Hot off the Presses - Final IPPS Reimbursement and Policy Update

On August 2, 2018, CMS released the Medicare Program’s 2019 Acute Care Hospital Inpatient Prospective Payment Systems (“IPPS”) final rule.  Published in the August 17, 2018 Federal Register, the final 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, 2018.
Improving patient outcomes and reducing regulatory burdens continue to be high priorities for CMS for FFY 2019CMS has implemented the Meaningful Measures Initiative and various quality programs that strive to reduce unnecessary cost and burdens to providers, while increasing efficiencies and improving the beneficiary experience.  CMS is looking for recommendations to identify opportunities for ongoing development of this initiative and to integrate measures across its various quality programs.  Meaningful Measures has the following objectives: address high-impact areas that safeguard public health, patient centered and meaningful to patients, outcome-based when possible, fulfill each program’s statutory requirements, minimize the level of burden on healthcare providers, opportunity for improvements, addressing needs for population based payment through alternative payment models and align across programs and/or with other payers. 
Overall, Medicare anticipates an operating payment increase to hospitals by a net update factor of 2.4%, or $4.8 billion in FY 2019. 

I. Medicare Base PPS Payment Rates

Medicare’s market basket for FFY 2019 is a 2.9% increase inflationary measure; however, the following statutory adjustments will lower the net market basket increase to 1.35%:

  • 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:

  • 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 1.35% to the base rate prior to the regulatory adjustments while hospitals who do not submit quality data and/or are not meaningful users, will experience a decrease in the Medicare base rate ranging from -0.625% to -1.55%.  After sorting through all the factors used in the calculation of the Federal rates, the net result will be an increase in the payment rate for hospitals, based on Quality Data submission, as follows:

  • Submitted Quality Data and is a Meaningful EHR User 1.35%

  • Submitted Quality Data and is NOT a Meaningful EHR User -0.825%

  • NOT Submit Quality Data and is a Meaningful EHR User -0.625%

  • NOT Submit Quality Data and is NOT a Meaningful EHR Use -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. 

II. Outlier Threshold

The final regulations set the high cost outlier threshold, effective October 1, 2018, to $25,769; a decline from the FFY 2018 rate of $26,537.  This adjustment ensures the FFY 2019 outlier payment calculations remain at 5.1% of the total Medicare DRG payments.

III. Federal Capital Rate

The FFY 2019 Federal capital rate of $459.72 is slightly higher than the FFY 2018 rate of $453.95, prior to the application of the geographical adjustment factors and hospital case mix.

IV. Uncompensated Care and Disproportionate Share

CMS will continue to apply the same methodology to Disproportionate Share (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 is updating their estimates of the three factors used to determine he uncompensated care payments as follows:

  1. Continue to use uninsured estimates produced by the Office of the Actuary (“OACT”) as part of the development of the National Health Expenditure Accounts (“NHEA”) to calculate Factor 2.

  2. Continue to incorporate data from the 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 FFY 2019.

  3. Using only data regarding low-income insured days for FFY 2013 to determine the amount of uncompensated care payments for Puerto Rico hospitals, Indian Health Service and Tribal hospitals, and all-inclusive rate providers.

The FFY 2019 total disproportionate share pool to be allocated is $8.273 billion, a 22.26% increase from 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. 

V. Quality Initiatives 

CMS continues to adopt numerous changes for quality initiatives as Medicare payments shift focus from volume to value.  In the final IPPS rule, CMS continues to refine quality initiatives, adding and removing measures for FFY 2019 and subsequent years. 
Hospital Acquired Condition Program (“HAC”) – CMS established the following policies in the final rule: (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, 2020 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”) – This program collects and publishes data on quality measures for the inpatient hospital setting.  As part of the Meaningful Measures Initiative, and in an effort to reduce the burden and cost of its quality programs, CMS is removing 39 measures from the Hospital IQR program over the next several years.  Their objective is to highlight measures that provide opportunities to reduce both paperwork and reporting burdens on providers while focusing on patient-centered outcome 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 2,610 hospitals will have their base operating DRG payments reduced by this adjustment, saving approximately $566 million in FFY 2019. 
Hospital Value Based Purchasing Program (“VBP”) - CMS will redistribute $1.9 billion in operating payments through the VBP program by removing 4 measures that are included as part of either the HAC or IQR programs in FFY 2019.  This is consistent with CMS’ commitment to using a smaller set of more meaningful measures and reduce the reporting burdens for hospitals.

VI. Medicare and Medicaid Promoting Interoperability Program 

CMS finalized several changes to the Medicare and Medicaid Promoting Interoperability Program (previously referred to as the Medicare and Medicaid EHR Incentive Program) in FFY 2019 to reduce burden, increase interoperability and improve patient electronic access to their health information.  Some of the changes include; an EHR reporting period of a minimum of any 90 continuous days in CY 2019 and 2020 for new and returning participants, modifications to the performance-based scoring methodology, removal of certain CQMs beginning with the reporting period CY 2020, as well as the CY 2019 reporting requirements proposed to align the Promoting Interoperability program’s CQM with the Hospital IQR program and the codification of policies for Puerto Rico acute care hospitals.
CMS also plans to continue use of the 2015 Edition of CEHRT which better streamlines workflows and includes updates to functions and standards that support improved interoperability through the use of health IT. 


VII. Cost Reporting Requirements 

CMS is adding 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 – hospitals must submit the IRIS data with the filed cost report. CMS is not finalizing the proposal stating the IRIS data 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. DSH Days – a detailed listing of its eligible Medicaid days that correspond to the claimed days on the cost report.

  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.

  5. Home Office Allocations – any hospital that claims costs that are allocated from a home office, must complete a Home Office Cost Statement and submit the report as part of the cost report.

Failure to provide this detail may cause the cost report to be unaccepted by the Medicare Administrative Contractor (“MAC”). 

VIII. Hospitals’ Pricing Transparency

In section 2718(e) of the Public Health Service Act, CMS requires each hospital operating in the United States to establish and make public a list of standard charges for items and services provided by the hospital.  CMS announced that effective January 1, 2019 all hospitals must make a list of standard charges available to the public, via the internet, in a machine-readable format.  CMS also requires that the list be updated at least annually, or more often if appropriate. 

CMS is concerned with the barriers preventing providers from informing patients of their out-of-pocket costs and will consider action in future rules on feedback they received regarding out-of-network bills, facility fees and physician fees for emergency department visits.

IX. 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.

X. Inpatient Psychiatric Facilities

The impact of the final rule for inpatient Psychiatric facilities is estimated to increase Medicare payments by $50 million in FFY 2019.  The net update factor to payments is an increase of 1.1% resulting in a Federal per diem base rate for FFY 2019 of $782.78, a slight increase over the FFY 2018 per diem of $771.35. 

XI. Long Term Acute Care (“LTCH”)

CMS’s payment and policy changes for FFY 2019 are set to include a net market basket increase of 1.35% in the LTCH PPS standard payment rate for those facilities who submit quality data.  LTCH’s that do not submit quality data will incur a -2.0% reduction.  The final rules continue the transition of the new site neutral payment rate required under the Pathway for SGR Reform Act of 2013.  However, the Bipartisan Budget Act of 2018 extended the transitional blended payment rate for site neutral payment cases for 2 years and provided an adjustment to the payments for discharges paid under the site neutral rate through FY 2026.   Removal of some quality reporting initiatives have also been finalized, which have either had significant operational challenges with reporting or are duplicative of other measures in the program.

XII. Inpatient Rehabilitation Facilities (“IRF”)

The impact of the final rules for IRF’s is estimated to increase Medicare payments by 1.3% or $105 million in FFY 2019.  The net update factor to payments is an increase of 1.01% resulting in a standard payment conversion factor for FFY 2019 of $16,021, an increase over the FFY 2018 amount of $15,838.  In the final rule, CMS is also reducing the regulatory burden for IRF’s by easing documentation requirements, as well as by removing items from the IRF patient assessment instrument. 

XIII. Skilled Nursing Facilities

The FFY 19 final rule for skilled nursing facilities’ payment rates provide an increase in the market basket factor of 2.4%, or $820 million.  The final rule not only addresses the payment rate updates, but also a replacement of the current Resource Utilization Group case-mix classification system beginning on October 1, 2019. 
CMS believes the new reimbursement system, called Patient-Driven Payment Model (“PDPM”), will better account for resident characteristics and care needs, while reducing administrative complexity.

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