FFY2020 Final Rule

IPPS Final Rule – FFY2020

CMS-1716-F drafted on 8/2/2019; Published in the Federal Register on 8/16/2019

On August 2, 2019, the Centers for Medicare & Medicaid Services (CMS) issued a final 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 final 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 final 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 final rule is projected to result in an estimated increase of $3.8B (or 3%) in payments to providers, ranging from 0.8% increases for urban hospitals in the New England Region up to 3.4% increases for smaller, rural hospitals.Medicare IPPS Base Rates
CMS is increasing the base rate 2.7% for hospitals, mostly driven by a market basket increase of 3.0%.

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

Medicare IPPS Base Rates
CMS is increasing the base rate 2.7% for hospitals, mostly driven by a market basket increase of 3.0%.

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

MS-DRG v 37 Changes
As expected, CMS is recalibrating the MS-DRG weights for FFY2020. Heart transplants and extensive burn DRGs appear to be getting a boost, while external heart assist devices and pancreas transplants are seeing significant reductions in weighting. DRG 319 and 320 (Endovascular Cardiac Valvular Disorders) are new in FFY2020. Below is a listing of the largest changes in weighting between v36 and v37 of the MS-DRGs:
Click here for a table of the MS-DRG v36 to v37 comparison.

Post-Acute Care Transfer Policy Changes

Effective 10/1/2019, DRGs 273 & 274 (Percutaneous Intracardiac Procedures) will no longer be subject to the transfer policy.

New Technology Add-On Payment Calculation

In an effort to recognize the rising costs of new technology, CMS has finalized that the existing new technology add-on payment calculation (currently at a 50% limit) be increased to equal the lesser of:

1.) 65% of the cost of the new medical device or technology; OR

2.) 65% of the amount by which the cost of the case exceeds the standard DRG payment

3.) 75% for antimicrobials designated by the FDA as Qualified Infectious Disease Products (QIDPs)

Note: Unless the discharge qualifies for an outlier payment, the additional Medicare payment would be limited to the full MS-DRG payment plus 65% of the estimated costs of the new technology or device.

As a result of this increase, the maximum payment for CAR-T Cell Therapies (KYMRIAH^TM and YESCARTA^TM) would increase from $186,500 to $242,450, which may help to increase the use of this new technology.

Wage Index Changes

CMS has calculated an occupational-mix adjusted national average hourly wage of $44.15. Of note, 164 hospitals will receive the rural floor in FY 2020. This is approximately 99 fewer hospitals receiving the rural floor in FY 2020 than in FY 2019. This is due to the revised calculation for FY 2020 (and subsequent fiscal years) that excludes the wage data of hospitals that have reclassified as rural under 42 CFR 412.103. Eleven urban providers in Massachusetts are expected to receive the rural floor wage index value, which will increase payments overall to the hospitals in Massachusetts by an estimated $25M. This is in comparison to FFY2019 where twenty-nine urban providers in Massachusetts received its rural floor wage index value, increasing payments overall to the hospitals in Massachusetts by an estimated $123M.

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 finalized several significant changes to the wage index calculation.

CMS is finalizing their proposal to reduce disparities by increasing the values for low wage index hospitals below the 25^th percentile (or a WIF of 0.8457). The increases 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 25^th percentile value (e.g., 0.756 = 0.6663 + (0.8457 – 0.6663)/2). 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. CMS intends to visit the duration of this policy in future rulemaking as it gains experience under the policy.

CMS has also finalized their proposal to change the rural floor calculation, including the removal of urban-to-rural reclassifications under 42 CFR 412.103. 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 as a result of CMS policy changes, CMS will 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.

Overall Medicare spending will not increase as a result of this policy. CMS is accomplishing this through a budget neutrality adjustment of .998838 to the standardized amount that is applied across all IPPS hospitals, rather than a decrease to the wage index for hospitals above the 75^th percentile as proposed.

Click here for a comparison of current and prior WIFs for each hospital. These tables are an estimate compiled from Table 2 of the IPPS Final Rule, as CMS has noted that there are errors in Table 3.

Toyon’s Take:

In recent years, CMS has hinted at addressing what it describes as “wage index disparities;” however, no specific changes were proposed and finalized until this year. The finalized changes are noteworthy and were heavily commented on by hospital associations and the provider community in the Final Rule. The finalized changes have significant reimbursement benefit to states that fall below the 25^th percentile in terms of its wage index value as well as negative impacts to the standardized amount for all IPPS hospitals. Hospitals should challenge the AWI policies finalized in the FFY 2020 IPPS Final Rule. Hospitals should first appeal to the Medicare Provider Reimbursement and Review Board (PRRB). All appeals are due within 180 days of issuance of the final rule, which is January 29, 2020. Subsequent appeals must be filed annually to preserve appeal rights for each year the policy is in place. CMS has noted its intent to keep the reduction in the standardized amount in effect for a minimum of 4 years (FFYs 2020 – 2023); the rural floor policy is final. Toyon has developed a model analyzing the finalized changes to the wage index using FFY2020 Final Rule data sources. We are happy to share our analysis specific to your hospital.

Other Finalized 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 Medicare Geographic Classification Review Board (MGCRB) for FFY2021 reclassifications, as well as cancellations and terminations, were due by September 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 https://www.cms.gov/regulations-and-guidance/review-boards/MGCRB/electronic-filing.html.
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 previously required 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 42 CFR 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 120 days of the Federal fiscal year end, which is June 2 of each year.

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

UCC DSH Payments

CMS has finalized a modest increase to Medicare DSH UC payments by $78M, to $8.35B in FFY2020. This increase is partially driven by a statutory elimination of the 0.2% reduction factor in the determination of DSH UC funding.

After consideration of the public comments on whether to use FY2015 or FY2017 uncompensated care data from W/S S-10 as the base year for FFY2020 DSH UC payments, CMS determined that the best available data on uncompensated care costs is from FY2015, in part because CMS has conducted audits of the data. CMS will use a single year of data as opposed to the prior method that used an average of three years of data.

Toyon’s Take: During the CMS and MAC reviews of FY2015 W/S S-10 uncompensated care data, many issues were identified, resulting in hospitals having to entirely resubmit data. This was primarily due to the cost reporting instructions in place during FY2015, which can be challenging to understand and are often subject to interpretation. This points to an industry-wide issue (beyond the hospitals selected for review) and indicates that FY2015 may continue to include aberrant data.

For FY2017 uncompensated care amounts, there is a new set of reporting instructions. There is considerable industry agreement that these instructions are less challenging than instructions in place for FY2015.

Recommended Action: If your hospital has revisions to its FFY 2017 WS S-10 data, Toyon strongly urges these revisions are submitted to your MAC before December 31, 2019. This is the deadline for MACs to submit FFY 2017 S-10 revisions for hospitals under audit.

Click here for the DSH Supplemental PUF data.

Click here for the Analysis of UCC DSH Factor 1.

Toyon has a new national analysis tool to assist hospitals with the evaluation of uncompensated care and the relationship to current and projected DSH UC payments. For additional information, please contact Fred Fisher at fred.fisher@toyonassociates.com.

Graduate Medical Education Changes

In an effort to address barriers to training residents in rural areas, CMS will allow hospitals to include residents training in a Critical Access Hospital (CAH) in its FTE count, as long as the nonprovider setting requirements at 42 CFR 413.78(g) are met. This represents a change in CMS’s policy since it was initially implemented in FFY2014. CMS is updating the definition of a “nonprovider” setting to include CAHs.

Effective with portions of cost reporting periods beginning October 1, 2019, hospitals may include FTE residents training at a CAH, on the condition that the hospital incurs the residents’ salaries and fringe benefits. This change does not impact the continuing ability of CAHs to alternatively incur the costs of training residents in an approved program and receive payment based on 101% of their reasonable cost.

In addition, CMS announced an additional round of Section 5506 FTE cap redistributions (Round 15):

Applications for these additional FTE slots are due to CMS by October 31, 2019.

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

Low Volume Hospitals

CMS is revising the regulations at 42 CFR 412.101 to add a subsection (e), which will now allow Indian Health Services (IHS) hospitals to qualify by measuring only the distance between other IHS and Tribal hospitals when assessing the mileage criterion. CMS is also allowing these hospitals to reopen cost reports in order to apply for the low volume adjustment back to FFY2011, subject to the reopening rules at 42 CFR 405.1885.

Rate Updates for Sole Community Hospitals (SCH) and Medicare-Dependent Hospitals (MDH)

CMS is finalizing the updates to the hospital-specific rates for SCHs and MDHs by the following percentages, depending on the hospital’s ability to meet the different qualifying criteria:

Rural Referral Center (RRC) Annual Qualifying Data

Hospitalshave different options to meet the RRC criteria set forth at 42 CFR 412.96. For those that do not qualify under the 275-bed rule, other optional factors must be met. Those factors are updated annually by CMS and include the following finalized amounts:

PRRB Appeal Changes

In an effort to address the large number of cases before the PRRB, CMS is considering actions to assist in the reduction of the current PRRB case backlog:

Develop standard formats and more structured data for submitting cost reports and supporting documentation.
Create more clear standards for documentation to be used in auditing of cost reports.
Enhance the MCReF portal by creating more automation for letter notifications and increased provider transparency during the cost report submission and audits.
Utilize artificial intelligence (AI) protocols based on historical audit data to drive audit processes.
Triage the current PRRB case inventory and expand the providers’ options for resolving issues through the reopening process.

Procedural Changes Specific to Appealing Empirical DSH Updates

CMS has determined that a significant number of appeals are related to hospitals’ disproportionate patient percentage (DPP), specifically concerning updating the Medicaid fraction. To address this, CMS is proposing that regulations be developed to govern the timing of the data for determining Medicaid eligibility.

These routine updates would be handled via reopening, with CMS issuing directives to the MACs requiring them to reopen cost reports for this issue at a specific time and realistic period during which the provider could submit updated data.

CMS is also considering allowing hospitals a one-time option to resubmit cost reports with updated Medicaid eligibility information, similar to SSI realignments. CMS would need to undertake rulemaking in order to determine the timeframe for exercising this option.

CMS has reviewed public comments on these procedural changes and will take the comments into consideration in future rulemaking.

For additional information, please contact Karen Kim at

karen.kim@toyonassociates.com.

PRRB Appeal Changes

In an effort to address the large number of cases before the PRRB, CMS is considering actions to assist in the reduction of the current PRRB case backlog:

Develop standard formats and more structured data for submitting cost reports and supporting documentation.
Create more clear standards for documentation to be used in auditing of cost reports.
Enhance the MCReF portal by creating more automation for letter notifications and increased provider transparency during the cost report submission and audits.
Utilize artificial intelligence (AI) protocols based on historical audit data to drive audit processes.
Triage the current PRRB case inventory and expand the providers’ options for resolving issues through the reopening process.

Procedural Changes Specific to Appealing Empirical DSH Updates

CMS has reviewed public comments on these procedural changes and will take the comments into consideration in future rulemaking.

For additional information, please contact Karen Kim at

karen.kim@toyonassociates.com.

Quality Program Changes

While CMS is finalizing several of the proposed changes to the hospital quality reporting and payment programs, none of these changes represent significant structural or procedural changes to the programs.

Hospital Inpatient Quality Reporting (IQR)

CMS is making the following adjustments to the program:

Adopt the Hybrid Hospital-Wide All-Cause Readmission (Hybrid HWR) measure, beginning with two voluntary reporting periods running from 7/1/2021 to 6/30/2022 and from 7/1/2022 to 6/30/2023.
Adopt the Safe Use of Opioids – Concurrent Prescribing electronic clinical quality measure (eCQM), with a clarification and update, beginning with CY 2021 reporting period/FY 2023 payment determination.
Remove the Claims-based Hospital-Wide All-Cause Unplanned Readmission measure (HWR claims-only measure) beginning with the FY2026 payment determination.
Extend current eCQM reporting and submission requirements for both the CY2020 reporting (FY2022 payment) and the CY2021 reporting (FY2023 payment) periods.
Change eCQM reporting and submission requirements for the CY2022 reporting (FY2024 payment) period, such that hospitals would be required to report one self-selected calendar quarter of data for three self-selected eCQMs and the proposed Safe Use of Opioids eCQM.
Continue requiring that EHRs be certified to all available eCQMs used in the Hospital IQR program for the CY2020 and subsequent reporting periods.

CMS is not finalizing its proposal to adopt the Hospital Harm – Opioid-related Adverse Events eCQM.

Hospital Value Based Purchasing (HVBP)

CMS will now require that the HVBP program use the same data used by the HAC program for purposes of calculating the Centers for Disease Control and Prevention (CDC) National Health Safety Network (NHSN) Healthcare-Associated Infection (HAI) measures beginning with the CY2020 data collection, when the hospital IQR program will no longer collect data on those measures.

CMS is not adding or removing any measures for the FY2022 and FY2023 program years. However, CMS will be establishing new performance standards for FY2024 and FY2025.

Hospital Readmission Reduction (HRR)

CMS will adopt the following adjustments to the program:

Establish the performance period for the FY 2022 program year.
Adopt a measure removal policy that aligns with the policies for other quality programs.
Update the definition of “dual-eligible” as a beneficiary who has full benefit status in both the Medicare and Medicaid programs for the month the beneficiary was discharged, except for those beneficiaries who die in the month of discharge, who will be identified using the previous month’s data.
Adopt a process to make nonsubstantive changes to the payment adjustment factors, which would include updated naming or locations of data file or minor discrepancies, but which would not include different methodologies to use data or the use of a different component in the methodology.
Update 42 CFR 412.152 and 412.154 to reflect policies finalized in previous Rules.

Hospital Acquired Conditions (HAC)

CMS will make the following adjustments to the program:

Adopt a measure removal policy that aligns with the policies for other quality programs.
Clarify policies for validating CDC NHSN HAI measures.
Adopt the collection periods for the FY2022 program year.
- CMS PSI 90 measure – 24-month period from 7/1/2018 to 6/30/2020
- CDC NHSN HAI measures – 24-month period from 1/1/2019 to 12/31/2020.

Update 42 CFR 412.172(f) to reflect policies finalized in the FFY2019 IPPS Final Rule.

Quality Program Changes

Hospital Inpatient Quality Reporting (IQR)

CMS is making the following adjustments to the program:

Adopt the Hybrid Hospital-Wide All-Cause Readmission (Hybrid HWR) measure, beginning with two voluntary reporting periods running from 7/1/2021 to 6/30/2022 and from 7/1/2022 to 6/30/2023.
Adopt the Safe Use of Opioids – Concurrent Prescribing electronic clinical quality measure (eCQM), with a clarification and update, beginning with CY 2021 reporting period/FY 2023 payment determination.
Remove the Claims-based Hospital-Wide All-Cause Unplanned Readmission measure (HWR claims-only measure) beginning with the FY2026 payment determination.
Extend current eCQM reporting and submission requirements for both the CY2020 reporting (FY2022 payment) and the CY2021 reporting (FY2023 payment) periods.
Change eCQM reporting and submission requirements for the CY2022 reporting (FY2024 payment) period, such that hospitals would be required to report one self-selected calendar quarter of data for three self-selected eCQMs and the proposed Safe Use of Opioids eCQM.
Continue requiring that EHRs be certified to all available eCQMs used in the Hospital IQR program for the CY2020 and subsequent reporting periods.

CMS is not finalizing its proposal to adopt the Hospital Harm – Opioid-related Adverse Events eCQM.

Hospital Value Based Purchasing (HVBP)

CMS is not adding or removing any measures for the FY2022 and FY2023 program years. However, CMS will be establishing new performance standards for FY2024 and FY2025.

Hospital Readmission Reduction (HRR)

CMS will adopt the following adjustments to the program:

Establish the performance period for the FY 2022 program year.
Adopt a measure removal policy that aligns with the policies for other quality programs.
Update the definition of “dual-eligible” as a beneficiary who has full benefit status in both the Medicare and Medicaid programs for the month the beneficiary was discharged, except for those beneficiaries who die in the month of discharge, who will be identified using the previous month’s data.
Adopt a process to make nonsubstantive changes to the payment adjustment factors, which would include updated naming or locations of data file or minor discrepancies, but which would not include different methodologies to use data or the use of a different component in the methodology.
Update 42 CFR 412.152 and 412.154 to reflect policies finalized in previous Rules.

Hospital Acquired Conditions (HAC)

CMS will make the following adjustments to the program:

Adopt a measure removal policy that aligns with the policies for other quality programs.
Clarify policies for validating CDC NHSN HAI measures.
Adopt the collection periods for the FY2022 program year.
- CMS PSI 90 measure – 24-month period from 7/1/2018 to 6/30/2020
- CDC NHSN HAI measures – 24-month period from 1/1/2019 to 12/31/2020.

Update 42 CFR 412.172(f) to reflect policies finalized in the FFY2019 IPPS Final Rule.

Other Rules, Transmittals, and Articles Recently Published

Inpatient Psych Facility PPS Final Rule [CMS-1712-F]

(Display Copy available here 7/30/2019; FR Publish Date 8/06/2019)

Fact Sheet Link

Federal Register Link

Per diem base rate increase from $782.78 to $798.55.
Elimination of 1-year lag in WIF, aligning it with concurrent IPPS WIF.

Inpatient Rehab Facility PPS Final Rule [CMS-1710-F]

(Display Copy available here 7/31/2019; FR Publish Date 08/08/2019)

Fact Sheet Link

Federal Register Link

Standard payment conversion factor increase from $16,021 to $16,489.
Elimination of 1-year lag in WIF, aligning it with concurrent IPPS WIF.

Long-Term Care Hospital PPS Final Rule [CMS-1716-F]

(Display Copy available here 08/02/2019; FR Publish Date 8/16/2019) – Published as part of the IPPS Acute Care Hospital Final Rule

Fact Sheet Link

Federal Register Link

LTCH-PPS payments expected to increase by 1% or $43M.
Finalized the proposal to modify the “Discharge to Community” measure to exclude nursing home residents who already reside in the nursing home.

Skilled Nursing Facility PPS Final Rule [CMS-1718-F]

(Display Copy available here 7/30/2019; FR Publish Date 08/07/2019)

Fact Sheet Link

Federal Register Link

Increase in unadjusted Federal per diem rates of 2.4%.

FFY2020 Final Rule

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