Budgeting: Regulatory items healthcare finance leaders must consider

January 27, 2020 9:25 pm
  • HFMA’s Chad Mulvany anticipates something in the 2.6% to 2.8% range for the Medicare market basket update – IP and OP service.
  • Expect the Medicare Uncompensated Care DSH pool to increase given the recent rise in the rate of the uninsured coupled with the growing population of Medicare beneficiaries.
  • Several court cases and proposed policies that will impact Medicare and Medicaid payments bear watching as they will have an impact on hospitals and health systems.

I occasionally get asked by HFMA members I know to help them think through the federal regulatory/legislative items they need to account for, or at least consider, when they’re projecting Medicare and Medicaid revenues for their budgets. Most of the time it’s a request to look at assumptions for a “reasonability test” or to make sure they’re not missing anything big. For the first quarter of 2020 (so for folks working on the July 1 budgets or whose organizations use a rolling forecast), below are some of the federal impacted payment or coverage items to keep on your radar.

Items to consider baking in

Medicare market basket update – IP and OP service: Right now I’d anticipate something in the 2.6% to 2.8% range based on the chart I created  below. Obviously, this is an educated estimate at best so use with caution. Offhand, it doesn’t look like MedPAC is baking in the positive documentation and coding adjustment for 2021 on the inpatient side, so 2.6% is probably very conservative. For 2021 – 2023, the coding adjustment is +.5%. Also, the 2% Medicare sequester is alive, well, and not included in the 2.6% estimate, so it needs to be baked into the in-and-outpatient Medicare revenue number somehow.

Historical and projected Medicare market basket update factors

Federal fiscal year
  2017 2018 2019 2020 4-year avg 2021
MedPAC estimate 1.75% 1.85% 1.25% 2.80% 1.91% 2.80%
Aug IPPS final rule 0.95% 1.20% 1.85% 3.10% 1.78% 2.60% (estimated)
IPPS final as a % of MedPAC 54.3% 64.9% 148.0% 110.7% 92.8%  
Source: HFMA

Medicare UC DSH: The uninsured rate has been trending up. Coupled with the increased number of Medicare beneficiaries, I would anticipate this should cause the dollars in the uncompensated care (UC) pool to increase, so all things being equal, UC DSH payments will go up. Whether you bake this into the budget will depend on how you think you’ve done relative to other hospitals in terms of providing and documenting (and at audit defending claimed) uncompensated care.

340B lawsuit: Despite a recent ruling that found the 2018 and 2019 340B cuts to be illegal, CMS is appealing the ruling and has persisted in implementing them in 2020. In the meantime, CMS has been ordered to repay the 2018 and 2019 cuts but has been given significant leeway to develop a proposed approach. I’m guessing mid-to-late 2020 is likely, or they may use the CY2021 OPPS rule to make a policy statement. 

The CY2020 OPPS rule collected feedback on how CMS should repay those cuts but didn’t hint at timing, so it’s hard to say when those funds will flow to hospitals. And if CMS implements the repayment in a budget-neutral manner, that needs to be considered as well since the reductions in 340B payment were used to increase payments across the rest of the OPPS fee schedule

Depending on your mix of community hospitals versus teaching hospitals, this may be immaterial due to the 340B cut being offset by increased payments for all other services. It all depends on the volume of services you provide that include separately payable Part B drugs.

Finally, I would assume that CMS will continue to implement this cut in CY 2021 if the case has not been final settled.

E&M site neutral: Despite a recent ruling finding the 2019 site neutral cuts illegal, CMS has persisted in implementing the cut for 2020. CMS is reprocessing the cuts for 2019, which should be paid in the early part of 2020. CMS is appealing the judge’s ruling for 2019. And hospitals are also challenging the 2020 cut. I assume that CMS will attempt to implement site neutral in CY 2021 if the case has not been final settled. However, I ultimately believe hospitals will prevail here as this case is a little more clear-cut than the 340B lawsuit since CMS didn’t implement the reduction in a budget-neutral manner.

Medicaid DSH: The FFY20 budget deal delayed the Medicaid DSH cuts until May 22 of this year. As of now, all signs point to Congress passing a longer-term delay of the cuts before the May deadline. However, factoring the payment cut into your budget for Medicaid DSH is the more conservative approach given the potential hit if these payments are material for your organization.

Items to watch

These are things I don’t have enough clarity on to make a call, but they could be impactful if they come to pass.

Public charge final rule/Medicaid coverage: The final public charge rule was delayed due to multiple legal challenges. While those may not be resolved by FY2021, I get the sense there’s still plenty of confusion in the communities that might be impacted by the rule about who it applies to and when it goes into effect. As a result, I’m hearing that in some areas, non-U.S. citizens continue to avoid enrolling in Medicaid regardless of whether they’re impacted by the rule. You may want to check in with the folks in your financial counseling function to see if this is an issue they’re encountering. If so, you may want to bake that into budget assumptions on uncompensated care.  

International Pricing Index Model for Part B drugs: In late 2018, CMMI issued a request for information on the International Pricing Index (IPI) Model potential plan to pilot an alternative payment mechanism for separately payable part B drugs. A proposed rule for the IPI has been at the Office of Management and Budget since late June. While there’s not enough information to bake into a budgeted Medicare revenue number (we don’t know who would be included in the mandatory part of the pilot — if in fact, there will be a mandatory component), it’s probably something to be aware of if Part B separately payable drugs rise to the level of materiality for your organization.

Medicaid Fiscal Accountability Regulation Proposed Rule: CMS has issued a proposed rule in response to concerns about states’ alleged mis-use of supplemental payments. If finalized as proposed, it would have a profound impact on state financing, potentially negatively impacting hospitals that are recipients of supplemental payments. The ultimate impact on a hospital’s performance will depend on the terms of the final rule and a provider’s specific circumstances,  so this is something that should be monitored closely.


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