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Key takeaways from the FY 2018 IPPS Final Rule [PODCAST]

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In this episode, Scott Besler, Senior Manager in our Reimbursement Integrity team at BESLER, reviews key takeaways from the FY 2018 IPPS Final Rule.
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Resources related to this episode:

  • [DOWNLOAD] Special Report: In-depth Review of the FY 2018 IPPS Final Rule (No Longer Available)

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.

Today, I’m joined by Scott Besler who is a Senior Manager in our Reimbursement Integrity team here at Besler. And Scott is here today to talk to us about some of the changes and key takeaways from the IPPS 2018 final rule.

Scott, welcome back to the podcast.

Scott Besler: Thanks, Mike. Glad to be here!

Mike: So, as I just mentioned CMS did release its fiscal year 2018 final rule for IPPS. Scott, what are some of the key takeaways from that rule?

Scott: Sure, Mike! You know, the final rule didn’t have many, but the few changes that it did have will have enough to grab the providers’ attention for not only fiscal year 2018, but subsequent years.

You’re going to see a payment increase of roughly 1.2% for those in-patient quality reporting program and meaningful EHR users. And if you look at table one in the Public Use Files, you’ll see all the different categories.

Also, quality and documentation are still very much a staple in the menu of healthcare initiatives. So whatever the listeners are hearing out on Capitol Hill, please know that these two will remain prevalent in any conversation with healthcare going forward.

Also, CMS chose to use the S-10 this year for the calculation of a hospital’s uncompensated portion of their DSH payment. There was also the expiration of the Medicare Dependent Hospital Program, long-term care hospitals. And the 25% threshold was a point that was mentioned in the final rule.

And on the wage index front, one key issue for three all-urban states is that the imputed rural floor was extended for one more year, it having been pulled out in the proposed rule.

Mike: Scott, what are some of the items included in the payment increase?

Scott: Well, from the table listed on page 38,532 of the final rule—and that final rule was released August 14th of 2017—if you go to the Federal Register and look up that page, you’re going to see a 2.7% increase.

Now, to get to the 1.2% that I mentioned earlier, you have to take away a 0.6 percentage point require for productivity, then reduce it by additional .6% adjustment which removes the 0.6 positive adjustment from the reversal of the two midnight rule reduction, then add a 0.4588 percentage point adjustment that’s required by the 21st Century Care Act, and then, lastly, remove 0.75 percentage point reduction from the update. That’s required by the Affordable Care Act. And that’s what will bring you to roughly the 1.2% increase.

Mike: You mentioned the S-10 a minute ago. So, this year, S-10 data will be utilized in the calculation of uncompensated care?

Scott: Yes, it’s going to make its first impact into the actual payments for hospitals.

It was discussed in great length in previous years, and then subsequently delayed. But now, the data from the federal fiscal year 2014 cost reports will be used—that in combination with both Medicare and Medicaid low income data. And that will calculate uncompensated care payments.

After last year’s final rule which saw CMS pull the S-10 data from the calculation in the 11th hour, CMS just felt the timing was right to use the data for federal fiscal 2018.

They’re aware that there are still issues. Nothing is perfect. But I think CMS is willing to work with the MACs and the providers.

And providers should also read the final rule for CMS’ explanation as well as their clarification on specific discounts that are given to uninsured patients that meet the guidelines for a hospital’s particular charity care policy.

So, CMS wants to continue to “educate and refine”—that’s their words—“the instruction on the S-10.” And then, hospitals will also be given the opportunity to resubmit certain S-10 data for federal fiscal year 2015 cost report by this September 30th. So September 30th 2017 is a key date if you wanted to change anything on your S-10.

Mike: And you also mentioned earlier LTAC and the 25% threshold. Can you elaborate on that?

Scott: Sure! Under the 25% rule or threshold, LTACs are allowed to admit up to 25% of its patients from a single general acute-care hospital. So for patients admitted past the 25% threshold, an LTAC has usually a significant Medicare reimbursement reduction in their payment.

In the final rule, CMS mentioned that it will continue to evaluate this policy and determine if it’s still needed. Many out there, including the AHA, have long called for the ending of this policy. And CMS is finally listening. I think they’ve always listened, but they’re also prepared to issue a regulatory moratorium on it.

Mike: And as it seems to be with healthcare all around, quality will remain an important component. Can you give us an example that?

Scott: Sure, some of the changes for the Hospital Acquired Conditions or HAC Reduction Program. That’s still going to be in effect.

There are two changes to the existing HAC Reduction Program—specifying the dates of the data period used to calculate a hospital’s performance for the fiscal year 2020 HAC Reduction Program, and then updating the Extraordinary Circumstance Exemption Policy.

In addition to that, CMS is considering to adopt additional measures that they believe will account for social risk factors, inclusion of disability, medical complexity, and the Centers for Disease Control National Healthcare Safety Network Measures.

So, also, for hospital value-based purchasing and readmissions, they’re still included in the calculation of a hospital’s DRG payment. And these items I think are here to stay. I think they’re going to remain for years to come.

Mike: Scott, let’s talk about the imputed rural floor a little bit. First, can you tell us what that is?

Scott: Sure! The rural floor is—and again, I’ll take a step back. The rural floor is a provision that was in the Balanced Budget Act of 1997 that established a rural floor adjustment for hospitals. This adjustment stated that no hospital in a metropolitan area would have a wage index that was lower than the hospital’s rural wage index for their particular state.

So, for instance, if an urban CBSA has a wage index of 0.90, but the rural wage index is 0.92, that urban CBSA and all the hospitals in it are going to be brought up to the 0.92.

If you fast forward to 2005, or federal fiscal year 2005, CMS gave us the imputed rural floor. When I say “gave us,” it’s basically budget neutral. So hospitals in what CMS determine as all urban states—at that time, it was Massachusetts, Rhode Island, and New Jersey—those hospitals did not have any hospitals in rural areas. Two states didn’t have any rural areas—New Jersey and Rhode Island. So they created this all-urban and they created this imputed rural floor policy.

And again, the calculation differs. But one of the calculations for an imputed rural floor state is you take a low to high average of that particular wage index in the state. So you take the highest wage index and the lowest wage index, and you take low divided by high, and you get an average. You then apply that average to the highest wage index in the state.

You can either add up all three all-urban states, and in the aggregate, take an average, or you can take your state-specific low to high average, whichever is greater, and apply that to the highest.

So, for instance, in New Jersey, New Jersey takes a low to high average of, not only New Jersey, but Rhode Island, and now Delaware. Massachusetts has since fell off the imputed rural floor group. And Delaware was added two years ago when CMS changed the delineation.

So, New Jersey takes an aggregate low to high average and applies it to their highest wage in the state, and that’s how they get the imputed rural floor.

Mike: Scott, how many states are impacted by the rural floor?

Scott: Well, that’s a good question. I would say that all states are impacted by the rural floor. So there’s 50 states, plus Washington DC and Puerto Rico. And they all contribute to the rural floor because, as I’ve mentioned, budget neutrality, there is a national budget neutrality factor that’s applied.

So, 28 states—and then you could also include Puerto Rico, so 29 states really, I’ll say—have urban CBSA’s that are brought up to the rural floor. Nine of these states though have a positive net impact, meaning that they received more dollars for their rural floor than they pay out to other states that also have a rural floor impact.

And for reference, I suggest readers and listeners, go to the Federal Register, specifically on pages 38557 and 38558. This is a table that CMS produces in every proposed rule and every final rule. And it shows roughly 3300 hospitals—3292 to be exact—also including Washington D.C. and Puerto Rico and list their rural or imputed rural floor net impacts.

Four hundred hospitals receive a wage index as a result of the rural and imputed rural floors in their particular state. And then, in the far right of the column, you’ll see the overall net impact.

So, many hospitals that have a rural floor have a positive impact. But there are several that have a negative impact. And just as I said, it’s because that they pay out to the other states.

What that can open the door for is, years ago, there was talk of making the wage index state-wide budget neutral. So California, which has a rather large net impact, a positive net impact, would have to pay for their rural floor just amongst their hospitals.

And that was the issue with Massachusetts years ago. It’s really lessened the burden if it’s stretched among all 3292 hospitals. So that’s really the calculation.

Mike: Scott, is the Medicare Dependent Hospital Program expired?

Scott:  Yes, it has. And it expired at the end—it’s going to expire actually at the end of federal fiscal 2017. So September 30th, that will be the last time that there will be a classification of MDH, as we’ll call them.

Now, CMS is also allowing MDH’s to apply for SCH or sole community hospital status in advance of the expiration of this program.

Now, one thing you need to know is there are groups working behind the scenes to keep this classification regulation out there on the books. I don’t know how successful it will be, but I know that there are people working right now because not every MDH can become a sole community.

So, CMS did mention in their final rule because there were many comments and concerns about the expiration of this program. However, CMS, as they said, they do not have the authority under the current law to continue with the MDH program beyond September 30th, which is the statutory expiration date.

However, they have received similar comments previously. And previously, the statutory regulations have been extended. So it’s similar to the rural floor, this provision can be extended.

So, back in federal fiscal year 2013 and 2014, there was subsequent legislation. And this has been discussed for the past several years. So I don’t want to give up hope completely, but there is thought that it will not last. But I think we’ll know more after October 1st.

Mike: Scott, thanks for the highlights there of the IPPS 2018 final rule. As we do every year, Besler has created a special report which goes into some more depth on these points and some other areas around the final rule that you might like to know about. And you can get that report at

Scott, thanks again for your insights. We really appreciate you coming back on to the show.

Scott: Thanks, Mike!

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