Hot off the Presses - Proposed IPPS Reimbursement and Policy Update

On April 24, 2018, CMS released the Medicare Program’s 2019 Acute Care Hospital Inpatient Prospective Payment Systems (“IPPS”) proposed rule.  Published in the May 7, 2018 Federal Register, the proposed rule announces 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, 2017.
CMS believes this proposed rule will advance the agency’s priority of creating a more patient-centered healthcare system by achieving price transparency, interoperability and significant burden reductions so that hospitals can operate more effectively, and with more flexibility.  CMS is updating its guidelines to achieve transparency by requiring hospitals to publish a list of their standard charges via the internet.  Quality measures are being removed if they were duplicative, topped out or excessively burdensome to report.   CMS believes these proposed changes will empower patients, to provide better access to hospital price information, improve use of electronic health records and make it easier for providers to spend time with their patients.
Overall, Medicare anticipates an overall operating payment increase to hospitals by a net update factor of 2.1%, or $4.1 billion in FY 2019.

Medicare Base PPS Payment Rates

Medicare proposed a 2.8% increase to market basket for FFY 2019 due to inflationary measures, however, the following statutory adjustments will lower the net market basket increase to 1.25%:

  • Statutory adjustment mandated by the ACA of -0.75%;

  • Multifactor productivity adjustment as required by the ACA of -0.80%.

The Medicare base rate will continue to be impacted by the following regulatory adjustments:

  • FFY 2019 MS-DRG recalibration factor;

  • FFY 2019 Wage Index Budget Neutrality factor;

  • FFY 2019 Operating Outlier factor;

  • American Taxpayer Relief Act of 2012 document and coding adjustment;

  • Frontier State Wage Index and outmigration adjustment.

Hospitals, who submit quality data and are meaningful users, will receive the full net market basket increase of 1.25% to the base rate prior to the regulatory adjustments while hospitals who do not submit quality data and are not meaningful users, will experience a decrease in the Medicare base rate of 1.55% before adjustments.

After sorting through all the factors used in the calculation of the Federal rates, the net result will be a proposed increase in the payment rate of:

  • Submitted Quality Data and is a Meaningful EHR User 1.25%

  • Submitted Quality Data and is NOT a Meaningful EHR User -0.85%

  • NOT Submit Quality Data and is a Meaningful EHR User -0.55%

  • NOT Submit Quality Data and is NOT a Meaningful EHR User -1.55%

We caveat that factors such as wage index changes, geographic reclassifications, case mix changes and increase in outlier thresholds will influence the final payments made to an individual hospital. 

Outlier Threshold

The proposed regulations increase the high cost outlier threshold effective October 1, 2018 to $27,545, from the FFY 2018 rate of $26,601, which may result in decreased outlier payments to hospitals.  This adjustment ensures the FFY 2019 outlier payments is calculated at 5.1% of the total Medicare DRG payments.

Federal Capital Rate 

The proposed Federal capital rate of $459.78 is slightly higher than the FFY 2018 rate of $453.95, prior to the application of the geographical adjustment factors and hospital case mix.

Uncompensated Care and Disproportionate Share 

In the proposed 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 FFY 2019, CMS proposes to update their estimates of the three factors used to determine the uncompensated care payments, incorporating combined data from hospital’s FFY 2014 and FFY 2015 Worksheet S-10 with proxy data regarding the low-income insured days for FFY 2013 to determine Factor 3 for FY 2019.  The proposed total disproportionate share pool to be allocated is $8.250 billion as compared to the FFY 2018 pool of $6.767 million.  

Ongoing Worksheet S-10 audits will impact the distribution of the UCC pool dollars, such that a hospital may be eligible to receive more or less than in a prior year.

Quality Initiatives 

CMS continues to adopt numerous changes for quality initiatives as Medicare payments shift focus from volume to value.  In the proposed IPPS rules, CMS continues to refine quality measures, adding and removing measures for FFY 2019 and subsequent years. 

Hospital Acquired Condition Program (“HAC”)

CMS is proposing the following policies: (1) to establish administrative policies to collect, validate and publicly report NHSN Healthcare-Associated Infection (“HAI”) quality measure data that facilitate a seamless transition, independent of the Hospital IQR program beginning with January 1, 2019 infectious events; (2) change the scoring methodology by removing domains and assigning equal weights to each measure for which a hospital has a measure; and (3) establish the applicable period for FFY 2021.

Hospital Inpatient Quality Reporting Program (“IQR”)

The Hospital IQR program collects and publishes data on quality measures for the inpatient hospital setting.  In FFY 2019, CMS is proposing several changes to this initiative by removing certain measures from the IQR program, while retaining the same measure in one of the value-based purchasing programs (HAC, HRRP, and HVBP).  CMS is focusing on measures that provide opportunities to reduce both paperwork and reporting burdens on providers, and focus on patient-centered outcome measures rather than process measures.  

Hospital Readmission Reduction Program (“HRRP”)

For FFY 2019 and subsequent years, the program reduction is based on a hospital’s risk-adjusted readmission rate for a three-year period for acute myocardial infarction, heart failure, pneumonia, chronic obstructive pulmonary disease, total hip/total knee arthroplasty and coronary artery bypass graft.  CMS estimates this program will save approximately $566 million in FFY 2019.  CMS proposes to continue to implement a socioeconomic adjustment approach mandated by the 21st Century Cures Act and will continue to implement changes to the payment adjustment factor to access penalties based on the hospital’s performance relative to other hospitals with similar patient populations who are dually eligible for Medicare and Medicaid. 

Hospital Value Based Purchasing Program (“VBP”)

In the FFY 2019 proposed rule, CMS will redistribute $1.9 billion in operating payments through the VBP program and will update the VBP program by removing 10 measures that are included as part of either the HAC or IQR programs.  This is consistent with CMS’ commitment to using a smaller set of more meaningful measures and reduce the reporting burdens for hospitals.

EHR Incentive Program 

The Medicare and Medicaid EHR incentive program historically was broken into three stages focused on data capture and sharing, advanced clinical processes and improved outcomes.  In FFY 2019, CMS is proposing scoring and measurement policies to move beyond the three stages of meaningful use to a new phase with an increased focus on interoperability and improving patient access to health information. 
CMS plans renaming the program to Promoting Interoperability (“PI”) Programs, which will apply to Medicare fee-for-service, Medicare Advantage and Medicaid.   CMS is proposing these changes to make the EHR incentive program more flexible and less burdensome by placing emphasis on measures that require the exchange of health information between providers and patients. 
CMS also plans to continue use of the 2015 Edition of CEHRT.  This edition better streamlines workflows and includes updates to functions and standards that support improved interoperability through the use of health IT.  Finally, there is a proposal to modify the EHR reporting periods in FFY 2019 and 2020 for hospitals who are new or returning participants to attest to meaningful use from the full-year to a minimum of any consecutive 90-day period during each calendar year. 

Cost Reporting Requirements  

CMS is proposing to add language to clarify that a provider must submit all necessary supporting documents for its cost report.  For cost reporting periods beginning on or after October 1, 2018, hospitals must submit the following in order to file a complete cost report;

  1. IRIS – the number of FTE’s reported on the IRIS must contain the same counts as reported on the cost report for both IME and GME;

  2. Bad Debts –a detailed bad debt listing that supports the bad debt amounts claimed on the cost report;

  3. Disproportionate Share Days –a detailed listing of its eligible Medicaid days that correspond to the claimed days on the cost report; and

  4. Charity Care/Uninsured Claims –a detailed listing of its charity care and/or uninsured discounts that correspond to the amount claimed on the cost report.

Failure to provide this detail may cause the cost report to be unacceptable to the Medicare Administrative Carrier (“MAC”).

Expansion of the Postacute Care Transfer Policy  

The Bipartisan Budget Act of 2018 amended the postacute care transfer policy to include discharges to hospice care effective for discharges on or after October 1, 2018.  If the discharge is assigned to one of the MS-DRGs subject to the transfer policy, and the patient is transferred to hospice care by a hospice program, the discharge would be subject to payment as a transfer case.  CMS estimates Medicare payments will be reduced by $240 million in FFY 2019 due to this expansion.

Inpatient Psychiatric Facilities   

The impact of the proposed rules for inpatient Psychiatric facilities is estimated to increase Medicare payments by $50 million in FFY 2019.  The net update factor is estimated to be 0.98% and the proposed Federal per diem base rate for FFY 2019 is $782.01, a slight increase over the FFY 2018 per diem of $771.35. 

Long Term Acute Care (“LTCH”)  

CMS is proposing payment and policy changes for FFY 2019 to include a net market basket increase of 1.15% in the LTCH PPS standard payment rate for those facilities who submit quality data.  The proposed rules continue the transition of the new site neutral payment rate required under the Pathway for SGR Reform Act of 2013.  Removal of some quality reporting initiatives have also been proposed which have either had significant operational challenges with reporting or are duplicative of other measures in the program.
CMS will accept comments on the proposed rule no later than 5 pm on June 25, 2018. 

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 FFY 2019 Proposed IPPS Rule or any questions regarding our solutions, please contact Jim O’Connell, Principal, at