On August 2. 2019, CMS released the Medicare Program’s 2020 Acute Care Hospital Inpatient Prospective Payment Systems (“IPPS”) final rule. Published in the August 16, 2019 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”). This final rule reflects CMS’s efforts to transform the healthcare delivery system through competition and innovation to provide patients with better value and results effective with discharges occurring on or after October 1, 2019.
Overall, Medicare anticipates total spending for inpatient hospital services, including capital will increase by 3.0%, or $3.8 billion in FFY 2020.
I. Medicare Base PPS Payment Rates
Medicare’s market basket for FFY 2020 is a 3.0% increase inflationary measure; however, the following statutory adjustments will lower the net market basket increase to 2.6%:
Statutory adjustment mandated by the ACA of -0.4%;
The Medicare base rate continues to be impacted by the following regulatory adjustments:
American Taxpayer Relief Act of 2012 documentation and coding adjustment of 0.5%;
Frontier State Wage Index and outmigration adjustment of 0.1%,
Outlier Adjustment of -0.1% and
Other adjustments of -0.1%.
Hospitals who submit quality data and are meaningful users will receive the full net market basket increase of 2.6% 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 -0.4% to 1.85%. 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 2.6%
Submitted Quality Data and is NOT a Meaningful EHR User 0.35%
NOT Submit Quality Data and is a Meaningful EHR User 1.85%
NOT Submit Quality Data and is NOT a Meaningful EHR User -0.4%
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, 2019 to $26,473, 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 final FFY 2020 Federal capital rate of $462.61 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 final 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 will use a single year of data on uncompensated care costs found on the FY 2015 Medicare cost report Worksheet S-10 to distribute the funds. CMS will also continue to use data regarding low-income insured days (Medicaid days for FY 2013 and FY 2017 SSI days) to determine the amount of uncompensated care payments to Puerto Rico hospitals and Indian Health Service and Tribal hospitals.
CMS anticipates allocating $8.4 billion for Uncompensated Care payments in FFY 2020, an increase of $78 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 and potentially life-saving diagnostics 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. In FY 2020, new technology add-on payments are anticipated to increase by approximately $162 million over FY 2019 payments. 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 has finalized their proposal to increase the add-on payment to 65% to address this inadequacy.
Based on the FDA’s Breakthrough Device Program, CMS finalized an alternative new technology add-on payment policy for medical devices that receive FDA marketing authorization. If the medical device is part of an FDA expedited program and has received marketing authorization from the FDA, CMS will consider that product as new and is not subject to the substantial clinical improvement criterion. The device will only need to meet the cost criterion to receive the add-on payment. This change begins with applications for new technology add-on payments for FY 2021.
VI. Quality Initiatives
CMS continues to adopt numerous changes for quality initiatives for hospitals to report quality data in order to receive the full annual percentage increase in Medicare payments. In the final IPPS rule, CMS continues to refine quality initiatives, adding and removing measures for FFY 2020 and subsequent years.
Hospital Acquired Condition Program (“HAC”) – CMS finalized 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 final 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 Hybrid hospital-wide all-cause readmission measure; and (2) adopt the Safe Use of Opioids – Concurrent Prescribing electronic clinical quality measures beginning with CY 2021 reporting period/FFY 2023 payment determination period. CMS is not finalizing the proposal to adopt the Hospital Harm – Opioid-Related Adverse Events electronic clinical quality measure.
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. CMS is instituting 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 2021program; (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.
Hospital Value Based Purchasing Program (“VBP”) – CMS will 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 plans to distribute $1.9 billion in operating payments through the VBP program FFY 2020.
VII. Medicare and Medicaid Promoting Interoperability Program
CMS continues to make changes to the program to reduce the burden on providers who comply with program requirements and the Interoperability Program was established to empower patients with control of their healthcare data.
CMS is finalizing the following: (1) an EHR reporting period of a minimum of any continuous 90-day period in CY 2021 for new and returning participants; (2) to continue for the CY 2020 EHR reporting period the Query of PDMP measure as optional and available for bonus points instead of being required; (3) remove the Verify Opioid Treatment Agreement measure beginning in CY 2020 based on feedback from stakeholders that the measure presents significant implementation challenges, increases the burden and does not further interoperability. CMS also plans to continue to align the CQM reporting requirements with similar requirements under the Hospital Inpatient Quality Program.
VIII. Wage Index
CMS is finalizing changes to the wage index calculation to improve the accuracy and to correct the disparities between high and low wage index hospitals. Based on comments received after the release of last year’s proposed rule, CMS finalized the proposal 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 25th percentile wage index across all hospitals. This 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 modifying the budget neutrality adjustment to ensure Medicare spending does not increase.
CMS also finalized changes to the “rural floor” calculation by removing 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 changes, CMS finalized 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”)
On July 30, 2019 CMS issued the FY 2020 final rule for inpatient Psychiatric facilities. In the final rule, Medicare payments are expected to increase by 1.5%, or $65 million in FFY 2020. The net update factor to payments is an increase of 1.75% resulting in a Federal per diem base rate for FFY 2020 of $798.55, a slight increase over the FFY 2019 per diem of $782.72. CMS rebased the IPF market basket to reflect a 2016 base year from a 2012 base year to reflect more recent data.
X. Long Term Acute Care (“LTCH”)
CMS’s payment and policy final changes for FFY 2020 are set to include a net market basket increase of 2.5% 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. CMS will continue the transition of the site neutral payment rate required under the Pathway for SGR Reform Act of 2013. CMS also finalized the adoption of 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 final rule for IRF’s is estimated to increase Medicare payments by 2.5% or $210 million in FFY 2020.
CMS is also rebasing and revising the IRF market basket to reflect a 2016 base year. The labor-related share will increase from 70.5% to 72.7% in FY 2020.
Finally, CMS will adopt 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”)
The FFY 2020 SNF payment rates will increase by a 2.4% market basket factor or $851 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. The PDPM utilizes ICD-10 codes to classify SNF patients into certain payment groups.