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Category: Mcare DSH

Medicare Hospital Inpatient Prospective Payment System (IPPS) Federal Fiscal Year (FFY) 2022 Final Rule

CMS-1752-F drafted on 8/2/2021; Published in the Federal Register on 8/13/2021

 
On August 2, 2021, the Centers for Medicare & Medicaid Services (CMS) issued the final rule for Federal Fiscal Year (FFY) 2022 Inpatient Prospective Payment System (IPPS). The Final Rule builds on key priorities to close health care equity gaps and support greater access to life-saving diagnostics and therapies during the public health emergency (PHE) and beyond. Its polices will assist in supporting a hospital’s readiness to respond to future public health threats and develop the health care workforce in rural and underserved communities. The Final Rule revises reporting requirements for scoring, payment, and public quality data in their effort to reduce the adverse impacts of the pandemic and any future unplanned events. The Final Rule updates Medicare payment policies and rates for hospitals under the IPPS and the Long-Term Care Hospital (LTCH) PPS effective for discharges on or after October 1, 2021 (FFY 2022).
 
CMS received greater than 6,500 public comments to the FFY 2022 Proposed Rule. These comments related to empirical disproportionate share hospital (DSH) payments, organ acquisition costs, and the provision of the Consolidated Appropriations Act (CAA) 2021, related to payments to hospitals for direct graduate medical education (GME) and indirect medical education (IME) costs, will be addressed in subsequent parts. 
 
CMS, in this Final Rule, establishes new requirements and revises existing requirements for the Hospital Value-Based Purchasing (VBP) Program, Hospital Readmissions Reduction Program, Hospital-Acquired Condition (HAC) Reduction Program, Hospital Inpatient Quality (IQR) Reporting Program, LTCH Quality Reporting Program, PPS-Exempt Cancer Hospital Reporting (PCHQR) Program, and the Medicare Promoting Interoperability Program
 
CMS uses FY 2019 data where “FY 2020 data is significantly impacted by the COVID-19 PHE” in FFY 2022 rate setting. For instance, CMS uses FY 2019 MedPAR claims data in its MS-DRG classification analysis, and FY 18/19 HCRIS cost report data in determining FY 2022 IPPS MS-DRG relative weights. Throughout the Final Rule, CMS “clearly identifies” where and how the Agency uses alternative data (as compared to more recent data from 2020 CMS would ordinarily use for rate setting).
 
Overall, the Final Rule will result in an estimated increase of $2.3bn in payments to providers. Included in that amount is a reduction of approximately $1.4bn in Medicare DSH and Uncompensated Care (UC) payments. Increases to hospital payments before the DSH and UC reduction for FFY 2022 is $3.7bn (3.1 percent). 
 

Rural Redesignation Update

 
CMS had issued an Interim Final Rule with Comment (IFC) amending current regulations at § 412.230. This amendment allows hospitals with a rural redesignation to reclassify through the Medicare Geographic Classification Review Board (MGCRB) using the rural reclassified area as its geographic location. These regulatory changes align CMS policy with the decision in Bates County Memorial Hospital v. Azar, 464 F. Supp. 3d (D.D.C. 2020). 
 

Medicare IPPS Base Rates

 
CMS is finalizing a base rate net increase of 2.7% for hospitals, after budget neutrality, for hospitals that comply with the CMS quality reporting program (QRP). There is also a 1.4% increase in the federal capital rate. As it has done in prior years, CMS will reduce payments to those hospitals which do not meet IQR or EHR requirements.
 
 
 
 
Click here for the full base rate calculation table and comparison to prior year.
 

Repeal of Market-based Data Collection, MS-DRG Relative Weight Policy

 
CMS is finalizing its proposal to repeal the requirement that a hospital include on the Medicare cost report the median payer-negotiated inpatient services charges for Medicare Advantage organizations by MS-DRG, for cost reporting periods ending on or after January 1, 2021.
 
CMS is going to repeal, the market-based MS-DRG relative weight methodology, slated to be effective for FFY2024, that would have used these data to set relative Medicare payment rates for hospital procedures. Rather, CMS, in the FFY 2022 Final Rule, states that they will continue using the existing rate-setting methodology for FFY2024 and subsequent years.
 

Changes to the New COVID-19 Treatments Add-on Payment (NCTAP)

 
CMS, in their response to the pandemic, established the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges during the Public Health Emergency (PHE).  CMS has approved 19 technologies that applied for new technology add-on payments for FFY 2022. This amount includes 9 technologies under the alternative pathway for new medical devices that are part of the FDA Breakthrough Devices Program and 2 that received the FDA Qualified Infectious Disease Product (QIDP) designation. In addition, CMS approved (conditionally) one technology, designated as a QIDP that met the criteria but had not received FDA approval. The remaining seven of these 19 new technologies were submitted under the traditional new technology add-on payment criteria and approved. 
 
CMS will also continue new technology add-on payments for 23 technologies which are currently receiving the add-on payment. Ten of these remain within their newness period and for the remaining 13, CMS will use its exemptions and adjustment authority, for one year, under section 1886(d)(5)(I) of the Act due to the “unique circumstances” for FFY 2022 rate-setting due to the COVID-19 PHE.
 
In total there will be 42 new technologies that will be eligible to receive add-on payments for FFY 2022. CMS estimates these payments to be $1.5bn, which is a 77% increase over FFY 2021 spending.
 
Toyon’s Take
CMS allowing the exemption on the 13 technologies and remain on the NCTAP list will provide additional relief to hospitals at a time when many still desperately need support. Hospitals will continue to have the flexibility awarded by CMS to continue to manage the care for these patients past the PHE. Providing care without these exemptions may have led to disincentives when using these new technologies. Hospitals need to ensure they are capturing these amounts in their claims.
 
Please contact Scott Besler at Scott.Besler@toyonassociates.com with NCTAP reimbursement questions.
 

Finalized Changes to Wage Index

 
Based on the CMS finalized rates for FFY 2022, the occupational mix-adjusted national average hourly wage is estimated to be $46.47, representing an increase of 2.74% from the prior year.
 
Continuation of Prior Year Wage Index Policy Changes
CMS proposed and finalized a policy in FFY2020 to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile, which for FFY 2022 was finalized at a Wage Index Factor (WIF) of 0.8437. Consistent with the finalized policy in FFY 2020 and 2021, in FFY 2022 CMS will “fund” this policy by applying a uniform budget neutrality adjustment. The finalized low wage index hospital policy budget neutrality factor is 0.998035 (compared to 0.997970 in FFY 2021).
 
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 finalized its proposal to continue this policy in FFY 2022 (as it did in FFY 2021) so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.
 
Lastly, in FFY 2021, CMS proposed and finalized changes to specific Core-Based Statistical Areas (CBSAs) based on updated census data as released by the Office of Management and Budget (OMB) in its OMB Bulletin No. 18-04 dated September 14, 2018. In unprecedented fashion, CMS incorporated the revised OMB delineations to CBSAs impacted in FFY2021, which included new CBSAs, urban counties that became rural counties, rural counties that became urban counties, and existing CBSAs that were split apart. CMS finalized its proposal in FFY 2022 to continue to use the OMB delineations adopted beginning with FFY 2015 and updated most recently in OMB Bulletin No. 18-04.
 
As a result of the policy changes noted above, in FFY 2020 and FFY 2021 CMS finalized 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 2021, a hospital could not receive a final wage index that was less than 5% of what it received in FFY2020. While this transition policy was set to expire in FFY2021 and CMS proposed to not include a transition policy in FFY 2022, CMS finalized an extension of the transition policy for FFY 2022. Specifically, for hospitals that received the transition in FFY 2021, CMS is continuing a wage index transition for FFY 2022 where it will apply a 5% cap on any decrease in a hospital’s WIF compared to its WIF for FFY 2021. In accordance with CMS, the transition policy is intended to mitigate significant negative impacts of, and provide additional time for hospitals to adapt to, CMS policy changes described above, specifically the revised OMB delineations. CMS finalized this transition policy on a budget-neutral basis consistent with FFY 2021. The finalized wage index transition budget neutrality factor for FFY 2022 is 0.99987.
 
Click here for a comparison of current and prior WIFs for each hospital as well as a comparison to the Proposed Rule. In addition, CMS Table 2 includes the bottom quartile wage index adjustment as well as where the transition policy cap of 5% applied.
 
Toyon’s Take
Please refer to our FFY 2022 Proposed Rule brief for further discussion on the continuation of the policy changes implemented by CMS as proposed and finalized to continue in FFY 2022. The FFY 2022 Final Rule update relates to the transition policy extension that was not otherwise extended in the Proposed Rule. Despite its good intentions, the extension of the wage index transition policy came with a limitation applied. By limiting the transition cap of 5% to only those hospitals that received it in FFY 2021, the number of hospitals that benefit from the transition cap is minimal (less than 30 hospitals across the country compared to well over 100 in FFY 2021). This is primarily a result of the inclusion of the imputed rural floor for “all-urban” States in FFY 2022. For instance, hospitals in the New Jersey market that were significantly impacted by the revised OMB delineations were “protected” in its wage index reduction to the inclusion of the FFY 2022 imputed rural floor for New Jersey hospitals. See further discussion below on the imputed rural floor for “all-urban” States. On the contrary, with a uniform budget neutrality factor of 0.99987 reducing standardized rates by less than 0.02%, the impact to hospitals not receiving the wage index transition cap is negligible.
 
Occupational Mix Adjustment using Calendar Year (CY) 2019 Survey Data
CMS provides for the collection of data every three years on the occupational mix of employees for each short-term, acute care hospital. In 2016, CMS collected survey data to compute an occupational mix adjustment for the FFY 2019, FFY 2020, and FFY 2021 wage indexes. For FFY 2022, a new measurement of the occupational mix was required using data from CY 2019. CMS finalized its proposal to utilize this data using the same methodology as prior years to calculate an occupational mix adjustment factor. The final unadjusted national average hourly wage is $46.52 compared to the occupational-mix adjusted national average hourly wage of $46.47.
 
Reincarnation of the Imputed Rural Floor in “All-Urban” States
In FFY 2005, CMS adopted an imputed rural floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that argued they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. After extending the imputed rural floor policy eight times since FFY 2005, the policy expired and was not renewed in FFY2018 and has not been included in FFYs 2019 through 2021.
 
However, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS is finalizing permanent reinstatement of the imputed rural floor wage index calculation for hospitals located in “all-urban” States, which refers to States without designated rural areas. In accordance with the American Rescue Plan of 2021, “For discharges occurring on or after October 1, 2021, the area wage index applicable under this subparagraph to any hospital in an all-urban State…may not be less than the minimum area wage index for the fiscal year for hospitals in that State.” CMS is required by the statute to reinstate the previous imputed rural floor methodology, and this rate cannot be less than the imputed rural floor CMS calculated for such States in FFY 2018. Unlike FFY 2018 and prior, the new 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.
 
While not in the Proposed Rule, CMS finalized the imputed rural floor adjustment into the rate-setting, calculation of the wage index and tables of the Final Rule in a non-budget neutral manner. CMS Table 2 (link above) includes the imputed rural floor WIFs for those hospitals that received it in Connecticut, Rhode Island, Delaware, New Jersey, and Washington D.C. (Note: Puerto Rico hospitals are also subject to an imputed rural floor, but no hospitals received the imputed rural floor in FFY 2022.)
 
Other Proposed Changes Impacting Wage Index
  • CMS proposed to make two changes to the timing of a hospital’s request to cancel a previously granted reclassification from urban to rural, which would in effect lock a hospital into its rural status for a longer period. CMS acknowledges that these changes are necessary to address the practice of applying for and canceling rural reclassification to manipulate a State’s rural wage index, which is “detrimental to the stability and accuracy of the Medicare wage index system”. The proposed two changes are described below.
    • First, CMS proposed that requests to cancel rural reclassifications be submitted to the CMS Regional Office no earlier than one calendar year after the date when the reclassification became effective, and
    • Second, CMS proposed to replace an existing rule, which requires cancellation of reclassification no later than 120 days prior to the end of Federal Fiscal Year to be effective at the beginning of the next Federal Fiscal Year, with a requirement that cancellation requests become effective in the Federal Fiscal Year that begins in the calendar year after the calendar year in which the request was submitted.
 
CMS finalized its proposed policy for the cancellation of rural reclassifications to be effective until no earlier than one calendar year after the date when the reclassification became effective, which will be reflected in the corresponding regulation – CFR §412.103(g)(4). However, CMS delayed the proposal to require cancellation requests to be effective in the Federal Fiscal Year that begins in the calendar year after the calendar year in which the request was submitted. CMS stated that it will delay this proposal to revise it further in order to assure the policy effectively targets the form of wage index manipulation it intends to deter.
 
  • For all IPPS hospitals whose wage indexes are greater than 1.000, CMS finalized its proposal in FFY 2022 to apply the wage index to the proposed labor-related share of 67.6% of the national standardized amount, compared to 68.3% in FFY 2021.
 
Please contact Ryan Sader at Ryan.Sader@toyonassociates.com with any wage index questions.
 

Finalized Changes to Uncompensated Care DSH

 
CMS proposes to decrease Medicare UC DSH payments by $1.1bn, to $7.2bn in FFY 2022.  This decrease is primarily due to estimated FFY 2022 DSH payments under the “empirical” method[1] – including data from the PHE – in the determination of “Factor 1”.  Specifically, the $103m update[2] in the Factor 1 computation includes update factors inclusive of data from the PHE (notably discharges and Medicaid enrollment) and is significantly less than prior year updates (e.g., $1.170bn in FFY 2021).
 
[1] In the Factor 1 calculation, CMS first determines Medicare DSH payments in the absence of UC DSH payments under the ACA (section 1886(r)(1) of the Act). Data from the Office of the Actuary’s January 2021 Medicare DSH estimates, based on data from the March 31, 2021 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2021 IPPS/LTCH PPS final rule IPPS Impact File.
[2] Updates include Market Basket (Update Factor component), ACA Payment Reductions (Update Factor component), Multifactor Productivity Adjustment (Update Factor component), Documentation and Coding (Update Factor component), Discharge Factor, Case-Mix Index Factor, and an Other Factor.  
 
Furthermore, CMS decreased Final FFY 2022 Medicare UC DSH payments by $436m as compared to the $7.6bn in the FFY 2022 Proposed Rule.  This decline is driven by a decrease in CMS’ estimated uninsured patients for FFY 2022 (“Factor 2”). CMS highlights the uninsured projection has decreased due to a “faster-than-anticipated employment growth, an improving economic outlook based on a consensus of the Blue-Chip forecasters, and substantial recent and anticipated, temporary increases in Medicaid enrollment”.
 
 
CMS finalized one significant change for FFY 2022 only using an average of two years discharge data (FY 2018 and FY 2019), rather than a three-year average that would include data from the PHE (FY 2018, FY 2019, and FY 2020). CMS also finalized new trims to exclude rare cases hospitals do not have audited FY 2018 Worksheet S-10 data and are not currently projected to be DSH eligible.  
 
Toyon’s Take
Decreasing UC DSH Payments
 
CMS’ use of discharges and Medicaid enrollment data from the PHE (“Factor 1”), combined with a projection of decreasing uninsured population (“Factor 2”), significantly lowers hospital FFY 2022 UC DSH payments.  The amount of UC costs incurred by DSH hospitals has increased each year (e.g., $1.2 billion, or 3.6%, from FFY 2021 to FFY 2022), however, the UC DSH pool is decreasing. For instance, in FFY 2021 hospitals received 25% of UC costs from FY 2017 cost reports. In FFY 2022, hospitals are receiving lower reimbursement at 21% of UC costs from FY 2018 cost reports. A hospital’s UC cost had to increase 20% from FY 2017 to FY 2018 just to break even in FFY 2022 and maintain UC DSH payments at FFY 2021 levels. 
 
New Proposed WS S-10 Reporting Instructions
 
As commenters provided CMS suggestions for recording UC costs on Worksheet S-10, CMS highlights that it will respond in a separate impending Federal Register. CMS’ comments will relate to proposed cost report instructions per the November 10, 2020, Federal Register (85 FR 71653). Please feel free to read Toyon’s article on CMS’ proposed S-10 instructions. This article was used as part of Toyon’s contribution to the American Health Lawyers 2021 Institute on Medicare and Medicaid Payment Issues. Notable proposed changes to S-10 UC reporting include:
 
  • Charity Care and Uninsured Discounts for “Medically Necessary” services only
  • Shift to Short Term Hospital Services Only
  • Split between patient coinsurance, copayment deductibles vs. other patient liabilities
  • Clarification on the reporting of Implicit Price Concessions and Inferred Contractual Relationships
  • New Reporting Tables for Charity Care and Bad Debt Information  
 
Please contact Fred Fisher at Fred.Fisher@toyonassociates.comwith any UC DSH questions.
 
There were three provisions contained in the Consolidated Appropriations Act of 2021 (“CAA”) which will affect IME and GME payments to teaching hospitals as well as new requirements for submission of resident data through the Intern and Resident Information System (IRIS).
 
CMS noted that the FY 2022 IPPS/LTCH PPS proposed rule included our proposals related to the implementation of the provisions of the Consolidated Appropriations Act (CAA) of 2021 related to payments to hospitals for direct graduate medical education (GME) and indirect medical education (IME) costs.
 
Please refer to the proposed rule (86 FR 25502 through 25524) as well as our summary released May 14, 2021, which can be found on this link, for additional background information on these proposals. Due to the number and nature of the comments that we received on the implementation of sections 126, 127 and 131 of the CAA of 2021 relating to payments to hospitals for direct GME and IME costs, we will address public comments associated with these issues in future rulemaking.
 
Please contact Tom.Hubner@toyonassociates.com with IME/GME questions.
 

Organ Acquisition Payment Policies

 
There were several changes in CMS’ FFY 2022 IPPS/LTCH PPS Proposed Rule regarding the regulation of organ acquisition reimbursement. Some of these changes codify existing Medicare organ acquisition payment policies, that are currently in the Provider Reimbursement Manual (PRM). Other proposed changes codify new organ acquisition payment policies. Please note these changes are CMS’s response to statutory directives in both the recent 21st Century Cures Act, which expanded Medicare coverage for kidney acquisition costs, as well as the Medicare Modernization Act of 2003. 
 
CMS mentions that the FFY 2022 IPPS/LTCH PPS Proposed Rule included their proposals related to the organ acquisition payment policy for transplant hospitals, donor community hospitals, and organ procurement organizations.
 
Please refer to the Proposed Rule (86 FR 25656 through 25676), as well as our summary released May 14, 2021, which can be found on this link, for additional background information on these proposals. Due to the number and nature of the comments that we received on the organ acquisition payment policy proposals we will address public comments associated with these issues in future rulemaking.
 
Toyon’s Take
CMS’s delay in applying its proposed changes will now allow the donor community to collaborate within its groups as well as with CMS and its leaders to formulate a plan which can allow for an agreement on collection of data from transplant hospitals and organ procurement organizations to calculate their share of costs.
 
Recommendation: Toyon recommends the industry continue to review and monitor the potential impact these regulations will have on their facility.
 
Please contact Scott Besler at Scott.Besler@toyonassociates.com with Organ Acquisition reimbursement questions.
 

FFY 2022 Value-Based Purchasing (VBP) Program, Hospital Readmission Reduction (HRR), and Hospital Acquired Conditions (HAC) Update

 
CMS will provide all hospitals with a neutral score for FFY 2022 VBP adjustment. This is a result of many measures impacted but the PHE. CMS also will finalize its measure suppression policy for certain measures in the Readmissions and Hospital-acquired Conditions (HAC) Reduction programs impacted by the PHE. Please note that the hospitals will be scored for their FFY 2022 Readmissions and HAC Reduction programs using the remaining measures.
 
Please contact Scott Besler at Scott.Besler@toyonassociates.com with questions.  
 

Empirical DSH – Section 1115 Waiver Days

 
The FFY 2022 Proposed Rule states Section 1115 days may be counted in the numerator of the Medicaid fraction only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan that includes coverage for inpatient hospital care on that day or directly receives inpatient hospital insurance coverage on that day under a Section 1115 waiver. This excludes patient days for which hospitals receive payment from an uncompensated care pool.
 
CMS will continue to review the large number of comments on the proposed revision to the regulation relating to the treatment of section 1115 waiver days for purposes of the DSH adjustment. Due to the number and nature of the comments that CMS received in the FFY 2022 IPPS/LTCH PPS Proposed Rule, they intend to address the public comments in a separate document. 
 
Toyon’s Take
This has not been finalized and Toyon will continue to monitor any updates issued by CMS.
 
Please contact Dylan Chinea at Dylan.Chinea@toyonassociates.com with empirical DSH questions.
 

Medicare Bad Debt

 
The FFY 2022 Proposed Rule requires State Medicaid programs to accept enrollment of all Medicare-enrolled providers and suppliers (even if the provider or supplier is not recognized as eligible to enroll but meets all Federal Medicaid enrollment requirements) for purposes of processing Medicare-Medicaid dual eligible claims for cost-sharing liability. State Medicaid programs must comply for dates of service beginning January 1, 2023.
 
Toyon’s Take
The “must bill” policy is still in place. This should create additional opportunity for providers to claim Medicare bad debt on the cost report. CMS is hopeful this policy will result in a reduction in the number of future bad debt appeals.  
 
For questions regarding DSH and Medicare Bad Debt, contact Dylan.Chinea@toyonassociates.com.
 

Should you have further questions about these changes and wish to discuss them, please contact the scott.besler@toyonassociates.com.

 

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Inpatient Prospective Payment System Proposed Rule – FFY2022

CMS-1752-P drafted on 4/27/2021; Published in the Federal Register on 5/10/2021
 
On April 27, 2021, the Centers for Medicare & Medicaid Services (CMS) issued the Federal Fiscal Year (FFY) 2022 Inpatient Prospective Payment System (IPPS) Proposed Rule.  The Proposed Rule builds on key priorities to close health care equity gaps and support greater access to life-saving diagnostics and therapies during the public health emergency (PHE) and beyond. CMS proposes to create polices supporting a hospital’s readiness to respond to future public health threats and develop the health care workforce in rural and underserved communities.  CMS proposes to revise their reporting requirements for scoring, payment, and public quality data in their effort to reduce the adverse impacts of the pandemic and any future unplanned events.  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, 2021
 
Due to the PHE, CMS provides two data sets on the FFY2022 IPPS Proposed Rule Home Page for projecting Medicare IPPS payments in FFY2022. CMS provides data 1) excluding (and before) the PHE; and 2) including the PHE (i.e., “alternative” data). Notably, the alternative data uses discharges and case-mix indices (during the PHE) from FFY2020 MedPAR and FFY2019 cost reports. The proposed data (before the PHE) uses discharges and case-mix indices from FFY2019 MedPAR and FFY2018 cost reports. CMS proposes to use data before the PHE, stating alternative data (inclusive of PHE) is “less suitable for FFY2022 rate setting.”  Toyon estimates national FFY2022 IPPS payments excluding PHE data at $130bn, $13bn (11%) greater than estimated national payments of $117bn including PHE data.  Please contact Fred Fisher at fred.fisher@toyonassociates.com for a free evaluation of CMS’s proposed FFY2022 IPPS payments for your hospital(s).  
 
CMS proposes to establish new requirements and revise existing requirements for the Hospital Value-Based Purchasing (VBP) Program, Hospital Readmissions Reduction Program, Hospital-Acquired Condition (HAC) Reduction Program, Hospital Inpatient Quality (IQR) Reporting Program, Long Term Care Hospital (LTCH) Quality Reporting Program, PPS-Exempt Cancer Hospital Reporting (PCHQR) Program, and the Medicare Promoting Interoperability Program.  CMS proposes to “suppress” measurements impacted by the PHE, to “ensure these programs do not reward or penalize hospitals based on circumstances caused by the PHE for COVID-19 that the measures were not designed to accommodate.” In addition, CMS is requesting comments regarding the modernization of the quality measurement enterprise to digital quality measurement. 
 
Overall, the proposed rule is projected to result in an estimated increase of $2.5bn in payments to providers.  Included in that amount is a reduction of approximately $0.9bn in Medicare DSH and Uncompensated Care payments.  Increases to hospital payments before the DSH and UC reduction for FFY 2022 is $3.4bn (2.8 percent). 
 
Comments must be sent to CMS no later than 5 p.m. EDT on June 28, 2021 at the applicable address provided in each section of the Proposed Rule or submitted electronically at http://www.regulations.gov.  When commenting, please refer to file code CMS-1752-P. 
 
Rural Redesignation Update 
In addition to the Proposed Rule, CMS has issued an Interim Final Rule with Comment (IFC) amending current regulations at § 412.230.  This amendment would allow hospitals with a rural redesignation to reclassify through the Medicare Geographic Classification Review Board (MGCRB) using the rural reclassified area as its geographic location.  These regulatory changes align CMS policy with the decision in Bates County Memorial Hospital v. Azar, 464 F. Supp. 3d (D.D.C. 2020).  See also https://www.cms.gov/newsroom/press-releases/cms-proposes-enhance-medical-workforce-rural-and-underserved-communities-support-covid-19-recovery

 
Medicare IPPS Base Rates
 
CMS is proposing a base rate increase of 2.8% for hospitals, mostly driven by a market basket increase of 2.5%, reduced by 0.2% and the reversal of the MACRA coding adjustment of 0.5%. The FY 2021 budget neutrality factors for Allogenic Stem Cell Acquisition as well as Transition have not been applied for FY 2022.
 
Click here for the full base rate calculation table and comparison to prior year.

 
Proposed Repeal of Market-based Data Collection, MS-DRG Relative Weights
 
CMS proposes to repeal the requirement that a hospital include on the Medicare cost report the median payer-negotiated inpatient services charges for Medicare Advantage organizations by MS-DRG, for cost reporting periods ending on or after Jan. 1.
 
CMS is also proposing to repeal, effective FFY2024, the market-based MS-DRG relative weight methodology effective that would have used these data to set relative Medicare payment rates for hospital procedures. Rather, CMS would continue using the existing rate-setting methodology for FFY2024 and subsequent years.

 
Changes to the New COVID-19 Treatments Add-on Payment (NCTAP)
 
CMS, in their response to the pandemic established the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges during the Public Health Emergency (PHE). CMS expects that hospitals will continue to witness inpatient cases of COVID-19 beyond the end of the PHE. As a result of CMS’s effort to continue to mitigate potential financial disincentives for hospitals in their providing of new COVID-19 treatments as well as to minimize any potential payment disruption immediately following the end of the PHE, CMS proposes to extend the NCTAP payments for eligible COVID-19 products for through the end of the fiscal year in which the PHE ends.
 
CMS is also proposing to discontinue NCTAP for discharges on or after Oct. 1, 2021 for a product that is approved for new-technology add-on payments beginning in FFY2022.

 
Changes to Wage Index
 
Based on the CMS proposed rates for FFY2022, the occupational mix adjusted national average hourly wage is estimated to be $46.37, representing an increase of 2.52% from the prior year.
 
Continuation of Prior Year Wage Index Policy Changes
CMS proposed and finalized a policy in FFY2020 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 0.8418 in FFY2021). 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 because of the higher wage index. Accordingly, CMS is proposing to continue this policy in FFY2022. Consistent with the finalized policy in FFY2020 and 2021, in FFY2022 CMS will “fund” this policy by applying a uniform budget neutrality adjustment. The proposed low wage index hospital policy budget neutrality factor is 0.998108 (compared to 0.997970 in FFY2021).
 
Also, in FFY2020, 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 FFY2022 (as it did in FFY2021) so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.
 
Lastly, in FFY2021, CMS proposed and finalized changes to specific Core-Based Statistical Areas (CBSAs) based on updated census data as released by the Office of Management and Budget (OMB) in its OMB Bulletin No.18-04 dated September 14, 2018. In unprecedented fashion, CMS incorporated the revised OMB delineations to CBSAs impacted in FFY2021, which included new CBSAs, urban counties that became rural counties, rural counties that became urban counties, and existing CBSAs that were split apart. CMS is proposing in FFY2022 to continue to use the OMB delineations adopted beginning with FFY2015 and updated most recently in OMB Bulletin No. 18-04.
 
As a result of the policy changes noted above, in FFY2020 and FFY2021 CMS finalized 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 FFY2021, a hospital could not receive a final wage index that was less than 5% of what it received in FFY2020. While this transition policy was set to expire in FFY2021 and as proposed, CMS did NOT include a transition policy in FFY2022, CMS acknowledged the ongoing Public Health Emergency (PHE) in the Proposed Rule and is seeking comment on whether it is appropriate to apply a transition policy to the FFY2022 wage index. If CMS were to apply a transition to the FFY2022 wage index for hospitals that are negatively impacted by any of the policy changes described above, CMS is also seeking comment if it is appropriate to apply a transition policy in a budget neutral manner as it did in FFY2020 and FFY2021. In FFY2021, the transition policy’s budget neutrality factor was 0.998851.
 
 
Toyon’s Take
The continuation of the policy changes implemented by CMS over the course of the last two years of rulemaking is not surprising and was anticipated. However, the potential continuation of a transition policy is a bit surprising. The revised OMB delineations notably impacted urban hospitals in the Northeast, primarily New York-New Jersey, as a number of counties were redefined to new CBSA designations and “moved out” of New York City which historically has produced a higher wage index for such hospitals. While the impact to these hospitals was mitigated in FFY2021 due to the transition policy, beyond FFY2021 the impact was likely to be significant and the continuation of a transition policy would be a welcome relief to continue to mitigate this potential impact. However, as noted and discussed further below, a potential transition policy will not mitigate the impact for these hospitals in FFY2022 due to the proposed inclusion of an imputed rural floor for “all-urban” States, which as proposed, includes New Jersey, Delaware, Rhode Island, Washington D.C., and Connecticut.
 
Toyon applauds CMS’s efforts to recognize the PHE and its overall financial impact on the provider community. We encourage hospitals to comment on the proposed transition policy and its potential financial benefit, where applicable, noting that an applied budget neutrality factor of 0.998851 (from FFY2021) will reduce payments overall by approximately 0.10%.
 
Proposed Occupational Mix Adjustment using Calendar Year (CY) 2019 Survey Data
CMS provides for the collection of data every three years on the occupational mix of employees for each short-term, acute care hospital. In 2016, CMS collected survey data to compute an occupational mix adjustment for the FFY2019, FFY2020 and FFY2021 wage indices. For FFY2022, an updated measurement of occupational mix was required using data from CY2019. CMS is proposing to utilize this data using the same methodology as prior years to calculate an occupational mix adjustment factor. CMS provides analysis in the Proposed Rule pertaining to the impact of the occupational mix adjustment on provider types (e.g., urban vs. rural) which is consistent with previous years. The unadjusted national average hourly wage is $46.42 compared to the occupational mix adjusted national average hourly wage of $46.37.
 
Reincarnation of the Imputed Rural Floor in “All-Urban” States
In FFY2005, CMS adopted an imputed rural floor policy as a temporary three-year regulatory measure to address concerns from hospitals in all-urban States that argued they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. After extending the imputed rural floor policy eight times since FFY2005, the policy expired and was not renewed in FFY2018 and has not been included in FFYs 2019 through 2021.
 
However, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS proposes 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. In accordance with the American Rescue Plan of 2021, “For discharges occurring on or after October 1, 2021, the area wage index applicable under this subparagraph to any hospital in an all-urban State…may not be less than the minimum area wage index for the fiscal year for hospitals in that State.”
 
CMS is required by the statute to reinstate the previous imputed rural floor methodology, and this rate cannot be less than the imputed rural floor CMS calculated for such States in FFY2018. Unlike FFY2018 and prior, the new 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 indices. Toyon is collaborating with hospitals and associations in these all-urban States to calculate estimate benefit.
 
In the FFY2022 Proposed Rule, CMS does not account for application of the imputed rural floor impact as there was “not sufficient time available to incorporate the recently enacted statutory provision providing for the imputed floor adjustment in a non-budget neutral manner beginning in FFY2022 into the rate setting, calculation of the wage index and tables…” CMS plans to include the imputed rural floor adjustment into rate setting, calculation of the wage index and tables of the Final Rule.
 
 
 
Other Proposed Changes Impacting Wage Index
– CMS proposes to make two changes to the timing of a hospital’s request to cancel a previously granted reclassification from urban to rural, which would in effect lock a hospital into its rural status for a longer period. CMS acknowledges that these changes are necessary to address the practice of applying for and canceling rural reclassification to influence a State’s rural wage index, which is “detrimental to the stability and accuracy of the Medicare wage index system”. These two changes are described below.
  • First, CMS proposes that requests to cancel rural reclassifications be submitted to the CMS Regional Office no earlier than one calendar day after the date when the reclassification became effective, and
  • Secondly, CMS proposes to replace an existing rule, which requires cancellation of reclassification no later than 120 days prior to the end of Federal Fiscal Year to be effective at the beginning of the next Federal Fiscal Year, with a requirement that cancellation requests become effective in the Federal Fiscal Year that begins in the Calendar Year after the Calendar Year in which the request was submitted.
 
– In a separate interim final rule released in conjunction with the Proposed Rule, CMS is applying a decision from 2020 in the U.S. District Court for D.C. that requires CMS to treat hospitals reclassified as rural as rural for the purpose of comparing its average hourly wage data. Previous policy stated that a hospital that opted to reclassify from urban to rural was required to compare its average hourly wage data to that of the urban area where the hospital was physically located rather than the Statewide rural area (e.g., the “106% average hourly wage test”). The court decision ruled that CMS’s previous policy violated the Medicare Act and thereby, CMS is changing its policy effective immediately without a comment period.
 
  • With the release of the FFY2022 Proposed Rule on April 27, 2021, the specified “lock-in” date for hospitals to be included in the rural wage index calculation for FFY2022 is established as proposed as June 28, 2021. In addition, Medicare Geographic Classification Review Board (MGCRB) reclassification withdrawals will need to be submitted to the MGCRB no later than 45 days after the Proposed Rule is published in the Federal Register, which was May 10, 2021, thereby confirming a deadline of June 24, 2021.
 
Toyon’s 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 all IPPS hospitals whose wage indexes are greater than 1.000, CMS proposes in FFY2022 to apply the wage index to the proposed labor-related share of 67.6% of the national standardized amount, compared to 68.3% in FFY2021.
 
For additional information regarding wage index changes or updates, please contact Ryan Sader at ryan.sader@toyonassociates.com

 
Proposed Changes to Indirect and Direct Graduate Medical Education (IME and GME)
 
There are three provisions contained in the Consolidated Appropriations Act of 2021 (“CAA”) which will affect IME and GME payments to teaching hospitals as well as new requirements for submission of resident data through the Intern and Resident Information System (IRIS). 
 
Additional IME and GME Slots
Section 126 of the CAA will make available 1,000 new resident FTE cap slots funded by Medicare over five years (no more than 200 per year), starting 7/1/2023. These cap slots will be distributed to hospitals that are included in the following four categories: 
 
  1. Hospitals located in rural areas or that are treated as being in a rural area. 
  2. Hospitals that are training residents over their cap amount
  3. Hospitals located in the 35 states (listed in the rule) with new medical schools or additional locations and branches of existing campuses. 
  4. Hospitals whose campuses or provider-based facilities serve areas that are designated as Health Professional Shortage Areas (“HPSAs”). 
 
HPSA scores will be a key criterion for all four categories, not just category 4. As an alternative methodology, CMS is considering a prioritization approach for FY 2023 in which the 200 additional residency positions would simply go to hospitals that qualify under one or more of the listed categories. Higher priority is given to those that qualify in multiple categories. Under either methodology, CMS is proposing to limit the new cap slots to 1 FTE per hospital. Applications for the first year’s 200 slots will be due 1/31/2022 for slots effective 7/1/2023. 
 
 
Proposal for Implementation of Section 127 of the CAA, ‘‘Promoting Rural Hospital GME Funding Opportunity’’
Section 127 of the CAA is intended to provide flexibility for both rural and urban hospitals in partnerships that will focus on the need for additional physicians in rural markets. The agency proposes four changes to the rural training track (“RTT”) program.
 
  • The first change is in reference to Cap Adjustments for Urban and Rural Hospitals Participating in Rural Training Track Programs. It is proposed that each time a RTT program begins between an urban and rural hospital, both may receive a “rural track FTE limitation” regardless of whether the RTT program meets the newness criteria for Medicare payment purposes.
  • The second change, Cap Adjustments When the Urban Hospital Adds Additional Rural Training Tracks, proposes that urban hospitals with existing RTT caps can receive RTT cap adjustments for additional RTT programs. Rural hospitals would also receive an RTT cap increase. 
  • The third proposed change, Removal of Requirement That Rural Track Must Be ‘‘Separately Accredited,’’ would remove the requirement that RTT programs be separately accredited. This is provided that the program in its entirety is accredited by the ACGME, and at least 50% of the residents’ time is spent in rural areas. If these conditions are met, then it may qualify as a RTT and both hospitals (urban and rural) will receive RTT caps. 
  • The fourth change, Exemption From the 3-Year Rolling Average During the 5-Year Rural Track FTE Limitation Window, proposes that the RTT program residents will not be included in the hospital’s 3-year rolling average resident cap calculation during the build-up period. 
Hospitals Qualifying to Reset Their FTE Resident Caps
Section 131 of the CAA provides an opportunity for hospitals with previously established low or zero per resident amounts and/or FTE caps to establish new per resident amounts (PRA) and FTE caps. Eligible hospitals fall into two categories:
 
  • Category A – hospitals whose PRA and/or resident cap was set based on less than 1.0 FTE in a cost reporting period beginning before October 1, 1997. 
  • Category B – hospitals whose PRA and/or resident cap was established based on training less than 3.0 FTEs in a cost reporting period beginning on or after October 1, 1997 and before December 27, 2020.  
CMS proposes that these eligible Category A hospitals will have a new PRA established if they train at least 1.0 FTE and Category B hospitals would be eligible if they train more than 3.0 FTEs in a cost reporting period beginning on or after December 27, 2020 and before December 26, 2025. In order to be eligible for a revised FTE cap (not for a PRA), the hospital would have to start a brand-new program after 12/27/2020. 
 
Proposal for Intern and Resident Information System (IRIS) Data
Effective for cost reporting periods that begin after October 1, 2021, the regulations (42 C.F.R. § 413.24(f)(5)(i)) that govern IRIS data are proposed to be amended. The amendment will now state that submitted IRIS data must contain the same total counts of direct GME FTE residents (unweighted and weighted) and of IME FTE residents as the total counts of direct GME FTE and IME FTE residents reported in the hospital’s cost report, or the cost report will be rejected for lack of supporting documentation.
 
Toyon’s Take
The benefit of the additional 1,000 cap slots is quite limited (1 FTE per hospital for each of the five years in the roll-out). Hospitals must commit to increasing their FTE count for the new cap slot(s); they cannot just use them for an existing FTE excess over cap. There will likely be a lot of competition for the 1,000 new cap slots, and CMS is clearly prioritizing hospitals in the most severe HPSAs, using the 1-25 HPSA scale. Other hospitals may not have much of a chance to win the cap slots. While 1,000 new slots is a start, much more relief is needed to have a real impact on national physician shortages.
 
The RTT rules provide much more flexibility and benefits to hospitals that create these training tracks, by incenting both the urban hospital and its rural partners, and by eliminating some of the prior limitations. The opportunity to re-set PRAs and caps is designed to provide significant relief to the fairly small number of hospitals that were saddled with small PRAs or caps due to the strict application of prior rules. 
 
Please contact tom.hubner@toyonassociates.com with IME/GME questions.

 
Implications of Using FFY2019 Data for New Technology Add-on Payment
 
IPPS payments are generally based on the most recently available Medicare claims and cost report data. These sources tend to have a lag of 2-to-3 years, and as a result, the statute provides temporary additional payments for cases with high costs under the New Technology Add-on Payment (NTAP) policy. 
 
Medicare, because of this policy, is required to pay the applicable MS-DRG payment rate and up to an additional 65 percent (75 percent for certain antimicrobials) of the cost approved new technology. The new technology add-on payment is not budget neutral and is generally limited to the 2-to 3-year period following the date of the FDA approval or clearance for marketing.
 
For FFY2022, in connection with CMS’s proposal to use FFY2019 instead of FFY2020 data for FFY2022 IPPS rate setting, CMS is proposing a one-year extension of new technology add-on payments for 14 technologies for which the new technology add-on payment would otherwise be discontinued beginning FFY2022.

 
Organ Acquisition Payment Policies
 
There are several changes CMS proposes regarding the regulation of organ acquisition reimbursement. Some of these changes codify existing Medicare organ acquisition payment policies, that are currently in the Provider Reimbursement Manual (PRM).  Other proposed changes codify new organ acquisition payment policies.  Please note these changes are CMS’s response to statutory directives in both the recent 21st Century Cures Act, which expanded Medicare coverage for kidney acquisition costs, as well as the Medicare Modernization Act of 2003. 
 
Use of consistent terminology and Proposed definitions 
According to CMS, to ensure consistent terminology, CMS proposes to add definitions to 42 C.F.R. § 413.400.  This will further define the terms organ, Organ Procurement Organization (OPO), Hospital-Based Organ Procurement Organization (HOPO), transplant hospital (TH), and transplant program (42 C.F.R. 482.70 § 413.400 new subpart L).  CMS also will revise the term freestanding (42 C.F.R. § 413.200(b)), histocompatibility laboratory (42 C.F.R. § 493.1227 and 42 C.F.R. § 413.400, new subpart L), and standard acquisition charge. CMS states clarification of these terms and even the proposed definition for organ that differs from the OPO Conditions for Coverage (CfCs), will “mitigate potential stakeholder confusion.” 
 
Organ Acquisition Costs 
CMS is proposing to add § 413.402(a) to new subpart L that will codify the 12 elements regarding costs incurred in the acquisition of organs (living/cadaveric by hospital or an OPO). This revision applies existing elements of kidney acquisition costs to all organs and includes additional changes applying to kidney acquisition only (costs for registration of a beneficiary for a kidney transplant and costs for registration of a beneficiary for a non-renal transplant).  CMS will also clarify and codify provisions regarding the Standard Acquisition Charges (SACs) for THs/HOPOs. CMS further proposes in this section to limit registration fees to OPTN registration fees based on reasonable cost principles and to codify surgeon fees are “included as kidney acquisition costs only when the kidney excision occurs with a cadaveric donor.”. When a living donor enters the hospital for the actual kidney excision, surgeon fees for excising the kidney are not included as kidney acquisition costs. 
 
Services Not Considered Organ Acquisition Costs 
CMS is proposing to establish rules identifying costs that are non-reimbursable which may be incurred during organ acquisition and transplant, including, but not limited to:  burial and funeral expenses for cadaveric donors, costs associated with transportation of a living or cadaveric donor, costs incurred prior to a potential donor being declared brain dead, fees or in-center payments for donor referrals, costs associated with OPO sponsored seminars where continuing education credits are given, and certain costs incurred for administrator’s duties associated with professional organizations. 
 
Medicare’s Share of Acquisition Costs and Counting of Organs 
CMS is proposing to change their policy in the identification of each donor beneficiary to determine whether the recipient is a Medicare patient.  CMS states this will ensure the TH/OPO organ acquisition costs are more accurately applied to the Medicare program. CMS proposes changes to OPOs and their reporting requirements.   Total usable organs for THs/OPOs will now be included into one of ten subcategories.  CMS states these categories will more accurately explain various situations, including “organs transplanted into non-Medicare beneficiaries.” Organs not transplanted into Medicare patients are accounted to determine Medicare usable organs.  Additionally, CMS further proposes policy changes on organ acquisition charges for kidney-paired exchanges in section k on page 25669 which include the tables below. 
 
Toyon’s Take 
CMS’s proposed changes are in effort to create a more accurate payment of the Medicare program’s share of organ acquisition costs.  CMS plans to use their collection of data from transplant hospitals and organ procurement organizations to calculate their share of costs. 
 
Recommendation: Toyon recommends the industry consider commenting on how this may not only impact current operations of your transplant services but future implications this may have on securing organs for use.  

 
Medicare DSH Uncompensated Care (UC) Payments
 
CMS proposes to decrease Medicare UC DSH payments by $662m, to $7.6bn in FFY2022.  This decrease is primarily due to estimated DSH payments under the “empirical” method[1] – including data from the PHE – in the determination of “Factor 1.”  Specifically, the $167m update[2] in the Factor 1 computation includes data from the PHE (notably discharges and Medicaid enrollment[3]) and is significantly less than prior year updates (e.g., $1.170bn in FFY2021).
 
[1] In the Factor 1 calculation, CMS first determines Medicare DSH payments in the absence of UC DSH payments under the ACA (section 1886(r)(1) of the Act). Data from the Office of the Actuary’s January 2021 Medicare DSH estimates, based on data from the September 2020 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FFY2021 IPPS/LTCH PPS final rule IPPS Impact File.
[2] Updates include Market Basket (Update Factor component), ACA Payment Reductions (Update Factor component), Multifactor Productivity Adjustment (Update Factor component), Documentation and Coding (Update Factor component), Discharge Factor, Case-Mix Index Factor, and an Other Factor. 
[3] The FFY2022 IPPS Proposed Rule updates include COVID-19 PHE Data, as follows:
“Discharge Updates for changes in the number of Medicare fee-for-service (FFS) inpatient hospital discharges. The figures for FFY 2019 and FFY2020 are based on Medicare claims data…The discharge figure for FFY2021 is based on preliminary data. The discharge figure for FFY2022 is an assumption based on recent trends recovering back to the long-term trend and assumptions related to how many beneficiaries will be enrolled in Medicare Advantage (MA) plans. The discharge figures for FFY2020 to FFY2022 reflect the estimated impact of the COVID-19 pandemic. The case-mix column shows the estimated change in case-mix (from 2018) for IPPS hospitals.
The case-mix figures for FFY2019 and FFY2020 are based on actual data adjusted by a completion factor. The case-mix figure for FFY2021 is based on preliminary data. The case-mix factor figures for FFY2020 and FFY2021 have been adjusted for the estimated impact of the COVID-19 pandemic. The FFY\2022 increase is an estimate based on the recommendation of the 2010 2011 Medicare Technical Review Panel. 
The “Other” update shows the increase in other factors that contribute to the Medicare DSH estimates…In addition, the “Other” column includes a factor for the Medicaid expansion due to the Affordable Care Act…The ‘‘Other’’ column also includes the estimated impacts on Medicaid enrollment from the COVID-19 pandemic. We note that, based on the most recent available data, it is estimated that Medicaid enrollment increased by 2.9 percent in FFY2020 and will increase by an additional 1.2 percent in FFY\2021.”

 
In the Factor 3 distribution of each DSH hospital’s UC DSH allotment, CMS proposes one significant change, accounting for COVID-19, only using an average of two years discharge data (FFY2018 and FFY2019), rather than a three-year average that would include data from FFY2018, FFY2019, and FFY2020. CMS also proposes new trims to exclude rare cases hospitals do not have audited FFY2018 Worksheet S-10 data and are not currently projected to be DSH eligible. 
 
Hospitals have 60 days from the date of public display of the FFY2022 IPPS/LTCH PPS proposed rule in the Federal Register (no later than 5 p.m. EDT on June 28, 2021) for comments. Related to proposed FFY2022 UC DSH payments, comments may be directed to Section3133DSH@cms.hhs.gov for issues concerning:
 
Toyon is in the process updating our national analysis to assist our clients with the evaluation of FFY2018 used for FFY2022 UC DSH payments. We will be providing this analysis over the coming weeks.
 
Toyon’s Take
Inclusion of certain PHE data
The proposed inclusion of discharges and Medicaid enrollment data from the PHE in the “Factor 1” calculation significantly lowers FFY2022 UC DSH payments. Toyon estimates at least an additional $1 billion in FFY2022 funding if CMS used the same discharge and other factor update in FFY2022 as it did in 2021. 
 
Recommendation: Toyon recommends the industry consider commenting to freezing data prior to the PHE, allowing more time to evaluate national Medicare Uncompensated Care funding considering on-going COVID-19 healthcare issues. 
 
Notably, in the FFY2022 IPPS Propose Rule, CMS notes in developing Medicaid expansion estimates, the Agency’s actuaries “assumed new Medicaid enrollees are healthier than the average Medicaid recipient and, therefore, use fewer hospital services”. Specifically, CMS cites the Office of the Actuary assumed per capita spending for Medicaid expansion beneficiaries at 78 percent of the average per capita expenditures for a pre-expansion Medicaid beneficiary. CMS further notes this same assumption was used for the new Medicaid beneficiaries who enrolled in 2020 and thereafter due to the COVID–19 pandemic.
 
New S-10 Cost Reporting Instructions for FFY2021 Cost Reports
Through the Paper Reduction Act (PRA), CMS proposed new cost report instructions in the November 10, 2020 Federal Register (85 FR 71653) at https://www.govinfo.gov/content/pkg/FR-2020-11-10/pdf/FR-2020-11-10.pdf.  Notable proposed changes to worksheet S-10 UC cost are discussed in further detail on Toyon’s website at:
 
https://www.toyonassociates.com/2021/03/18/uncompensated-care-dsh/. This article was used as part of Toyon’s contribution to the American Health Lawyers 2021 Institute on Medicare and Medicaid Payment issues. Notable proposed changes to S-10 UC reporting include:
 
  • Shift to Short Term Hospital Services Only
  • Split between patient coinsurance, copayment deductibles vs. other patient liabilities
  • Clarification on the reporting of Implicit Price Concessions and Inferred Contractual Relationships
  • New Reporting Tables for Charity Care and Bad Debt Information 
In the FFY2022 IPPS Proposed Rule, CMS thanks stakeholders for their comments on the PRA package and states the Agency will respond to industry comments in a separate Federal Register document. 
 
Recommendation: Toyon recommends CMS postpones its proposed instructions allow providers more time to adapt to the operational changes and prepare for the impact of these changes. 
 
FFY2018 UC Cost and Source HCRIS Data
CMS used HCRIS data through February 19, 2021 for FFY2022 UC DSH payments in the FFY2022 IPPS Proposed Rule. The Agency notes its intention to use the March 2021 HCRIS for the FFY2022 final rule and the respective March updates for all future final rules. CMS also states it may consider the use of more recent data that may become available after March 2021, but prior to the development of the final rule, if appropriate, for purposes of calculating the final Factor 3 for the FFY2022 IPPS/LTCH PPS final rule.
 
Recommendation: Toyon recommends all hospitals verify audited FFY2018 S-10 UC cost is reflected in the FFY2022 IPPS Proposed Rule. 
 
If not reflected in the FFY2022 IPPS Proposed Rule, it is recommended hospitals contact CMS to verify the agreed-upon FFY2018 UC cost audit amounts from WS S-10 will be used in the development of the FFY2022 IPPS Final Rule. Toyon will be assisting our clients with this exercise, and please contact Fred Fisher at fred.fisher@toyonassociates.com with any questions concerning S-10 uncompensated care for your hospital(s).
 
Empirical DSH – Section 1115 Waiver Days
The FFY 2022 Proposed Rule states Section 1115 days may be counted in the numerator of the Medicaid fraction only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan that includes coverage for inpatient hospital care on that day or directly receives inpatient hospital insurance coverage on that day under a Section 1115 waiver.  This excludes patient days for which hospitals receive payment from an uncompensated care pool.  
 
Toyon’s Take
This proposal contradicts recent court rulings and providers should expect waiver days to be closely reviewed during audit. Toyon recommends claiming these patients as a separate population on their own tab to reduce audit risk as any findings would be limited to similar patients. 
 
Medicare Bad Debt
The FFY 2022 Proposed Rule requires State Medicaid programs to accept enrollment of all Medicare-enrolled providers and suppliers (even if the provider or supplier is not recognized as eligible to enroll but meets all Federal Medicaid enrollment requirements) for purposes of processing Medicare-Medicaid dual eligible claims for cost-sharing liability. State Medicaid programs must be in compliance for dates of service beginning January 1, 2023. 
 
Toyon’s Take
The “must bill” policy is still in place. This proposal should create additional opportunity for providers to claim Medicare bad debt on the cost report. CMS hopes this proposal leads to a reduction in the number of future bad debt appeals.   
 
For questions regarding DSH and Medicare Bad Debt, contact Dylan.Chinea@toyonassociates.com.

 
Other Rules, Transmittals, and Articles Recently Published
 
Inpatient Psych Facility PPS FFY2022 Proposed Rule [CMS-1750-P]
(Display Copy available 4/7/2021; FR Publish Date 4/13/2021)
  • Per diem base rate increase from $815.22 to $833.50.
  • Total estimated payments to IPFs are estimated to increase by 2.3% or $90 million in FFY2022 relative to IPF payments in FFY2021.
  • For FFY2022, CMS is proposing to update the IPF PPS payment rates by 2.1% based on the proposed IPF market basket update of 2.3%, less a 0.2 percentage point productivity adjustment.
 
Inpatient Rehab Facility PPS FFY2022 Proposed Rule [CMS-1748-P]
(Display Copy available 4/7/2021; FR Publish Date 4/12/2021)
  • Standard payment conversion factor increase from $16,856 to $17,273.
  • CMS is proposing the adoption of the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) Measure to require IRFs to report COVID-19 HCP vaccinations in their facilities.
 
Long-Term Care Hospital PPS Proposed Rule [CMS-1752-P]
(Display Copy available here 4/27/2021; FR Publish Date 5/11/2021) – Published as part of the IPPS Acute Care Hospital Proposed Rule
  • LTCH-PPS payments expected to increase by 1.4% or $52M.
  • LTCH PPS payments for FFY2022 for discharges paid the site neutral payment rate are expected to increase by 3 percent. CMS estimates that discharges paid the site neutral payment rate will represent approximately 25 percent of all LTCH cases and 10 percent of all LTCH PPS payments in FFY2022.
 
Skilled Nursing Facility FFY2021 PPS Proposed Rule [CMS-1746-P]
(Display Copy available 4/8/2021; FR Publish Date 4/15/2021)
  • Increase in unadjusted Federal per diem rates of 1.3%
  • CMS is proposing to rebase and revise the SNF market basket to improve payment accuracy under the SNF PPS by proposing to use a 2018-based SNF market basket to update the PPS payment rates, instead of the 2014-based SNF market basket.

 
Should you have further questions about these changes and wish to discuss them, please contact the scott.besler@toyonassociates.com.
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Measuring Healthcare – Uncompensated Care DSH

The Affordable Care Act (ACA)
According to the ACA, Medicare’s Uncompensated Care Disproportionate Share (DSH) recognizes “the amount of uncompensated care for…treating the uninsured.”

“Uninsured” – as opposed to “charity” (or similar for low-income patients) – presents the following questions:

  • When is a patient considered uninsured? 
  • What is the difference between low-income uninsured patients and all other patients? 
  • How does a comprehensive process identifying all categories of uninsured patients affect hospital operations and the financial assistance policy?

This article looks at CMS’s proposed cost report instructions to provide more insight to these questions, while providing recommendations for hospital teams.

Notable Proposed Cost Report Changes
In November 2020, CMS proposed new cost reporting instructions for FFY 2021uncompensated care cost reporting on Worksheet S-10.[1] These proposed instructions include changes and clarifications in reporting noteworthy categories of uncompensated care cost:

  • Allowed: Liability for patients with insurance but determined to be uninsured.
    More under “Other Uninsured Charity Care”
  • Not Allowed: Charge discounts from inferred contractual relationships.
    More under “Inferred Contracts and Significant Losses”…
  • Allowed: Implicit Price Concessions[2] are reportable as bad debt costs.
    More under “Bad Debt and Discovery”
  • Not Allowed: Sub-acute care costs outside general short term hospital inpatient and outpatient services (not billable under the hospital CCN). This is a major shift in reimbursement.
    More under “Short Term Hospital Services Only”

[1] Federal Registers, Vol 85 No 218


[2] Accounting Standards Update, Topic 606



 

Other Uninsured Charity Care
CMS’s proposed language clarifies providers may report other forms of “charity” related to insured patients, provided this care is in the financial assistance policy.  Specifically, CMS states providers may report:

  • the “…portion of total charges for insured patients that were determined uninsured for the entire hospital stay;”[1] and
  • “charges other than deductible, coinsurance and copay (C+D) amounts that represent the insured patient’s liability for medically necessary hospital services”[2]

Both instructions relate to insured patients with charges that are not covered by the patient’s insurance carrier. Therefore, providers may consider reporting non-covered charges and exhausted benefit charges from all payers as forms of charity care, provided these discounts are specified in a hospital’s financial assistance policy. 

But what does it mean to specify non-covered charges from all payers as charity care in a financial assistance policy? For tax exempt providers, how does allowing non-covered charges from all payers relate to IRS 501 (r) requiring hospitals to include amounts and methods for patients to receive free or discounted care?

Contrary to complex cost reporting instructions, the financial assistance policy is a public facing document designed to help patients navigate the healthcare system. As more cost reporting instructions are dependent on this policy, it becomes muddied with caveats, as opposed to a concise, easy-to-read, patient-centered document. An internal policy – apart from the patient financial assistance policy – delineating the accounting of charity care may be prudent to 1) maintain a separate patient friendly policy; and 2) present evidence of compliance with cost report instructions.

When it comes to financial assistance policy governance, generally CMS does not regulate how providers articulate charity care in their policies (one notable exception relates to Medicare FFS bad debts, whereby CMS does not allow presumptive charity eligibility determinations).  For all other forms of charity, CMS states:

“(CMS) does not set charity care criteria policy for hospitals, and within reason, hospitals can establish their own criteria forwhat constitutes charity care in their charity care and/or financial assistance policies.[3]

CMS has not further elaborated on what constitutes “within reason,” to be considered as charity care. However, as presented above, the proposed cost report instructions indicate a broad definition including charges from a remaining patient liability.

Recommendation: Evaluate the reporting of non-covered and exhausted charges from all payers against current hospital procedure.  Hospital teams are encouraged to assess:

  • If patients are billed the outstanding amount. 
    For instance, a provider may pursue payment from secondary and tertiary payers, and then the patient for non-covered services.
  • When and where these transactions are reported in the patient financial system (i.e., account adjudication). 
    For instance, after collection attempts, and a payment is not received, the resulting “write-off” can end up in various transaction types including 1) bad debt – recognized as uncompensated care cost; 2) contractual allowance – not recognized as uncompensated care cost; or 3) denial | non-covered transaction code – recognition of uncompensated care cost depends (typically, providers report charges related to non-covered Medicaid from these codes). 
  • and 3) the benefit of changing policy and procedures so these amounts may be recognized as charity care.  

A statistic to help this evaluation: Providers are reimbursed approximately $250,000 for every $1M in charity cost.[4] 

A thought on policy variation and Section 501(r) – For reporting as uncompensated care cost, it is important to include financial assistance policy language discussing non-covered charges as patient financial assistance.  This helps ensure the policy includes the basis and method patients may receive financial assistance.  In question is the appropriateness of two beneficiaries with the same plan, whereby one is responsible for the coinsurance, while the other received charity related to a non-covered service.  This is an important question that must be considered and continuously evaluated.


[1] Reported on Worksheet S-10 Line 20, Column 1

[2] Reported on Worksheet S-10 Line 20, Column 2 and Line 25.01 Column 1

[3] FFY 2021 IPPS Final Rule


[4] Charges reduced by the cost to charge ratio.



 

Inferred Contracts and Significant Losses
As discussed above, non-covered charges and exhausted benefits charges from all payers are forms of charity care.  Okay got it.  However, CMS also proposes providers cannot report charges from insured patients under contract, or inferred contract with the hospital.  In the proposed cost report instructions for FFY 2021, CMS states providers may report:

“the portion of total charges for patients with coverage from an entity/insurer that does not have a contractual or inferred contractual relationship (a contractual relationship between an insurer and a provider will be inferred where a provider accepts an amount from an insurer as payment, or partial payment, on behalf of an insured patient) with the provider.” 

Separate from a “non-covered charge,” this proposed language seemingly follows the principle that payment shortfalls are not a form of charity care, focusing on insured patients not under contract with the hospital (e.g., “out of network”).   Consider the following example:

  • Charges: $200,000
  • Cost: $50,000
  • Payment from Auto Policy: $5,000
  • Unreimbursed Cost = $45,000

sizable charitable discount, the $45,000 shortfall may not be considered a form of charity care. 

However, this brings back the question – at what point does this patient become uninsured? 

Recommendation: Evaluate the out of network population, and determine if “splitting the account” is appropriate to break-apart the insurance portion from the patient portion.  If the $45,000 is considered as the patient portion, this may be the practical approach for recognizing the amount as charity care.[1]  As discussed above, this accounting exercise may be another reason an internal policy is beneficial to hospitals, while maintaining a separate patient centered document.  

It does not go unnoticed developing an internal policy may become a “Pandora’s box” identifying all types of charity care – resulting in variation of DSH hospitals across the country.  To address this issue, it is recommended CMS and other industry leaders develop a payment to cost ratio for out of network reimbursement.   Amounts below a threshold of “normal and customary” rates should be considered and re-evaluated as charity care eligible. 


 


[1] Provider would report $195,000 in charges, netting to approximately $45,000 in uncompensated care cost. 



 

Bad Debt and Discovery
After years of industry contemplation, CMS’s cost report instructions for reporting bad debt includes implied price concessions.[1]  Essentially, this is business as usual for reporting bad debts on Worksheet S-10 of the cost report.  Due to the change in bad debt reporting for audited financial statements, during audit providers may not be able to produce a bad debt “roll forward” schedule.[2]  In these cases, it is recommended providers disclose how “bad debts” relate to financial statements and request to be waived from the requirement of producing this reconciliation. 

Although it is business as usual for reporting bad debts, providers continue to discover anomalies with prior year bad debt accounts.  More specifically, providers are discovering old bad debt accounts that qualify for charity care. 

Why is this important?  Because when patient C+D amounts are reported as bad debt, they are reduced to an amount less than cost.  However, when patient C+D amounts are reported as charity care, the full amount is recognized as uncompensated care cost.  CMS has employed this calculation since the inception of uncompensated care cost for Uncompensated Care DSH payments (starting FFY 2018). 

Consider the impact to uncompensated care cost from thousands of accounts like the example below:

Reported as Charity Care

  • Amount Written Off to Charity Care: $5,000
  • Charity Cost: $5,000 (amount of recognized uncompensated care cost on Worksheet S-10)

The question that looms for providers discovering charity care in aged bad debt accounts – may old bad debt accounts be reversed and reclassified as charity care?  In a system of write-offs and reversals, this seems like a real possibility – especially considering the practice of “smoothing” costs so that the true answer is achieved over time. Another example of “smoothing” in reimbursement is in the wage index – providers report salaries from the general ledger (accrual-based accounting) and hours associated with paid salaries from the payroll file (cash-based accounting).[3] 

Ultimately, the ability to reclassify bad debt accounts may come back to how the amounts relate to a hospital’s financial statement in prior years.  A reclassification of bad debts may require a restatement of financial statements.  For optimization of Uncompensated Care DSH payments, these efforts certainly can be worth the time and resources. 

Recommendation: Hospitals are encouraged to evaluate prior year bad debt write-offs to determine if any amounts are truly charity care.


[1] Accounting Standards Update, Topic 606.

[2] Scheduling showing bad debts relationship in accounts receivable at the beginning of the hospital fiscal year vs. the end of the fiscal year.


[3] Per CMS 2552-10 instructions for wage index – “Although this methodology does not provide a perfect match between paid costs and paid hours for a given year, it approximates a match between costs and hours.”



 

Short Term Hospital Services Only
CMS’s proposal shifting Uncompensated Care DSH to only recognize short-term hospital services is a major change, especially for safety net hospitals providing essential sub-acute care services to low-income patients (e.g., behavioral health, rehabilitation, SNF, etc.).   Providers with subacute care need to prepare for significant decreases in Uncompensated Care DSH payments, estimated to be effective in FFY 2025.  This change emphasizes the importance of identifying all other uninsured costs, as discussed throughout this article.   In FFY 2021, providers with subacute care received $5.3bn (63%) of the $8.3bn in national Uncompensated Care DSH funding.

Recommendation: Hospitals providing subacute care[1], billed under a CMS Certification Number (CCN) apart for the Hospital CCN, should evaluate the portion of uncompensated care cost (Charity and Bad Debt), as well as the cost-to-charge structure, to determine the amount of uncompensated care cost CMS is proposing to exclude from future Uncompensated Care DSH payments.  This information can help hospitals prepare for this a potentially large swing in Medicare reimbursements. 

Uncompensated Care DSH and COVID-19

There is no doubt COVID-19 has changed access to healthcare and the amount of uncompensated care provided during 2020 and 2021.  Under CMS’s current method, these years would be the baseline driving Uncompensated Care DSH payments in FFY 2024 and FFY 2025. However, the data is atypical and with an uncertain future, recognizing these uncompensated care costs comes with consequences.  For instance, there will be variation in the amount of uncompensated care delivered at hospitals in states with longer stay at home mandates vs. hospitals in states with-out these restrictions (or less restrictions).  

Recommendation: As the industry moves forward, we should do so with caution, carefully evaluating the appropriateness using data from the public health emergency.  Last Federal Year, FFY 2020, CMS applied a COVID related adjustment to Uncompensated Care DSH, using a more current estimate of unemployment in determining “Factor 2,” resulting in an additional $500M in national funding.

The ACA mandates Uncompensated Care DSH is based on “appropriate data” or other “alternative data” that is “a better proxy for the costs. . . of treating the uninsured.”  As we adapt to life during and after COVID-19, the industry may also have to discover the alternative data that best measures uncompensated care provided during this extraordinary time.    


[1] Billed under a CMS Certification Number (CCN) apart from the Hospital CCN


 



Thank You

Toyon Associates, Inc. appreciates the opportunity to present and discuss reimbursement issues with thought leaders in the healthcare industry.  For more discussion and information, please contact Fred Fisher at 888.514.9312 or fred.fisher@toyonassociates.com.

Respectfully,

Toyon Associates, Inc.

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