Medicare Payment and Reimbursement

FY20 inpatient payment rule proposes changes to DSH, wage index

May 9, 2019 3:47 pm

April 24—The proposed rule for Medicare inpatient payments could significantly affect uncompensated-care payment and wage adjustments.

The Inpatient Prospective Payment System (IPPS) proposed rule for FY20, issued April 23 by the Centers for Medicare & Medicaid Services (CMS), would increase operating payment rates for general acute care hospitals by approximately 3.2%. CMS projected the increase would be about 3.5% when policy changes are included.

The proposed changes would affect about 3,300 acute care hospitals’ Medicare payments beginning Oct. 1.

Wage index changes

Major changes that could impact hospital finances include long-anticipated proposals to change the Medicare wage index. After requesting comments last year, CMS found “a common concern that the current wage index system perpetuates and exacerbates the disparities between high- and low-wage-index hospitals,” according to a fact sheet.

In response, CMS proposed changes to the wage index calculation, including a methodology to increase the wage index for certain low-wage-index hospitals and to change how the statutory rural-floor wage index values are calculated. The changes would include a transition for hospitals that experience significant decreases in their wage index values as a result.

Specific wage index changes would include:

  • Increasing the wage index for hospitals with a wage index value below the 25th percentile
  • Decreasing the wage index for hospitals above the 75th percentile
  • Maintaining a revenue-neutral impact from the changes on Medicare
  • Removing urban-to-rural hospital reclassifications from the calculation of the rural-floor wage index value
  • Capping at 5% any decrease in a hospital’s wage index from its final wage index for FY19

“The administration has been saying that they wanted to do something about this for a while,” Chad Mulvany, a director of healthcare financial practices at HFMA, said in an interview. “I just don’t think people were anticipating that they really were going to do something about it.”

Larry Goldberg, a longtime industry consultant, anticipates that the wage index changes will spur political combat, as hospitals and members of Congress from urban states battle over the payment shift to more rural states.

“If you fix the wage index, you create winners and losers,” Goldberg said in an interview. “So, the winners are happy and the losers are going to have a tantrum.”

DSH changes involve new methods of payment calculation

Another financially significant change in the proposed rule could affect CMS’s distribution of a prospectively determined amount of uncompensated-care payments to Medicare disproportionate share hospitals (DSH) based on their relative share of uncompensated care nationally.

The roughly $8.5 billion in uncompensated-care payments planned for FY20 would be an increase of approximately $216 million from FY19.

FY20 proposed changes in DSH payment include:

  • Using a single year of data on uncompensated-care costs from Worksheet S-10 for FY15
  • Considering using a single year of Worksheet S-10 data from FY17 cost reports instead of FY15 data
  • Continuing to use only data regarding low-income insured days for FY13 to determine the amount of uncompensated-care payments for Puerto Rico hospitals and Indian Health Service and tribal hospitals

Using a single year of data for payment calculations would be a big change from the current approach of applying three years of data, said industry observers.

“Going back to one year’s worth of data puts some hospitals at audit risk, potentially,” Mulvany said.

Other changes will affect hospital payments

CMS proposed mimicking a Food and Drug Administration (FDA) drug development incentive program through a new-technology add-on payment pathway for any medical device that receives FDA marketing authorization and is part of an FDA expedited program for medical devices (currently known as the Breakthrough Devices Program).

CMS proposed updating the measure set for the Hospital Inpatient Quality Reporting (IQR) program. The changes would include:

  • Replacing the claims-based, hospital-wide all-cause readmission measure with a hybrid hospital-wide all-cause readmission measure beginning with the FY26 payment determination
  • Adopting two new opioid-related electronic clinical quality measures (eCQMs) for the CY21 reporting period
  • Changing reporting procedures for eCQMs, including allowing hospitals to submit one, self-selected calendar quarter of discharge data for four self-selected eCQMs in the Hospital IQR Program measure set
  • Considering three new eCQMs for the hospital IQR program: Hospital Harm—Severe Hypoglycemia; Hospital Harm—Pressure Injury; and Cesarean Birth.

The proposed rule also would change the hospital Value-Based Purchasing program to use the same data as the Hospital-Acquired Conditions reduction program in calculating the National Health Safety Network Healthcare-Associated Infection measures, beginning with CY20 data collection.

Within the PPS-Exempt Cancer Hospital Quality Reporting program, the proposed rule’s changes include the adoption of a new claims-based outcome measure, Surgical Treatment Complications for Localized Prostate Cancer.

CMS also is proposing an electronic health record (EHR) reporting period of a minimum of any continuous 90-day period in CY21 for new and returning hospitals and critical access hospitals attesting in the Promoting Interoperability Program.

Other changes to that program include removal of the Verify Opioid Treatment Agreement measure beginning in CY20. CMS also sought comment on the possibility of adding the EHR program’s data to the Hospital Compare website.

LTCH policies

Overall, for FY20, CMS expected long-term care hospital (LTCH) PPS payments to increase by about 0.9%, or $37 million, which reflects the continued statutory implementation of the revised LTCH PPS payment system.

LTCH PPS payments for discharges paid using the standard LTCH payment rate are expected to increase by 2.3% for FY20. But payments for cases continuing to transition to the site-neutral rates are expected to decrease by about 4.9%.

The LTCH Quality Reporting Program (QRP) would adopt two new quality measures in compliance with the IMPACT Act. CMS also proposed modifying the previously adopted Discharge to Community measure to exclude nursing home residents who already reside in the facility; moving the implementation date of future versions of the LTCH CARE data set from April to October; adopting data collection and public-display periods for various measures; and ceasing to publish a list of compliant LTCHs on the LTCH QRP website.

The policy changes would impact about 390 LTCHs beginning Oct. 1.

Comments on the proposed IPPS and LTCH rule are due June 24.

Read an HFMA executive summary of the 2020 IPPS Proposed Rule here.


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