Proposed IPPS Payment Rate Increase Can Help Rural Hospitals

Long hospital bright corridor with rooms and blue seats 3D rendering
CMS has addressed wage related payments in a way that will benefit rural hospitals.

On August 2, 2019, the Centers for Medicare & Medicaid Services (CMS) issued a final rule change for the IPPS (Inpatient Prospective Payment System) that reflects the agency’s efforts to “transform the healthcare delivery system through competition and innovation to provide patients with better value and results.” The changes, which will affect approximately 3,300 acute care hospitals and approximately 390 Long-Term Care Hospitals (LTCHs), apply to discharges occurring on or after October 1, 2019. The total increase for 2020 is available as payments to rural and DSH hospitals and could be in the billions.

The final rule will update Medicare payment policies for hospitals under the IPPS and the LTCH Prospective Payment System (PPS) for fiscal year (FY) 2020.

The official press release from CMS goes on to explain that:

“The policies in the final rule represent historic changes to the way many low wage index hospitals, which tend to be rural, are paid, and support the agency’s priority of “Rethinking Rural Health.” By improving the accuracy of the Medicare payments to these low wage hospitals, they will be able to increase what they pay their workers, and this will help ensure that patients, including those living in rural areas, continue to have access to high-quality, affordable healthcare.”

In an earlier press release explaining the proposed IPPS payment rate increase, CMS provided some impact estimates, stating that the “rate increase for FY 2020 would be the largest in a decade. CMS projects that total Medicare spending on inpatient hospital services, including the capital, will increase by about $4.7 billion in FY 2020, leading to an average increase in overall payments by 3.2 percent.”

This follows a report by the Office of Inspector General (OIG) for HHS (Health and Human Services) which conducted 41 reviews of hospital wage data from 2004 to 2017 and found “significant vulnerabilities” in the hospital wage index system, according to reporting by Revcycle Intelligence, late last year. The OIG wrote that, “wage indexes may not always accurately reflect local labor prices; therefore, Medicare payments to hospitals and other providers may not be appropriately adjusted to reflect local labor prices.” But this article also pointed out a number of examples where the OIG found hospitals had been overpaid due to inaccurate reporting of local wages. “In just the five most recent reviews, the watchdog estimated that CMS paid a total of $140.5 million in overpayments to more than 270 hospitals because of inaccurate wage data.”

But not all of the news will be good for every hospital, depending on how they manage their system. In the same long August 2019 press release cited above, certain penalties are also laid out:

  • Penalties for excess readmissions, which reflect an adjustment to a hospital’s performance relative to other hospitals with a similar proportion of patients who are dually eligible for Medicare and full-benefit Medicaid
  • Penalty (1 percent) for worst-performing quartile under the Hospital Acquired Condition Reduction Program
  • Upward and downward adjustments under the Hospital Value-Based Purchasing Program

This is a comprehensive rule update that addresses several business aspects for hospitals and health systems. JD Supra tells us more about IPPS and the potential resident changes: “First, CMS proposes a change relating to how full-time equivalent (FTE) resident time may be counted when residents train at critical access hospitals (CAHs). Under current Medicare policy, a CAH is not considered a “non-provider setting,” which prohibits IPPS hospitals from claiming on their cost reports any time residents spend at CAHs, even if the IPPS hospitals incur the stipend and benefit costs for residents during their training at the CAH. Instead, the only GME-related payments CMS currently makes for the time residents spend training at CAHs is 101% of the direct costs the CAH itself incurs in training residents.”

The good news is that CMS heard concerns that the agency’s current policy “is creating barriers to training residents in rural areas, thereby also hindering efforts to increase the practice of physicians in rural areas.”

It’s important to note that IPPS payment rate increase changes will also impact DSH payments. The Holland & Knight LLP law firm in their JD Supra article explains that “In addition to proposing updates to methodologies for the calculation of Disproportionate Share Hospital (DSH) payments in 2019, CMS estimates that eligible DSHs will receive an overall increase of approximately $8.49 billion in 2020, which reflects an average increase of 2.61 percent. DSH payments in 2019 were approximately $8.27 billion. These changes are because of methodological changes in Factors 1 and 2, which are used to calculate payment rates.”

Revint is one of the few revenue recovery companies bringing wage index solutions to our Medicare Reimbursement solutions. We will continue to keep an eye on developments as the IPPS payment rate increase and related policies move forward.