The final rule also takes steps to add socioeconomic status (SES) adjustments to the Hospital Readmissions Reduction Program.


Aug. 3—Hospitals will receive $800 million more in Medicare uncompensated care payments in FY18 under a final payment rule issued this week, even as a new payment calculation policy draws concerns.

The uncompensated care decisions were among many policies that were formalized in the Centers for Medicare & Medicaid Services’ (CMS’s) FY18 Medicare Inpatient Prospective Payment System (IPPS) final rule.

The increase in uncompensated care payments will bring the annual total for acute care hospitals to approximately $6.8 billion.

The new payment rule updated the three factors used to determine 75 percent of facilities’ disproportionate share hospital (DSH) payments, including the controversial incorporation of data from Worksheet S-10 to calculate a hospital’s share of uncompensated care. For several years, CMS has considered using the Medicare cost report’s Worksheet S-10 data on hospital charity care and bad debt to determine the amount of uncompensated care that each hospital provides. The methodology would replace the current formula that centers on Medicaid and Medicare Supplemental Security Income (SSI) days. In the final rule, CMS opted to begin a three-year phase-in of that change.

The decision drew pushback from hospital advocates, including the American Hospital Association, which had urged CMS to delay the use of S-10 data in calculating DSH payments by one year to further educate hospitals about how to accurately and consistently complete the form, and to implement a stop-loss policy and audit process. 

Ivy Baer, JD, senior director of healthcare affairs and regulatory counsel for the Association of American Medical Colleges (AAMC), said her organization was “disappointed” that CMS went ahead with the previously delayed proposal to begin using S-10 data.

“We continue to have concerns because the data has not yet been audited and validated,” Baer said.

In its comment letter, AAMC noted that a review of data showed that some hospitals’ reported uncompensated care costs were larger than their operating expenses, which resulted in “unreasonably high uncompensated care payments.” These hospitals would thus receive an excessively high share of the uncompensated care payment pool.

“The AAMC appreciates that CMS recognized that some of the data are aberrant, as when a hospital’s uncompensated care costs exceed all of its operating expenses, and has adopted a proposal to identify those hospitals and address this issue,” Baer said.

Tom Nickels, executive vice president for AHA, said his organization was similarly disappointed and plans to promote steps to improve the quality of S-10 data.

CMS will begin to incorporate S-10 data into the calculation of hospitals’ share of uncompensated care by combining uncompensated care cost data from FY14 S-10s with proxy data on a hospital’s share of low-income insured days for FY12 and FY13.

Chad Mulvany, director of healthcare finance policy, strategy and development, for HFMA, urged providers to take advantage of the opportunity to resubmit data from prior years to make sure the data are accurate for FY19, when two years of S-10 data is incorporated.

The move to S-10 data will reallocate uncompensated care funds among hospital types, Mulvany noted. The immediate significance of that shift was masked somewhat by this year’s large increase in the federal uncompensated care pool after CMS implemented a different measure for tracking uninsured individuals.

Rate Cut

Nickels said AHA was disappointed that CMS decided not to restore payments that were reduced in last year’s “excess cut to reimbursement rates for hospital services,” part of $11 billion in payment reductions as required by the American Taxpayer Relief Act of 2012. AHA said in its comment letter that the 1.5-percentage-point cut to hospital IPPS payments in FY17 was much larger than planned.

“While a reduction to the hospital update factor was mandated by law in 2012, CMS ignored Congress’s intent by imposing a cut that was nearly two times what Congress specified,” Nickels said.

Overall, CMS projected that the latest rate increase, together with other changes to IPPS payment policies, will raise IPPS operating payments by about 1.3 percent and that changes in uncompensated care payments will mean an increase of another 0.7 percent.

Those increases were smaller than CMS planned in the proposed rule, issued in April, which projected that the rate increase and payment policies would increase IPPS payments by about 1.7 percent, with uncompensated care payments adding another 1.2 percent, according to a fact sheet. The reduced funding in the final rule stemmed from a smaller hospital market-basket update and a larger-than-proposed productivity cut.

CMS estimated that under the rule Medicare inpatient pay to acute care hospitals will increase by $2.4 billion in FY18.

SES Adjustment

The final rule also took steps to add socioeconomic status (SES) adjustments to the Hospital Readmissions Reduction Program (HRRP), implementing a change long sought by hospitals. CMS will assess readmission penalties based on a hospital's performance relative to other hospitals with similar proportions of patients who are dually eligible for Medicare and Medicaid.

Mulvany characterized the SES adjustment as the “first step to adjusting the various value-based payment mechanisms in the IPPS for SES factors,” adding that the adjustment “should help safety-net hospitals.”

Blair Childs, senior vice president of public affairs for Premier, urged CMS to continue to refine the payment adjustments to reflect other factors that are associated with higher rates of readmissions, such as race or ethnicity, income, education, marital status, payer type, and travel distance to providers. 

Other Changes

The final rule implements modifications to the Electronic Health Record (EHR) Incentive Program, including by giving hospitals and critical access hospitals the option to report modified Stage 2 data for the 2018 reporting period. After strong urging from hospital advocates, the 2018 EHR reporting period was shortened from the full year to a minimum of any continuous 90-day period during the calendar year.

For the Hospital Inpatient Quality Reporting program, CMS reduced the electronic clinical quality measure (eCQM) reporting requirement to at least four self-selected eCQMs for one self-selected quarter of CY17.

The final rule modified CMS’s proposals for the Rural Community Demonstration Program to allow hospitals already participating in the program to continue to receive their “reasonable cost” payments without a gap in payments.

Based in part on the changes included in the final rule, overall payments to long-term care hospitals (LTCHs) will decrease by $110 million in FY18.

CMS increased LTCH payments by 1 percent, as required by the Medicare Access and CHIP Reauthorization Act of 2015. However, LTCH PPS payments will decrease by approximately 2.4 percent overall in large part because of the continued phase-in of the dual payment rate system.

CMS also issued a notice with comment period updating 2018 Medicare payment policies and rates for inpatient psychiatric facilities. Medicare payments to these facilities would increase by $45 million, or nearly 1 percent, in FY18 under the proposal.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Friday, August 04, 2017