective in FY 2018, all payments for these cases will be paid at 100% of the site neutral payment rate.
SunStone Consulting offers a full line of Reimbursement Solutions specifically geared to assist our clients manage the ever changing regulatory environment. For more information about the FY 2017 Proposed IPPS Rule or any questions regarding our solutions, please contact Jim O'Connell, Principal, at firstname.lastname@example.org or Linda Randall, Senior Consultant, at email@example.com.