Inpatient Prospective Payment System Proposed Rule – FFY 2023
Toyon’s FFY 2023 Proposed Rule Dashboard Analysis
CMS-1771-P drafted on 4/18/2022; Published in the Federal Register on 5/10/2022
Toyon is pleased to provide our summary of Medicare’s Inpatient Prospect Payment System (IPPS) and the Long-Term Care Hospital (LTCH) PPS for Federal Fiscal Year (FFY) 2023 (discharges on or after October 1, 2022). The Centers for Medicare & Medicaid Services (CMS) issued Proposed Rule updates on Medicare payment policies and rates for hospitals on May 10, 2022. Comments are due to CMS no later than 5 p.m. EDT on June 17, 2022. In commenting, please refer to file code CMS–1771–P. Comments may be sent electronically at https://www.regulations.gov/ (see instructions under the ‘‘submit a comment’’ tab). Comments may also be submitted by mail to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–1771–P, P.O. Box 8013, Baltimore, MD 21244–1850.
Toyon’s summary is focused on areas of the Proposed Rule directly impacting Medicare reimbursement, including Toyon’s Take on certain areas aimed to assist hospitals with comments to CMS. Please also see Toyon’s FFY 2023 Proposed Rule Dashboard Analysis for an analysis of Proposed FFY 2023 IPPS Payments for your hospital(s).
1. National Medicare IPPS Estimates
CMS estimates hospitals are estimated to receive an overall change of -$300 million in IPPS payments, as compared to FFY 2022, resulting from:
- + $700 million net increase in operating payments, including the proposed -$563 million reduction to UC DSH.
- – $1 billion net decrease in payments related to payment changes in programs for new technology[1], low volume hospitals, GME, and capital.
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2. Standardized Base Rates
CMS proposes a net increase of 2.7% to hospital base rates, after budget neutrality, for hospitals that comply with the CMS quality reporting program (QRP). There is also a 1.6% increase in the federal capital rate. As it has done in prior years, CMS will reduce payments to those hospitals which do not meet Hospital Inpatient Quality (IQR) or meaningful Electronic Health Record (EHR) requirements.
CMS provides two separate sets of base rates and variables for FFY 2023 rate setting. For FFY 2023, CMS proposes rates are updated to project fewer COVID-19 hospitalizations in FFY 2023 than in base-year data from FFY 2021 (i.e., FFY 2021 MEDPAR data[1]). In CMS’s alternative rates, CMS does not make an adjustment projecting a decline COVID-19 hospitalizations from FFY 2021 to FFY 2023.
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[1] Medicare Provider Analysis and Review (MEDPAR): Data on Medicare beneficiaries using hospital inpatient services at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareFeeforSvcPartsAB/MEDPAR
For more information, please contact Scott Besler at 888.514.9312 or scott.besler@toyonassociates.com.
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CMS proposes to make interim UC DSH payments in FFY 2023 based on average discharges from FFY 2018, FFY 2019 and FFY 2021. The December 2021 HCRIS file was used for each DSH hospital’s WS S-10 UC costs, and CMS intends to use the March 2022 HCRIS update for the FFY 2023 Final Rule. CMS may use more recent UC cost data after the March 2022 HCRIS, if available.
Supplemental UC DSH Fund
CMS proposes a separate $92 million Supplemental UC DSH fund for Indian Health Service (IHS)/Tribal and Puerto Rico hospitals in FFY 2023. CMS proposes to no longer use low-income days as the Factor 3 proxy for these DSH hospitals. In FFY 2023 IHS/Tribal and Puerto Rico hospitals receive FFY 2023 Supplemental UC DSH payments using FFY 2022 UC DSH payments adjusted by “one plus the percent change” in total uncompensated care. CMS is seeking comment on alternatives for determining Factor 3 for IHS/Tribal and Puerto Rico hospitals.
Verification of Worksheet S-10 UC cost
Hospitals have until July 8, 2022 to notify CMS for issues related to mergers and/or to report potential upload discrepancies due to MAC mishandling of Worksheet S-10 data during the report submission process (for example, report not reflecting audit results due to MAC mishandling or most recent report differs from previously accepted amended report due to MAC mishandling). Please see CMS’s UC DSH public use file [5], and hospitals may contact CMS at Section3133DSH@cms.hhs.gov to request corrections.
Toyon’s Take
Decreasing UC DSH funding is directly related to CMS’s estimate “future value” DSH expenditures in FFY 2023, impacted by COVID-19 PHE data. National UC DSH funding is decreasing, while on the other hand, hospital UC costs are increasing. For instance, UC costs increased by $1.1 billion from FFY 2018 to FFY 2019, while the FFY 2023 UC DSH fund decreased by -$563 million. The prior year, comparing FFY 2022 to FFY 2021, UC costs increased by $1.2 billion, while the UC DSH fund decreased by -$1.1 billion.
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6. Empirical DSH
For FFY 2023, CMS proposes changes to its interpretation of “regarded as eligible” to the Section 1115 Waiver days. “Regarded as eligible” relates to:
Patients who receive health insurance through a section 1115 demonstration itself or purchase such health insurance with premium assistance authorized by a section 1115 demonstration, where state expenditures may be matched with Title XIX funds.
CMS proposes to allow Section 1115 days in the DSH fraction of individuals obtaining insurance coverage with Essential Health Benefits[1] (EHB), if bought with premium assistance, for which the premium assistance is equal to or greater than 90 percent of the cost of the coverage. Patients must not be entitled to Medicare Part A coverage.
CMS also proposes Section 1115 days from a State uncompensated care payment are not allowable and excluded from the Medicaid fraction.
Toyon’s Take
Section 1115 Waiver demonstrations are state-specific and each state has their own individual waiver plans. It is important providers track and manage each state’s eligible waiver plans to include these patient days in the DSH Medicaid fraction. Although CMS proposed changes to Section 1115 in the FFY 2022 Proposed Rule, nothing was finalized. Therefore, any comments submitted in FFY 2022 should be again submitted in FFY 2023. Toyon is considering posting a comment to CMS asking for further clarification and transparency on this proposal. Toyon will continue to monitor any changes in policies and notify clients of updates.
For more information, please contact Dylan Chinea at 925.685.9312, ext. 3121 or dylan.chinea@toyonassociates.com.
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[1]Meeting the EHB requirements set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan
7. Wage Index
Based on the CMS proposed rates for FFY 2023, the occupational-mix adjusted national average hourly wage is estimated to be $47.74[1], representing an increase of 2.9% from FFY 2022 (from FFY 2021 to FFY 2022 the AHW increase was 2.6%).
Continuation of Prior Year Wage Index Policy Changes
CMS proposed and finalized a policy in FFY 2020 to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8401 in FFY 2023). In FFY2020, CMS anticipated that it would continue this policy for at least four years, acknowledging that providers in these lower-quartile states would improve employee compensation within four years as a result of the higher wage index. Accordingly, CMS is proposing to continue this policy in FFY 2023, although CMS did not acknowledge FFY 2023 as the final year of this policy. Consistent with the finalized policy in previous years, in FFY 2023 CMS will “fund” this policy by applying a uniform budget neutrality adjustment.
Also in FFY 2020, CMS proposed and finalized a change to the rural floor calculation by removing urban-to-rural reclassifications from the statewide rural floor. CMS is proposing to continue this policy in FFY 2023 so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural. This is despite a recent court case (Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra) where the court found that CMS did not have the authority to establish a rural floor lower than the rural wage index for a state. CMS makes reference in the Proposed Rule that it may decide to take a different approach in the final rule for this policy, depending on public comments or developments in the court proceedings.
In FFY 2023, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS proposed to permanently reinstate the imputed rural floor wage index calculation for hospitals located in all-urban States, which refers to States without designated rural areas. The statute specifies that the adjustment pertaining to the imputed rural floor policy shall not be applied in a budget neutral manner, which means that any increase to the wage index for these all-urban States will not be offset by a decrease to the standardized amount or applied to wage indexes. In the FFY 2023 Proposed Rule, CMS continues to apply the imputed rural floor to the all-urban States and further, provides the calculation using the two available methodologies that it used beginning in FFY 2013 prior to the previous imputed rural floor policy expiration in FFY2018.
For CMS’s FFY 2023 Proposed Rule Imputed State Floors, refer to this link and specifically Proposed Rule Data File no. 10.
Proposed Permanent Cap Policy for Wage Index
As a result of various policy changes to the wage index starting in FFY 2020 and continuing into FFY 2023, CMS has implemented a “transition” policy which included a cap of 5% on the decrease of any hospital’s wage index from the prior year. For instance, in FFY 2022, a hospital could not receive a final wage index that was less than 5% of what it received in FFY 2021.
As a result of comments received during the FFY 2022 rulemaking, for FFY 2023 and subsequent years, CMS is proposing a permanent cap “to smooth year-to-year decreases in hospitals’ wage indexes” regardless of circumstances causing a hospital’s decline. CMS is proposing to implement the proposed wage index cap policy in a budget neutral manner to be applied to the standardized amount each fiscal year, which is consistent with similar past transition policies involving a cap on wage index decreases. The proposed budget neutrality adjustment due to wage index cap policy is 0.999563.
CMS Table 2, which can be found here, provides the proposed FFY 2023 WIFs by provider and includes application of the bottom-quartile wage index adjustment and permanent 5% cap policy.
Toyon’s Take
The continuation of the policy changes implemented by CMS over the course of the last three years of rulemaking was anticipated, despite recent court cases ruling CMS’s lack of authority to implement such policy changes. It will be interesting to see if CMS makes a change to the policies as a result of these court proceedings upon issuance of the FFY 2023 Final Rule later this summer. That said, we appreciate CMS’s consideration to apply a permanent wage index cap, particularly given the ongoing PHE. It remains to be seen how the cap will impact labor rates and the wage index on a prospective basis.
Important Dates regarding Wage Index
- With the public display release of the FFY 2023 Proposed Rule on April 18, 2022, the specified “lock-in” date for hospitals to be included in the rural wage index calculation (upon rural redesignation) for FFY2023 is June 17, 2022. In addition, Medicare Geographic Classification Review Board (MGCRB) reclassification terminations and/or withdrawals will need to be submitted to the MGCRB no later than 45 days after the Proposed Rule was published in the Federal Register, which was May 10, 2022, thereby confirming a deadline of June 24, 2022.
- Toyon Reminder: Reclassified hospitals are not eligible to receive an out-migration factor adjustment, so hospitals that are expected to receive a rural floor wage index (imputed or Statewide rural floor) should consider reclassification withdrawal to secure an outmigration adjustment.
For more information, please contact Ryan Sader at 888.514.9312 or ryan.sader@toyonassociates.com.
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[1] Estimated per updated FY 2023 April 29, 2022 Wage Index PUF data.
8. Graduate Medical Education (GME)
Weighted Full Time Equivalent (FTE) Caps
CMS is proposing to modify the cost report formula for calculating Direct GME payments in cases where a hospital’s FTE count exceeds its FTE cap. CMS estimates the impact of this modified policy at $170 million in FFY 2023.
Since the original statutory caps were implemented using unweighted FTEs, CMS has historically applied the cap to weighted FTEs by multiplying the ratio of a hospital’s cap to its total unweighted FTEs, by its weighted FTE counts, to arrive at capped weighted FTEs. This formula was disadvantageous to many hospitals with a material number of residents who exceeded their initial residency period (e.g., fellows).
Effective retroactively for cost reporting periods beginning on or after October 1, 2001, CMS proposes a hospital’s total weighted FTE count equal to the FTE cap if a hospital’s:
- unweighted FTE count exceeds the FTE cap, and
- weighted FTE count also exceeds the FTE cap.
CMS’s proposal is in response to a case decision where the U.S. District Court for the District of Columbia struck down CMS’s method of calculating Direct GME payments to teaching hospitals whose FTE resident counts exceeded their FTE cap.
CMS proposes the modified policy is applied prospectively for all teaching hospitals and retroactively to the providers and years included in the GME case. Specifically, the proposed rules states:
“Because we are proposing to establish this policy retroactively, it would cover cost reporting periods for which many NPRs have already been final settled. Consistent with Section 405.1885(c)(2), any final rule retroactively adopting the proposed new policy would not be the basis for reopening final settled NPRs.”
Table 8 below illustrates an example of the Direct GME calculation where the hospital exceeds the cap.
GME Affiliated Group Agreements for Certain Rural Training Tracks
CMS is proposing to allow urban and rural hospitals that participate in the same separately accredited 1-2 family medicine rural training track (RTT) program[1], that already have RTT FTE limitations, to enter into “Rural Track Medicare GME Affiliation Agreements”. Programs that are not separately accredited in the 1-2 format and that are not in family medicine, would not be permitted to enter into these agreements under CMS’s proposal.
The Proposed Rule requires the responsible representatives of each urban and rural hospital entering into the RTT Medicare GME affiliation agreement to attest that each participating hospital’s FTE counts and RTT FTE limitations in the agreement do not reflect residents or caps associated with programs other than the RTT program. CMS proposes to only allow urban and rural hospitals to participate in rural track Medicare GME affiliated groups if they have rural track FTE limitations in place prior to October 1, 2022. Eligible urban and rural hospitals may enter into RTT Medicare GME affiliation agreements effective with the July 1, 2023 academic year.
Toyon’s Take
The Proposed Rule language on weighted FTE counts applies to open cost reports dating back to FFY 2002. Toyon recommends that teaching hospitals affected by this rule request that total weighted FTE counts be adjusted to equal the FTE cap for all open[2] cost report years. If the weighted FTE count was listed as a protested item on the hospital’s filed cost report, Toyon recommends teaching hospitals pursue the opportunity to increase their GME FTE count through cost report amendments and/or re-openings. CMS is not likely to restate weighted GME counts for cost reports that have already been issued an NPR, unless the hospital appealed this issue.
For more information, please contact Tom Hubner at 888.514.9312 or tom.hubner@toyonassociates.com.
[1] 1-2 RTT format is 1 year of training in a large, urban residency program followed by 2 years in a rural community.
[2] Cost report years where an NPR has not been issued or currently under appeal.
9. Low-Volume Adjustment Eligibility
For FFY 2023 and subsequent years, CMS proposes a low-volume hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 total discharges during the fiscal year. This proposal reflects an “Expiration of Temporary Changes to Low-Volume Hospital Payment Policy” and reverts back to Section 1886(d)(12)(C)(i) of the Act.
In FFYs 2019 through 2022, hospitals were eligible for a Low-Volume Adjustment if the hospital was more than 15 road miles from another subsection (d) hospital (as compared to 25 miles) and has less than 500 total discharges (as compared to 200 discharges) during the fiscal year.
Hospitals have until September 1, 2022 to request low volume status for FFY 2023.
For more information, please contact Robert Howey at 888.514.9312 or robert.howey@toyonassociates.com
10. Medicare Dependent Hospital (MDH) Status Expiration
Unless otherwise extended by law, the MDH status is set to expire effective FFY 2023. CMS notes in the past, these payments have been extended by legislation, but if they were to expire the estimated impact to hospital payments is-$600 million.
For more information, please contact Fred Fisher at 888.514.9312 or fred.fisher@toyonassociates.com.
11. Medicare Cost Reporting and Deferred Compensation
The FFY 2023 Proposed Rule includes a section clarifying the reporting of deferred compensated expense to be codified at 413.99(a)(3). CMS clarifies allowable Non-Qualified Deferred Compensation Plan costs are based on reasonable benefits paid to participating employees. Allowable Defined Contribution plan costs are based on reasonable contributions to Defined Contribution accounts.
For more information, please contact Ryan Sader at 888.514.9312 or ryan.sader@toyonassociates.com.
12. Hospital Readmissions Reduction Program (HRRP) Adjustment
In FFY 2023, CMS proposes to:
- Resume the hospital 30-Day, All-Cause, Risk- Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FFY 2024 program year;
- Modify the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed patients from the measure denominator, beginning with the Hospital Specific Reports (HSRs) for the FFY 2023 program year; and
- Modify of all six condition/procedure-specific measures to include a covariate adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FFY 2023 program year.
CMS is also seeking comment on provider performance for socially at-risk populations.
For more information, please contact Robert Howey at 888.514.9312, ext. 3147 or robert.howey@toyonassociates.com.
13. Value Based Purchasing (VBP) Adjustment
For FFY 2023, CMS proposes to not calculate a Total Performance Score (TPS) for any hospital. To comply with statute on the 2% withhold for VBP, CMS is then adding back the same 2% to suppress VBP scores in FFY 2023. Therefore, there is a $0 net impact of VBP in FFY 2023.
For more information, please contact Robert Howey at 888.514.9312, ext. 3147 or robert.howey@toyonassociates.com.
14. Hospital Acquired Conditions (HAC) Adjustment
CMS proposes no hospital receive a HAC adjustment in FFY 2023 by suppressing the
CMS Patient Safety Indictor (PSI) 90 measure and the five CDC National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) measures from the calculation of measure scores and the Total HAC Score. CMS also proposes to not calculate or report CMS PSI 90 measure results for the HAC Reduction Program FY 2023 program year.
For more information, please contact Robert Howey at 888.514.9312, ext. 3147 or robert.howey@toyonassociates.com.
15. Inpatient Quality-Reporting (IQR) and Interoperability Programs
For the FFY 2023 IQR, CMS proposes to adopt ten new measures on Medicare spending per beneficiary, health equity, social drivers of health, hip and knee arthroplasty, elective primary risk complication rates, malnutrition, perinatal care Electronic Clinical Quality Measures (eCQM), and opioid-adverse event eCQMs. CMS also proposes additional changes to reporting and collection of other certain measurements.
Among other proposed changes to FFY 2023 Interoperability Program, CMS proposes to increase point values for the Electronic Prescriptions, Public Health and Clinical Data objectives. CMS proposes to decrease point values for the Health Information Exchange and Electronic Access for Patients. CMS also proposes to adopt eCQMs, as proposed in for the IQR Program.
For more information, please contact Robert Howey at 888.514.9312 or robert.howey@toyonassociates.com.
16. Payment Adjustment for Domestically Made Surgical N95 Respirators
CMS seeks comment on IPPS and OPPS payment adjustments for FFY 2023 and potentially subsequent years that would ensure an adequate supply of domestically produced N95 respirators. CMS provides a list of ten questions for comment concerning this payment adjustment, including questions on reimbursement methods as follows:
- Bi-weekly interim lump-sum payments to hospitals that would be reconciled at cost report settlement that account for the marginal difference in costs between NIOSH-approved surgical N95 respirators that were wholly domestically made and those that were not; or
- A claims-based approach where Medicare could establish a MS-DRG add-on payment when hospitals meet or exceed a threshold of purchasing 50 percent or more wholly domestically sourced surgical N95 respirators.
Toyon’s Take
It is recommended providers comment to CMS regarding obstacles determining domestic vs. non-domestic units of N95 respirators. CMS may want to consider industry standards for determining domestic vs. non-domestic N95s in potential future payments.
For more information, please contact Fred Fisher at 888.514.9312 or fred.fisher@toyonassociates.com.
17. Proposals on National Healthcare Issues
In addition to proposed changes to Medicare rates, CMS seeks information on important healthcare issues, as listed below.
- Social Determinants of Health (SDOH) – CMS seeks comments on how reporting on SDOH may improve the acuity and complexity under the MS-DRGs. CMS also seeks comment through a Request for Information (RFI) on measurements and stratification considerations for addressing health care disparities.
- Climate Change – CMS seeks comment through a Request for Information (RFI) on what the Agency can do to help determine the impact of climate change, and actions to reduce emissions.
- Maternity Care – CMS proposing measurements indicating hospital quality and safety with a public designation in the Fall of 2023. Hospitals that report “yes” on questions in the Maternal Morbidly Structural Measure would receive the CMS designation.
- COVID-19 and Seasonal Influenza Reporting – CMS proposes hospital reporting will continue through April 30, 2024[1], while establishing a process to report data to the Centers for Disease Control and Prevention in case of another infectious disease PHE.
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[1] After the conclusion of the PHE, unless an earlier date is established by the HHS Secretary.
