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Key takeaways from the 2017 IPPS Final Rule [PODCAST]

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In this episode, Scott Besler, Senior Manager in our Reimbursement Services team at BESLER Consulting, reviews several important takeaways from the 2017 IPPS Final Rule that will affect hospitals in the coming year.
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Mike Passanante:  Hi, this is Mike Passanante. Welcome back to Hospital Finance Podcast. Glad you could be with us.

CMS recently released its fiscal year 2017 IPPS Final Rule. And I am joined today by Scott Besler who is a Senior Manager on our Reimbursement Services team to help break that rule down and provide us some of the key takeaways that hospitals need to know. Welcome, Scott.

Scott Besler: Hi Mike, how are you?

Mike: So Scott, just to kick things off, could you just give us a top line summary of few of the things that stuck out to you in the new rule?

Scott: Sure! In previous years, there may have been more game changers for reimbursement folks. However, for 2017, there are still a few items listed in the final rule that should have the provider’s attention.

One, the payment rates increased 0.95% for those hospitals that are submitting the quality reporting requirements and that are meaningful EHR users. There are also changes to the quality initiatives. There’s a reversal of the 0.2% payment reduction that was related to the two-midnight rule. And also CMS’ potential use of the S10 for calculation of the uncompensated care portion of the hospital’s DSH payment has been further delayed once again.

Mike: Okay, let’s break these down as we go along, Scott because you delivered quite a bit of information there. First off, you mentioned the payment increase. Could you elaborate on some of the items included in that payment increase?

Scott:  Certainly. CMS included a 1.5% reduction for the documentation and coding which is required by the American Tax Payer Relief act of 2012. There was also an increase of 0.8%. And this increased removed the adjustment to offset the previous reductions to CMS’ two-midnight policy that CMS made in fiscal years ‘14, ‘15 and ‘16.

Mike: I think, next, you mentioned several quality initiatives that were part of the rule. Can you talk about those in some details for us?

Scott: Sure! In the final rule, five changes were finalized by CMS to the Hospital Acquired Condition Program. There are also were updates to the IQR program which is the quality program. And then changes to the Hospital Readmission Reduction Program. And then, of course updates to the Hospital Value-Based Purchasing Program.

CMS through the final rule and proposed rule actually listen to commenters. They reduced the requirements for reporting electronic clinical quality measures, also called ECQMs, as part of the IQR program.

Originally, CMS had proposed to hospitals to submit data on all 15 ECQMs. However, they revised their policy by requiring hospitals to report still four quarters of data on an annual basis, but for only 8 of the available ECQMs.

Mike: Scott, the two-midnight rule has been something that has been talked about for some time in the industry with a degree of uncertainty. CMS dealt with it specifically in the final rule. Can you tell us what they talked about in the rule?

Scott: Sure, I might even step back a little and give you a little history.

The two-midnight rule which was introduced in the fiscal year 2014 impacted payments for the past three fiscal years—so ‘14, ‘15 and ‘16. And based upon the cause of observation stays, that was the focus of the two-midnight rule reduction.

It was an effort to adjust these payments to providers who admit patients to the hospital for observation for fewer than two consecutive midnights. These hospitals that admitted patients who, for less than two consecutive midnights, would not be reimbursed for their in-patient stay by Medicare.

So, CMS proposed offsetting the cost of these patients through a 0.2% reduction in in-patient payments. And this payment reduction, when it was made, was strongly opposed by hospitals, created many lawsuits, and even had the American Hospital Association challenging these payment cuts for the past three years.

So, beginning for fiscal year 2017, on October 1, there are two adjustments that CMS created that will actually reverse the effects of the 0.2% cut instituted with the two-midnight rule for the past three years. So CMS made a permanent adjustment of approximately 0.2% to remove the cut for fiscal years 2017 and going forward. And then, there was a temporary adjustment of 0.6% that will address the retroactive impacts that this cut had in the previous three years, ‘14, ‘15 and ‘16.

Mike: Thanks for shedding some light on that, Scott. I think another point that you made had to do with the S10. I’m wondering, will the S10 not be used in the calculations this year?

Scott: That’s a good question. In the calculation of factor three, the uncompensated care, the answer is no. But the S10 worksheet will still be used for EHR payments or Electronic Health Record payments.

CMS actually kicked the can down the street, but they did leave open that there is potential for the S10 to be used in future years. Unfortunately, for some hospitals, but fortunately for others and many others, it’s not going to be 2017.

Mike: Got it! What if any changes are there for DSH and uncompensated care?

Scott: Currently—and also, as I’ve said, in the future—CMS is going to utilize Medicaid and supplemental security income or SSIDs to determine each DSH-eligible hospital’s uncompensated care payment. And CMS has never hidden its intention to keep exploring to see if there are other reliable data that exists that they can use as a proxy for future uncompensated care payments.

And if you go back to the 2017 proposed rule that came out in April, CMS had endorsed a glide path that would allow cost associated with charity care and non-Medicare bad debt be used as the basis for uncompensated care payments. And that was to begin in federal fiscal year 2018.

When you look at the data that’s out there, this likely would have resulted in huge swings in reimbursement for hospitals across the nation.

Mike: Scott, a minute ago you mentioned changes related to Factor 3. Can you elaborate on that for us?

Scott: Sure! In order to pay for the expanding coverage of the Affordable Care Act, a mandate that CMS reduced DSH payments. So, beginning in federal fiscal year 2014, CMS adjusted Medicare DSH payments, so that 75% of the total funding would be applied to eligible DSH hospitals for patients that are newly insured through the Affordable Care Act.

And there are actually three factors that are involved in this calculation. And CMS labels them Factor 1, Factor 2, and Factor 3.

Factor 1 is the remaining 75% of the unadjusted DSH uncompensated care pool.  Factor 2 is the adjusted uncompensated care pool as it adjusts through the amount of percentage of the truly uninsured.

So, how that works is you have Factor 1 which is the 75% unadjusted. Then you take Factor 2, and you have to adjust Factor 2 down to the truly uninsured which CMS lists in the final rule lists as 55.37%. So, you take 55.37% and that’s your Factor 2.

However, since 2014, hospitals’ Medicare DSH payments had been split into two parts. The empirically justified Medicare DSH remains at 25%. And we’re going to call that “DSH Classic.” And then the uncompensated care pool remains at 75%.

And again, the empirically justified DSH is simply 25% of the DSH payment of a qualifying DSH hospital that they would have had received prior to the Affordable Care Act.

The uncompensated care payment is the result of those three separate factors that we did call Factors 1, 2 and 3.

So, from fiscal year 2014 to fiscal year 2016, Factor 3 represented each qualifying DSH hospital’s, Medicaid and SSIDs, that CMS refers to together as low income days from a cost report.

Factor 3 represents each DSH hospitals’ low income days as a percentage of all DSH hospitals’ low income days.

In 2017, in an effort to address the data anomalies, CMS used a three-year average of low income days to determine Factor 3. The largest change would have begun in federal fiscal year 2018. And this is where in the proposed rule, CMS proposed to phase in charity care and non-Medicare cost from the S10 as part of a three year rolling average.

Many in the provider community, not just hospitals but, the American Hospital Association and other groups, agree that it was too soon for this change. CMS listened to the comments and now they aim to make modifications to the cost report instructions for worksheet S10.

They will implement a review protocol for all Medicare Administrative Contractors. So the MACs are going to be involved in this. And they may even listen to the provider community although CMS did not mention that in the rule.

They’re going to review the S10 as it is now and make necessary adjustments or changes to see how they can incorporate the S10 in the calculation of the uncompensated care payment and how this data will be used.

CMS did target federal fiscal year 2021 as the year when the data will be used. Again, another election year, a lot can happen between now and then. It’s stuff to ponder.

Mike: Is there anything hospitals can do or should do while they wait?

Scott: I would think the answer is yes. We’ve analyzed the data and we determined that there remains too much missing information. And there are apparent reporting errors across the country for the S10 to be a reliable resource in determining uncompensated care payments as they are right now.

And I believe, as for now, CMS came to that same conclusion. I have to say I appreciate CMS’ effort in attempting to use the S10, but also the willingness to pull back and not use it because they deemed it not reliable at this time for a basis for uncompensated care payments.

However, going forward, CMS, I believe must be clear in their instructions to the MACs in establishing a consistent review. There are billions of uncompensated care dollars that are distributed to hospitals. They need to be distributed in a dependable manner. There are many DSH hospitals that desperately rely on this funding. And this funding allows them to provide access to care and also create jobs for their communities.

In the meantime, hospitals should remain diligent in their review of the components involved in current and future calculations of their uncompensated care payment. And this will include to ensure that their low income days from their 2012 cost report and forward are as accurate as possible. And if they need to file amended cost reports, they should do so.

I would also contact their MACs to let them know why they’re submitting these amended cost reports.

As recently as July 15th 2016, CMS released transmittal 1681 which attempted to solidify the time frame for updating 2014 cost report information that CMS had proposed to use for the uncompensated care payments.

The transmittal also stated that hospitals should revise their S10 by September 30th of 2016. Now, one thing to note though, that transmittal came out before the final rule. So, when that transmittal came out, the proposed rule was still technically in effect and hospitals may have believed that that data was going to be used, so they needed to comply with that September 30th deadline.

We have not heard anything from CMS to say that deadline was not accurate, but that’s why I have to say to the hospitals to contact your MAC, ask them what to do. You should also know if your S10 data needs to be amended, I would definitely take a look at that.

Mike: Great stuff, Scott. Thanks for stopping by to help us understand more about the 2017 IPPS Final Rule.

Scott: Thank you, Mike.

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