IPPS Final Rule – FFY 2019

CMS-1694-F drafted on 8/2/2018; Published in the Federal Register on 8/17/2018

On August 2, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a final rule to help empower patients through better access to hospital price information, improve the use of electronic health records, and make it easier for providers to spend time with their patients. The final rule updates Medicare payment policies and rates 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, 2018.

The policies in the IPPS/LTCH PPS final rule further advance the agency’s priority of creating a patient-centered healthcare system by achieving greater price transparency, interoperability, and significant burden reduction so that hospitals can operate with better flexibility and patients have what they need to be active healthcare consumers.

These changes result in the elimination of 39 total measures across 5 programs with well over 2 million burden-hours reduced for hospital providers impacted by the IPPS rule, saving them $75 million.

Overall, the final rule is projected to result in an estimated increase of $4.8B (or 4.0%) in payments to providers, ranging from 0.7% increases for rural, sole community hospitals up to 4.7% increases for larger urban hospitals in the New England region.

Medicare IPPS Base Rates

CMS is increasing the base rate for hospitals by 1.4%, mostly driven by a market basket increase of 2.9%.

Click here for the full base rate calculation table and comparison to prior year

MS-DRG v 36 Changes

As expected, CMS is recalibrating the MS-DRG weights for FFY2019. One noteworthy change is the inclusion of maternity-related DRGs in MDC 14, as discussed by CMS in the FFY2018 Proposed and Final Rules. Below is a listing of the largest changes in weighting between v35 and v36 of the MS-DRGs:

Click here for a table of the MS-DRG v35 to v36 comparison.

Post-Acute Care Transfer Policy Changes

Effective for discharges on or after 10/1/2018, patients discharged to hospice are to be included as transfer cases, as required by the Bipartisan Budget Act of 2018, saving the program an estimated $240M in FFY2019. The discharge status codes 50 or 51 will now be subject to the transfer policy.

Changes to Wage Index

CMS has calculated an occupational-mix adjusted national average hourly wage of $42.955567020. Of note, 263 hospitals will receive the rural floor.  Twenty-nine Massachusetts hospitals will receive an additional $121M (3.3%) due to the application of the rural floor.  In addition, Arizona hospitals will also experience a significant benefit of $58M from the application of the rural floor.

Click here for a comparison of current and prior WIFs in Table 3.

Three notable changes to wage index for FFY2019:

>1) Removal of “other” wage-related costs beginning with FFY2020

“Other” wage-related costs are traditionally reported on W/S S-3, Pt. IV line 25 and W/S S-3, Pt. II line 18 to recognize unusually large wage-related costs that are not reflected on the “core” list but may represent a significant wage-related cost. Such costs are subject to a specified 1-percent test to be considered allowable; this calculation was clarified in the Final Rule. Despite the clarification of the calculation of the 1-percent test, CMS is moving forward with excluding “other” wage-related costs from the wage index calculation starting with FFY 2020.

This is a result of the negligible impact these costs have on the overall wage index considering that only 8 hospitals out of 3,000+ IPPS hospitals in the wage index reported “other” wage related costs correctly. Many commenters were concerned about physician malpractice costs being excluded, as such costs are not specifically reported on W/S S-3, Pt. II line 18, though the costs are subject to the 1-percent test as an “other” wage-related cost. CMS clarified that the exclusion does include physician malpractice costs as well and provided statistics to denote the negligible impact that this would have on the overall wage index.

Toyon’s Take:  In an effort to begin to simplify wage index reporting, we agree with CMS’ decision to move forward with the exclusion of “other” wage related costs from the wage index calculation.

>2) Changing the “Lock-in” date for rural-designated hospitals

Based on current regulations, for a hospital’s wage data to be recognized in the rural wage index for the upcoming FFY, a hospital’s rural filing date (“lock-in” date) must be no later than 70 days prior to the second Monday in June of the current FFY, and the application must be approved by CMS in accordance with the regulations specified at 42 CFR 412.103.  In the current year, this “lock-in” date was April 2, 2018.

CMS confirmed that it will change the regulation at 42 CFR 412.103(b)(6) to reference the “lock-in” date as no later than 60 days after the public display date. This means that a provider’s urban to rural request must be approved by the CMS Regional Office no later than 60 days after the public display of the IPPS notice of proposed rulemaking in the Federal Register. CMS believes that allowing for such additional time (at least one month from current regulations) in the rate-setting process will eliminate errors and assist in ensuring a more accurate wage index, and also aligns the “lock-in” date with the 60 day-window for accepting public comments to the proposed rulemaking.

>3) Request for public comments on wage index disparities

CMS recognizes that there are disparities in wage reporting and regulations and sees an overall need for improving the wage index system.  While CMS did not publically address any comments in the Final Rule, CMS acknowledged that it looks forward to continuing to work on wage index disparities and that it has begun the process of “making wage index more equitable” with a policy allowing for the expiration of the imputed rural floor in all-urban states, notably New Jersey, Rhode Island and Delaware.

For additional information, please contact Ryan Sader at ryan.sader@toyonassociates.com.

UCC DSH Payments

CMS is increasing Medicare DSH UC payments by $1.5B, to $8.3B in FFY 2019.

CMS finalized its proposal to increase Medicare DSH UC payments by $1.5B, to $8.3B in FFY 2019. This increase is driven by the annual change in the estimated uninsured population, from 58.01% in FFY 2018 to 67.51% in FFY 2019. As anticipated, CMS is using uncompensated care cost from federal year 2014 and 2015 cost reports, as well as one final year of Medicaid and SSI proxy data, in the determination of each hospital’s allocation (i.e., “Factor 3”) of the $8.3B UC funding.

Hospitals Can Validate Their Data (Until August 31, 2018)

To arrive at estimated hospital UC payments in FFY 2019, CMS used uncompensated care cost, per publicly available cost report data, as of June 30, 2018. Hospitals have until August 31 to notify CMS at Section3133DSH@cms.hhs.gov with issues affecting the accuracy of their uncompensated care data. Hospital DSH UC data corresponding to the FFY 2019 Final Rule is here on the CMS website.

Toyon’s Take: Toyon will be using our S-10 HCRIS database to assist our clients with confirming their data. Sole community hospitals (SCH) should take note that CMS published uncompensated care amounts in the DSH Supplemental File for SCHs that may not receive DSH payments.

CMS continues to acknowledge that S-10 data “are not perfect”, and expects audits to begin in the fall of 2018. CMS does not disclose cost report years subject to audit, however Toyon expects these audits will relate to FY 2016 cost reports, as these are likely the next set of cost reports to be used for hospital UC DSH funding. CMS is also considering shifting to only one year of data (2016 cost reports) as the basis of hospital UC DSH payments for FFY 2020. Therefore, the accuracy of uncompensated care reporting on the FY 2016 cost report is critical for all DSH hospitals. Currently, CMS does not discuss a time-line for amending FY 2016 UC cost on the cost report, stating:

“To the extent these commenters were requesting a further opportunity to revise their Worksheet S-10 data for use in future rulemaking for FY 2020 or later years, we are not addressing the issue of future resubmissions in this final rule. Therefore, the normal timelines and procedures apply for a hospital to request to amend a cost report.”

Toyon anticipates a deadline for submitting UC revisions to the FY 2016 cost reports is forthcoming. We will send out a prompt update once this deadline is made publicly available. In the meantime, it continues to be extremely important to validate your hospital is compliantly reporting UC cost on the cost report.

Click here for the DSH Supplemental PUF data.

Click here for the Analysis of UCC DSH Factor 1.

For additional information, please contact Fred Fisher at fred.fisher@toyonassociates.com.

Graduate Medical Education Changes

CMS finalized its rule to allow “new” urban teaching hospitals (i.e., hospitals that established permanent FTE caps after 1996) to participate in Medicare affiliated group agreements (AGA) under certain limited circumstances, but with some modifications to the proposed rule. In the past, new teaching hospitals could only participate in an AGA if it resulted in an increase to the cap of the new teaching hospital. CMS confirmed that new urban teaching hospitals can continue to participate in an AGA wherein the new teaching hospitals receive increases to their FTE caps.

However, effective for new AGA’s beginning 7/1/2019 and after, this new rule would also allow two or more new urban teaching hospitals to participate in an AGA, including a reduction to one or more of the hospital’s caps. In addition, a new urban teaching hospital may participate in an AGA with an existing teaching hospital (i.e., a hospital with 1996 FTE caps) and receive a decrease to its FTE caps, as long as the new urban teaching hospital’s caps have been in effect for 5 or more years. To be specific, a new urban teaching hospital can lend FTE cap slots to an existing teaching hospital under an AGA effective with the July 1 date that is at least 5 years after the start of the hospital’s cost reporting period that coincides with or follows the start of the sixth program year of the first new program for which the hospital’s FTE cap was adjusted.

In addition, CMS announced an additional round of Section 5506 FTE cap redistributions (Round 13):

Applications for these additional FTE slots are due to CMS by October 31, 2018.

For additional information, please contact Tom Hubner at tom.hubner@toyonassociates.com.


Low Volume Hospitals 

As required by the Bipartisan Budget Act of 2018, CMS is implementing changes to the payment adjustments for low volume hospitals. Effective for FFY2019 through FFY2022, a hospital must be more than 15 road miles (i.e., by use of a web-based mapping tool) from another subsection (d) hospital and have less than 3,800 total discharges. It’s worthy of noting that the requirements have changed from a measure of Medicare discharges to a measure of Total discharges. The payment adjustment is an additional 25% for hospitals with less than 500 discharges, and a sliding scale is then applied for hospitals over that level down to 0% for 3,800+ total discharges.

LVA Adj = 0.25 – ((0.25/3300) x (Number of Total Discharges – 500))

Applications to receive the low volume adjustment must be received by September 1, 2018.

Toyon’s Take: Using the new 3,800-discharge criteria, an additional 38 hospitals may qualify for this Low Volume adjustment, if they meet the mileage criteria. Hospitals should review the data and mileage for this potential opportunity.

Click here  for a table of hospitals that may be eligible for the Low Volume adjustment.

For additional information, please contact Ron Knapp at ron.knapp@toyonassociates.com.


Changes to Quality Reporting 

Many measures between the various quality reporting systems have been determined by CMS to be duplicative, excessively burdensome, or “topped out,” meaning that most providers consistently perform well in a measure. As a result, CMS is making the following changes to these programs.

Hospital Inpatient Quality Reporting (IQR)

CMS is stratifying measure rates by dual-eligible Medicare/Medicaid patients. CMS is removing 19 measures and de-duplicating another 20 measures, for a reduction of 39 measures to be reported under the IQR program. CMS will also be adopting 1 claims-based readmission measure.

Click here  for a table of the 39 IQR measures to be removed.

Hospital Value Based Purchasing (HVBP)

CMS has decided to remove only 3 measures from the FFY2019 program year and another one beginning with the FFY2021 program year. Because 6 of the measures previously proposed by CMS to be removed from future program years will now remain, CMS is not planning to change the weighting of the domains for the time being. However, CMS is moving forward with changing the name of the Clinical Process domain to Clinical Outcomes.

HVPB Outcomes 75









Click here for a table of the 4 HVBP measures to be removed.

Hospital Readmission Reduction (HRR)

The only notable change made by CMS was to clarify the definitions of “dual-eligible” and “applicable period.” No new measures have been proposed.

Hospital Acquired Conditions (HAC)

CMS will start measuring hospital performance against peers with similar proportions of dual-eligible patients. In addition, CMS is adopting a new scoring methodology that updates measure weighting to address concerns raised about disproportionate weighting at the measure level for the subset of hospitals with relatively few NHSN HAI measures.

Click here for a table of the 6 HAC Reduction measures for FFY2019.


EHR Incentive Program Changes  

CMS is renaming the “EHR Incentive Program” to “Promoting Interoperability Program” to align with their plan to overhaul the incentive program by moving away from meaningful use measures to more of a focus on the patients and healthcare data exchange through interoperability.

CMS is seeking feedback on positive solutions to better achieve interoperability or sharing of data between providers with patients:

  • Reducing overall number of required measures from 16 to 6
  • New performance-based scoring methodology

Click here  for a table of the new scoring methodology.


Eligible hospitals would need to earn a score of 50 points or more out of a possible 100.

Additional Cost Reporting Requirements  

CMS is updating existing requirements related to supporting documentation that must be submitted with cost reports. Some of the changes are simply verbiage changes in the instructions to remove the reference to the Form CMS-339, which is no longer applicable as it has been incorporated into most cost reporting forms, and to change the reference to IRIS data from a separate IRIS diskette, which is no longer used by most providers.

However, effective with cost reporting periods beginning on or after October 1, 2018, the following documentation must be submitted with the Medicare cost report and agree to the amounts reported in the cost report:

  • Medicare bad debt listings
  • For DSH-eligible hospitals, Medicaid-eligible days listings and detailed listings of charity care and uninsured discounts provided
  • For hospitals that are part of a healthcare system, a completed Home Office cost statement
    • A copy of the Home Office cost statement should be submitted directly to the servicing MAC and to each MAC servicing its chain providers, rather than simply submitting a copy of the Home Office cost statement with every cost report submission
    • For hospitals that have a different fiscal year end from their Home Office, the amounts allocated from the Home Office to the hospital’s cost report must correspond to the appropriate portion of the cost reporting period as reflected in the Home Office cost statements

CMS has decided to postpone until a later time, the requirement that IRIS total counts for DGME FTEs (weighted and unweighted) and IME FTEs agree to the cost report. The reason for this postponement is because CMS’ XML-based IRIS software will not be updated to include FTE totals by 10/1/2018.

CMS has also indicated that they will be developing a standard format of required fields for the submission of charity care and uninsured discounts at a later time. For now, hospitals should include typical information for such listings, including patient name, dates of service, insurer (if applicable), and the amount of charity or uninsured discount given to the patient.

Toyon’s Take: This means that hospitals will no longer be able to submit cost reports using high-level data as placeholders for pending logs to be prepared at a later date. Detailed listings that support these key figures on the cost report must be submitted at the time of filing.

For additional information, please contact Daniel Pelayo at daniel.pelayo@toyonassociates

IPPS-Excluded Hospital Changes

CMS finalized a rule that will allow IPPS-excluded hospitals to operate IPPS-excluded units, as long as the unit is not the same type (e.g., psychiatric or rehabilitation) as the hospital. As further clarification, CMS specified that discharges from IPPS-excluded units will not be included in the calculation of a Long-Term Care Hospital’s average length of stay.

CMS also finalized its changes to the regulations at 42 CFR 412.22(h)(2)(iii)(A), effective on or after October 1, 2018. This change stipulates that an IPPS-excluded satellite facility that is part of an IPPS-excluded hospital that provides inpatient services in a building also used by an IPPS-excluded hospital, or in one or more entire buildings located on the same campus as buildings used by an IPPS-excluded hospital, is not required to meet the criteria in paragraphs (1) through (3) of this regulation, in order to be excluded from the IPPS.

Pricing Transparency 

CMS has expressed concerns from patients about hospital pricing, including surprise out-of-network billing from healthcare professionals (e.g., radiologists) and unexpected facility and physician fees after ER visits. In addition, CMS intends to enforce existing requirements of Section 2718(e) of the Public Health Services Act by drafting specific guidelines to address pricing transparency and by implementing a process to make non-compliant hospitals publically known.

CMS is requiring the following actions:

  • Posting of hospital and physician charge data on the CMS website
  • Effective January 1, 2019, hospitals make available a list of their standard charges via the internet in a machine-readable format and require that these lists be updated at least annually
  • As an alternative, hospitals may publish policies on the internet to allow the public to view a list of charges in response to an inquiry

CMS is also seeking feedback on barriers to publishing these charges and how to better inform patients of their obligations:

  • How should “standard charges” be defined? Average discount off charges or gross charges from the chargemaster?
  • What type of information would be most beneficial to patients?
  • Should healthcare providers be required to inform patients how much their out-of-pocket costs for a service will be before those patients are furnished that service?
  • Should CMS require healthcare providers to provide patients with information on what Medicare pays for a particular service?
  • What is the appropriate mechanism for CMS to enforce pricing transparency?

How does Medigap coverage affect patients’ understanding of their out-of-pocket costs?

Changes to Inpatient Admission Order Documentation 

CMS is removing the requirement that inpatient admission orders be written. If other available documentation, such as a physician certification statement when required, progress notes, or the medical record as a whole, supports that all the coverage criteria are met, and the hospital is operating in accordance with the hospital conditions of participation (CoPs), then written orders to admit are not required to be present in the medical record.


Toyon Associates Healthcare Finance


Receive a no obligation consultation on how Toyon can help make your cost reporting simpler, easier, and trusted.