IPPS Proposed Rule

On April 23, 2019, CMS released the Medicare Program’s 2020 Acute Care Hospital Inpatient Prospective Payment Systems (“IPPS”) proposed rule.  Published in the May 3, 2019 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, 2019.
The proposed rule focuses on transforming the healthcare delivery system to provide patients with better value and results through competition and innovation addressing two key priorities for CMS, “Rethinking Rural Health” and “Unleashing Innovation” by proposing changes in the way Medicare reimburses hospitals.
Overall, Medicare anticipates an operating payment increase to hospitals by a net update factor of 3.5%, or $4.7 billion in FFY 2020. 

I. Medicare Base PPS Payment Rates

Medicare’s market basket for FFY 2020 is a 3.2% increase inflationary measure; however, the following statutory adjustments will lower the net market basket increase to 2.7%:

  • Statutory adjustment mandated by the ACA of -0.5%;

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

  • American Taxpayer Relief Act of 2012 documentation 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 2.7% 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 change in their base rate ranging from -0.5% to 1.9%.  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                   2.7%

  • Submitted Quality Data and is NOT a Meaningful EHR User          0.3%

  • NOT Submit Quality Data and is a Meaningful EHR User               1.9%

  • NOT Submit Quality Data and is NOT a Meaningful EHR User     -0.5%

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 proposed regulations set the high cost outlier threshold effective October 1, 2019 to $26,994, an increase from the FFY 2019 rate of $25,769.  This adjustment ensures the FFY 2020 outlier payment calculations remain at 5.1% of the total Medicare MS-DRG payments.

III. Federal Capital Rate

The proposed FFY 2020 Federal capital rate of $463.81 is slightly higher than the FFY 2019 rate of $459.41, prior to the application of the geographical adjustment factors and hospital case mix.

IV. Uncompensated Care and Disproportionate Share

In the proposed rule, 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 DSH method and 75% on the uncompensated care data in accordance with the ACA.  For FFY 2020, CMS is updating their estimates of the factors used to determine the uncompensated care payments as follows:

  1. For DSH eligible hospitals excluding Puerto Rico hospitals and Indian Health Service and Tribal hospitals, CMS is proposing to compute Factor 3 using only the FFY 2015 Worksheet S-10 uncompensated care amount as the numerator.  In a departure from prior rules, CMS is proposing to calculate Factor 3 for all-inclusive rate hospitals using Worksheet S-10.  In prior years, those hospitals used low-income insured days as the numerator for determining Factor 3.  The denominator used is the total FFY 2015 uncompensated care costs from all hospital’s Worksheet S-10.

    Medicaid and SSI days and a three-year average transitioning from days to uncompensated care cost may not be used to compute Factor 3. CMS is seeking public comments on whether they should use Worksheet S-10 information from the FFY 2017 Medicare cost reports due to the change in instructions that became effective in FFY 2017.

  2. For Puerto Rico hospitals and Indian Health Service and Tribal hospitals, CMS is using only data regarding low-income insured days for FY 2013 as the numerator for determining Factor 3.

    CMS anticipates allocating $8.5 billion for Uncompensated Care payments in FFY 2020, an increase of $216 million from the FFY 2019 pool.  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. New Technology

CMS would like to ensure Medicare beneficiaries have access to world-class healthcare by unleashing innovation in medical technology and proposes to increase the new technology add-on payment, which provides hospitals with additional payments for cases with high costs that utilize new technology. Currently, Medicare pays a marginal cost factor of 50% of the estimated costs of the case in excess of the full MS-DRG payment, up to 50% of the cost of the technology, which may not result in an adequate add-on payment. CMS proposes to increase the add-on payment to 65% to address this inadequacy.
Based on the FDA’s Breakthrough Device Program, CMS is also proposing an alternative new technology add-on payment policy for medical devices that receive FDA marketing authorization and is part of an FDA expedited program to begin with applications received for new technology add-on payments for FFY 2021. CMS would consider these products new and not substantially similar to an existing technology and would only need to meet the cost criterion to receive the add-on payment.

VI. Quality Initiatives

CMS continues to adopt numerous changes for quality initiatives as Medicare payments shift focus from volume to value.  In the proposed IPPS rule, CMS continues to refine quality initiatives, adding and removing measures for FFY 2020 and subsequent years. 
Hospital Acquired Condition Program (“HAC”) – CMS is proposing to establish the following policies: (1) Specify the dates to collect data used to calculate the hospital’s performance for the FFY 2022 HAC reduction program; (2) adopt eight factors to use when deciding whether a measure should be removed; and (3) clarify administrative processes for validating the National Healthcare Safety Network Healthcare-associated infection data submitted by hospitals to the Center for Disease Control and Prevention.
Hospital Inpatient Quality Reporting Program (“IQR”) – This program reduces payment to hospitals that fail to meet program requirements. In the proposed rule for FFY 2020, CMS plans to update the Hospital IQR Program’s measure set, along with the following changes: (1) remove the claims-based hospital-wide all-cause readmission measure and replace with the proposed Hybrid hospital-wide all-cause readmission measure; and (2) adopt two opioid-related electronic clinical quality measures beginning with CY 2021 reporting period/FFY 2023 payment determination period.  CMS is also proposing to align its eCQMs with the Promoting Interoperability Program’s Clinical Quality Measure proposals.
Hospital Readmission Reduction Program (“HRRP”) – For FFY 2020 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.  In the proposed rule, CMS is proposing the following policies: (1) a measure removal policy that aligns with the removal factor policies previously adopted in other quality reporting programs; (2) update the definition of “dual-eligible’ beginning with the FFY 2021 program; (3) institute a subregulatory process to address any potential future nonsubstantive changes to the payment adjustment factor components; and (4) update the Program’s regulations to reflect proposed policies and to codify additional previously finalized policies.  CMS estimates that 2,599 hospitals will have their base operating MS-DRG payments reduced by this adjustment, saving approximately $550 million in FFY 2020. 

Hospital Value Based Purchasing Program (“VBP”) – CMS is proposing to use the same data as the HAC Reduction program to calculate the National Health Safety Network Healthcare Associated Infection (“HAI”) measures beginning with CY 2020 data collection, when the Hospital IQR program will no longer collect data.  CMS proposes to distribute $1.9 billion in operating payments through the VBP program FFY 2020. 

VII. Medicare and Medicaid Promoting Interoperability Program

CMS is proposing an EHR reporting period of a minimum of any continuous 90-day period in CY 2021 for new and returning participants.   
CMS also plans to continue use of the 2015 Edition of Certified Electronic Health Record Technology (“CEHRT”) which better streamlines workflows and includes updates to functions and standards that support improved interoperability through the use of health IT. 

VIII. Wage Index

CMS is proposing changes to the wage index calculation based on comments received after the release of last year’s proposed rule. A common concern was that the current wage index perpetuates the disparities between high and low wage index hospitals.  To address the disparity, CMS is proposing to increase the wage index for those hospitals with a wage index below the 25th percentile.  The wage index for these hospitals would increase by half the difference between applicable wage index value and the 25thpercentile wage index across all hospitals.  This proposed policy will be effective for four years in order for hospitals to increase compensation for their employees that can be reflected in future wage indices.  CMS is also proposing a decrease for those facilities with a wage index greater than the 75th percentile, to ensure Medicare spending does not increase.
CMS also proposes to remove the urban to rural hospital reclassifications from the calculation of the rural floor wage index beginning in FFY 2020. To mitigate payment decreases due to the proposed changes, CMS plans to adopt a 5-percent limitation on any decrease in a hospital’s wage index from its final wage index for FFY 2019.

IX. Inpatient Psychiatric Facilities ("IPF")

The proposed rule for inpatient Psychiatric facilities is estimated to increase overall Medicare payments by $75 million in FFY 2020.  The proposed net update factor to payments is an increase of 1.7% resulting in a Federal per diem base rate for FFY 2020 of $803.48, a slight increase over the FFY 2019 per diem of $782.72.  CMS proposes to rebase the IPF market basket to reflect a 2016 base year from a 2012 base year to reflect more recent data.

In FY 2020, CMS plans to adopt one new claims-based quality measure beginning with the FFY 2021 payment year. The measure, Medication Continuation Following Inpatient Psychiatric Discharge, will assess whether patients admitted to IPF’s with diagnoses of Major Depressive Disorder, schizophrenia or bipolar disorder filled at least one evidence-based medication within two days prior to discharge or during the 30-day post-discharge period.

X. Long Term Acute Care ("LTCH")

CMS’s payment and policy proposed changes for FFY 2020 are set to include a net market basket increase of 2.7% 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 proposed rule continues the transition of the 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.   CMS is proposing to adopt two new quality measures to satisfy the quality measure domain in the IMPACT Act.  

XI. Inpatient Rehabilitation Facilities ("IRF")

CMS continues efforts towards the eventual transition to a unified post-acute care system, through updates to the data used for IRF payments, revising the case-mix groups (“CMGs”) and the CMS relative weights and length of stay.  The impact of the proposed rules for IRF’s is estimated to increase Medicare payments by 2.3% or $195 million in FFY 2020.  The proposed net market basket update is 2.5%, resulting in a standard payment conversion factor for FFY 2020 of $16,573, an increase over the FFY 2019 amount of $16,021. 
CMS is also proposing to revise the CMG’s based on two years of data (FFY 2017 and FFY 2018) from the quality indicator data items and update the relative weights and length of stay beginning October 1, 2019. 
Finally, CMS is planning on adopting two new quality measures: (1) transfer of health information to the provider; and (2) transfer of health information to the patient to improve patient safety and fulfill CMS’s strategic initiatives to promote effective communication and coordination of care.

XII. Skilled Nursing Facilities ("SNF")

CMS projects the FFY 2020 SNF payment rates to increase by a 3.0% market basket factor or $887 million.  Beginning on October 1, 2019, CMS will adopt a new reimbursement system, called Patient-Driven Payment Model (“PDPM”), which will focus on a patient’s condition and care needs, rather than the amount of care provided in order to determine payment.
Comments on the proposed rule will be accepted by CMS by the following dates:

  • Inpatient Psych and Inpatient Rehab – June 17, 2019

  • Skilled Nursing Facilities – June 18, 2019

  • IPPS and Long Term Care Hospitals – June 24, 2019

SunStone Consulting offers comprehensive Reimbursement Solutions specifically geared to assisting providers manage the ever-changing regulatory environment.  For more information about the FFY 2020 proposed Rule or any questions regarding our solutions, please contact Jim O’Connell, Principal, at jimoconnell@sunstoneconsulting.com or Linda Randall, Manager at lindarandall@sunstoneconsulting.com.