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Good News from the Supreme Court

Here’s what happened: A major victory was won today for Providers who have appealed the inclusion of Medicare Part C days in the SSI ratio/exclusion of dual-eligible Medicare Part C days in the Medicaid ratio for years ending 2004-2012.

The Supreme Court of the United States has affirmed Allina Health Services, et al. v. Price, 863 F.3d 937 (CADC 2017), wherein the United States Court of Appeals supported Providers and held that HHS violated the Medicare Act when it changed its reimbursement formula without providing notice and opportunity for comment

HHS arbitrarily began including Part C days in the Medicare fraction through its 2004 Final Rule, and Toyon has been helping Providers in appealing the agency’s actions. The Providers’ position has consistently been that only Medicare Part A days should be included in the SSI ratio and that dual-eligible Part C days instead belong in the numerator of the Medicaid ratio calculation. Providers argued CMS’ actions were tantamount to retroactive rulemaking, which the D.C. Circuit agreed was impermissible in Northeast Hospital Corp. v. Sebelius, 657 F.3d 1 (CADC 2011). Providers also disputed the fact that HHS violated statutory notice-and-comment obligations in establishing its practice of including Medicare Part C days in the SSI ratio, a position both the DC Circuit Court and U.S. Court of Appeals upheld through the prior Allina decisions. 

What it means to you
Today the Supreme Court settled the issue once and for all by agreeing with Providers and holding that HHS did indeed violate its rulemaking obligations in including Part C days in the SSI ratio. This decision should effectively invalidate the agency’s actions andProviders should expect to be offered settlement amounts from CMS for any negative reimbursement impacts caused by its inclusion of Part C days.

What Now?
No details are yet available on how or when the amounts will be calculated nordispensed to affected Providers, but Toyon Associates, Inc. will be contacting affected hospitals in the coming weeks as more details become available.

Please contact Karen Kim at (925) 685-9312 or if you have any questions or concerns. 

The following is the link to the ruling.

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Wage Index Changes

Based on the CMS proposed changes for FFY2020, the occupational-mix adjusted national average hourly wage is estimated to be $43.99.  

CMS remains concerned that the current wage index system exacerbates disparities between high and low wage index hospitals. In addition, CMS also wants to address concerns that the rural floor calculation has been manipulated by a limited number of states to achieve higher wage index factors at the expense of hospitals in other states. As a result, CMS has proposed several significant changes to the wage index calculation.  

CMS has proposed to reduce disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8482) and decreasing the values for high wage index hospitals above the 75th percentile (or a WIF of 1.0351). The proposed increase for the low wage index hospitals would be equal to half the difference between the original final wage index value for the hospital and the final 25th percentile value (e.g., 0.7573 = 0.6663 + (0.8482 – 0.6663)/2). The proposed decrease for the high wage index hospitals would be equal to the full difference between the original final wage index value for the hospital and the final 75th percentile value, multiplied by the estimated budget neutrality factor for these adjustments, which CMS currently projects to be 4.3% (e.g., 1.8263 = (1.8619 – 1.0351) x 0.043). CMS would like this policy to be effective for a period of at least 4 years in an effort to allow employee compensation increases sufficient time to be reflected in the wage index calculation.  

Note: The budget neutrality factor noted in the body of the rule mentions 3.4%. However, this appears to be a typo by CMS, as Table 2 (Proposed CMI and Wage Index by CCN) is calculated using 4.3%.  

CMS has also proposed to change the rural floor calculation, including the removal of urban-to-rural reclassifications. Beginning in FFY2020, state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.  

In order to mitigate the negative impacts to hospitals with significant decreases, CMS plans to place a cap of 5% on the decrease of any hospital’s wage index from FFY2019 to FFY2020, allowing the effect of these policy changes to be phased in over 2 years. However, no such cap to limit the decrease in a hospital’s wage index would be applied during the second year.  

CMS Proposed Wage Index Alternatives
As instructed under Executive Orders 12866 (10/4/1993) and 13563 (1/21/2011), CMS is directed to assess all costs and benefits of available alternatives for significant regulatory actions that are likely to have an economic effect of $100M or more or that raise novel legal or policy issues that arise out of legal mandates or the President’s priorities, among other criteria. Consequently, CMS has proposed three alternative methods for adjusting the wage index. These alternatives are not described in the body of the Proposed Rule, but are mentioned in Section I.O.1. of the Appendix A and are calculated in the 13th data file posted to the Proposed Rule homepage on the CMS website.

The three alternatives to the Proposed Rule as posed by CMS are the following:

1.  Applying a budget neutrality factor to the standardized amount, rather than focusing the adjustment on the wage index of high wage index hospitals (See III.N.3.d):
* Same as the Proposed Rule, but this alternative removes the reduction to the high wage index hospitals above the 75th percentile, as well as the 5% cap on any negative impacts.
* Budget neutrality factor would be higher, and therefore, the standard Federal rate would decrease for all hospitals, as this alternative would not be funded by reducing the wage index factor for the high wage index hospitals.

2.  Mirroring the proposed approach of raising the wage index for low wage index hospitals in reducing the wage index values for high wage index hospitals:
* The proposed increase for the low wage index hospitals would be equal to half the difference between the otherwise applicable final wage index for these hospitals and the 25th percentile wage index value [e.g., (0.8482 – Hosp WIF)/2].

* The proposed decrease for the high wage index hospitals would be equal to half the difference between the otherwise applicable final wage index value for these hospitals and the 75th percentile wage index value [e.g., (Hosp WIF – 1.0351)/2].

* The 5% cap on negative impacts to the high wage index hospitals would be removed.A budget neutral adjustment factor would be made to the standardized amount.

3.  Creating a single national rural wage index and elimination of the individual state rural floors.

Click here for a comparison of current and prior WIFs for each hospital, as well as the estimated WIFs for each of the alternative CMS proposals.

Toyon’s Take:
In recent years, CMS has hinted at addressing what it describes as “wage index disparities;” however, no specific changes were proposed until this year. The proposed changes are noteworthy and will be heavily commented on by hospital associations and the provider community in the Final Rule. Should the proposed changes be made final, it will have significant reimbursement benefit to states that fall below the 25th percentile in terms of its wage index value and conversely, significant reimbursement reduction to states that have wage index values above the 75th percentile, notably California, New York and New Jersey. Toyon has developed a model analyzing the proposed changes to the wage index using FFY2020 proposed data sources. We are happy to share our analysis specific to your hospital.  

Other Proposed Changes Impacting Wage Index 
The overhead rate calculation would now be equal to the following:

* (Lines 26 through 43 – Lines 28, 33, 35) / ((((Line 1 + Lines 28, 33, 35) – (Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43)) – (Lines 9 and 10)) + (Lines 26 through 43 – Lines 28, 33, 35)).

* The change made by CMS was to eliminate the removal of the sum of overhead contract labor (Lines 28, 33, 35) from the Revised Total Hours calculation in the denominator

*  So (Lines 9, 10, 28, 33, and 35) will now simply be (Lines 9 and 10).

The rounding of values for the wage index calculation would be changed as follows:

* “Raw data” from any individual line item or field would not be rounded.

* Summed or averaged wage amounts would be rounded to 2 decimals.

* Hours would be rounded to the nearest whole number.

* Ratios, percentages, or inflation factors would be rounded to 5 decimals.

* Actual unadjusted and adjusted wage indexes would continue to be rounded to 4 decimals.

A new methodology for calculating the wage index for urban areas without wage data would be calculated by dividing the total urban salaries plus wage-related costs in the state by the total urban hours in the state, all of which would then be divided by the national average hourly wage.

Applications to the MGCRB for FFY2021 reclassifications, as well as cancellations and terminations, are due by 9/3/2019.   All applications and supporting documents must be submitted via the Office of Hearings Case and Document Management System (OH CDMS). Because this new system is available, CMS is eliminating the requirement to copy CMS on these MGCRB filings. More information can be found at

Likewise, applications to CMS for rural redesignations may also now be submitted electronically, by fax, or by other electronic means, as well as by mail.

Rural redesignation cancellation requirements specific to RRCs require that the hospital be paid as a rural hospital for at least one 12-month cost reporting period before the status can be cancelled. CMS believes that these requirements are no longer relevant, now that hospitals may have simultaneous MGCRB and Section 412.103 reclassifications. As a result, CMS is revising these provisions to make any cancellations effective for all hospitals at the beginning of the next Federal fiscal year following the cancellation request, if requested within 45 days of the date of public display of the Proposed Rule prior to the applicable Federal fiscal year end. 

For additional information, please contact Ryan Sader at
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IPPS Proposed Rule – FFY2020

CMS-1716-P drafted on 4/23/2019; Published in the Federal Register on 5/3/2019. On April 23, 2019, the Centers for Medicare & Medicaid Services (CMS) proposed a rule that focuses the agency’s efforts on a singular objective:  transforming the healthcare delivery system through competition and innovation to provide patients with better value and results.  The proposed rule updates Medicare payment policies and rates for hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS), effective for discharges on or after October 1, 2019. The policies in the IPPS and LTCH PPS proposed rule would represent historic changes to the way rural hospitals are paid and help ensure access to a world-class healthcare system with access to potentially life-saving diagnostics and therapies by unleashing innovation in medical technology and removing barriers to competition. Overall, the proposed rule is projected to result in an estimated increase of $4.7B (or 3.7%) in payments to providers, ranging from 1.7% increases for urban hospitals in the New England Region up to 4.9% increases for smaller, rural hospitals. Comments must be sent to CMS no later than 5pm EDT on June 24, 2019 at the applicable address provided in each section of the Proposed Rule or submitted electronically at  When commenting, please refer to file code CMS-1716-P.
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