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FFY 2019 IPPS Proposed Rule – Analysis

The new FFY 2019 IPPS proposed rule has been released, and our experts at Toyon have completed their initial analysis. We think this is “News You Need to Know.”

We have nearly doubled our staff over the past couple of years and expanded our client base nationwide. We are committed to serving our clients and, as reimbursement continues to become more complex, we have hired experts in key areas of reimbursement so we get it right the first time. Our team plans to keep you updated going forward with the “News You Need to Know.”

In this Edition:

  • FFY2019 Medicare IPPS Proposed Rule
  • Other Recently Published Rules

IPPS Proposed Rule – FFY 2019

CMS-1694-P drafted on 4/24/2018; Published in the Federal Register on 5/7/2018

On April 24, 2018, the Centers for Medicare & Medicaid Services (CMS) proposed changes to empower patients through better access to hospital price information, improve patients’ access to their electronic health records, and make it easier for providers to spend time with their patients. The proposed rule updates Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS), effective for discharges on or after October 1, 2018.

The policies in the IPPS and LTCH PPS proposed rule would further advance the agency’s priority of creating a patient-driven healthcare system by achieving greater price transparency and interoperability – essential components of value-based care – while also significantly reducing the burden for hospitals so they can operate with better flexibility and patients have the information they need to become active healthcare consumers.

These changes result in the elimination of 25 total measures across 5 programs with well over 2 million burden hours reduced for hospital providers impacted by the IPPS proposed rule, saving them $75 million.

Overall, the proposed rule is projected to result in an estimated increase of $4.1B (or 3.4%) in payments to providers, ranging from 0.7% increases for smaller, rural hospitals up to 3.1% increases for larger urban hospitals in the Pacific Region.

Medicare IPPS Base Rates

CMS is proposing a base rate increase of 1.5% for hospitals, mostly driven by a market basket increase of 2.8%.

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

MS-DRG v 36 Changes

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

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

Post-Acute Care Transfer Policy Changes

Effective 10/1/2018, patients discharged to hospice by a hospice program are to be included as transfer cases, as required by the Bipartisan Budget Act of 2018. The discharge status codes 50 or 51 will now be subject to the transfer policy.

Changes to Wage Index

CMS has calculated an occupational mix-adjusted national average hourly wage of $42.948428861. Of note, 255 hospitals will receive the rural floor. Thirty-five Massachusetts hospitals will receive an additional $49M (1.4%) due to the application of the rural floor. In addition, Connecticut hospitals will also experience a significant benefit ($90M) from the rural floor.

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

Three notable changes to wage index are being proposed by CMS for FFY2019:

1)   Removal of “other” wage-related costs

CMS has stated that only 8 hospitals out of 3,000+ IPPS hospitals in the wage index data reported “other” wage-related costs correctly. Beginning with FFY2020, CMS is proposing to remove “other” wage-related costs from the wage index calculation entirely.

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

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

CMS is proposing to revise the “lock-in” date such that a hospital’s application for rural reclassification must be approved by the CMS Regional Office no later than 60 days after the public display of the IPPS notice of proposed rulemaking in the Federal Register, in an effort to eliminate errors. This date would then be variable dependent upon the Regional Office’s statutory requirement to approve all requests within 60 days of receipt and will also depend upon the capacity of the Regional Office to timely approve a rural status application.

3)   Request for public comments on wage index disparities

CMS recognizes that there are disparities in wage reporting and regulations and sees an overall need for improving the wage index system. As such, CMS is requesting public comments related to this topic.

For additional information, please contact Ryan Sader at

UCC DSH Payments

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

Although CMS is proposing to use three years of data to determine each hospital’s Factor 3 proportion, for next year’s rule making CMS is considering shifting to only one year of data (i.e., UC cost from FY 2016 cost reports).  Be aware that these payments may yet change for FFY2019. CMS is considering using cost report data through May 2018, as opposed to data through February 15, 2018 to determine the final FFY2019 hospital UCC DSH payments. For hospitals that reported excessive uncompensated care on their 2014 and 2015 cost reports (i.e., when uncompensated care costs are greater than 50% of total hospital costs), CMS will recalculate the hospital’s uncompensated care based on estimates from the hospital’s next cost reporting year, if they cannot justify their reported numbers.

Hospitals have 60 days to notify CMS (at of any inaccuracies in CMS’ table of uncompensated care data, which can be found at the link below. This includes reviewing CMS’ table of combined data for merged hospitals. After the FFY2019 IPPS Final Rule is published later this summer, hospitals will have until August 31, 2018 to review and submit comments on the accuracy of their data. Toyon will be using our S-10 UCRS database to assist our clients with confirming their data.

If a hospital filed multiple cost reports in the same fiscal year, CMS is proposing to eliminate the step of combining data across the multiple reports. CMS will now use the cost report that is closest to 12 months and annualize the data.

Toyon strongly recommends hospitals verify their 2014 and 2015 uncompensated care cost as published in the CMS file “FY 2019 IPPS Proposed Rule: Medicare DSH Supplemental Data File” below. Toyon has identified several issues with the CMS’ uncompensated care data in the Healthcare Cost Report Information System (HCRIS) database, so it is critical to verify that your hospital’s data is accurate.

Regarding hospital financial assistance policies, CMS states “…nothing prohibits a hospital from considering a patient’s insurance status as a criterion in its charity care policy. A hospital determines its own financial criteria as part of its charity policy.” This clarifying language may help hospitals more accurately capture uncompensated care related to all uninsured accounts going forward.

Finally, it is important that hospitals be prepared for CMS’ proposed new requirement of submitting uncompensated care support on future cost reports. See the section below related to Additional Cost Reporting Requirements.

Click here  for the DSH Supplemental PUF data.

Click here for the Analysis of UCC DSH Factor 1.

For additional information, please contact Fred Fisher at


Graduate Medical Education Changes

CMS proposed to allow “new” teaching hospitals to participate in Medicare affiliated group agreements (AGA) under certain limited circumstances. In the past, new teaching hospitals could only participate in an AGA if it resulted in an increase to the cap of the new teaching hospital. Effective for new AGAs beginning 7/1/2019 and after, this proposal would allow two or more new teaching hospitals to participate in an AGA, including a reduction to one or more of the hospital’s caps. To qualify, the FTE cap transfer would have to be among new teaching hospitals. This means that the prior restriction related to existing hospitals is still in place.

In addition, CMS announced two additional rounds of Section 5506 FTE cap redistributions (Rounds 11 and 12):

Applications for these additional FTE slots are due to CMS by July 23, 2018.

For additional information, please contact Tom Hubner at


Low Volume Hospitals

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

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

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

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

For additional information, please contact Ron Knapp at


Changes to Quality Reporting

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

Hospital Inpatient Quality Reporting (IQR)

CMS is proposing to stratify measure rates by dual-eligible Medicare/Medicaid patients. CMS is also proposing to remove 19 measures and de-duplicate another 20 measures, for a reduction of 39 measures to be reported under the IQR program. CMS is also proposing to adopt 1 claims-based readmission measure.

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


Hospital Value Based Purchasing (HVBP)

CMS has decided to remove or de-duplicate 10 measures, with the only safety measure being removed. In addition, CMS has proposed to change the names of the domains to more accurately reflect the new measures. Finally, the weighting of each domain will change.

Click here for a table of the 10 HVBP measures proposed to be removed.

Hospital Readmission Reduction (HRR)

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

Hospital Acquired Conditions (HAC)

CMS is proposing to start measuring hospital performance against peers with similar proportions of dual-eligible patients. In addition, CMS is proposing to update measure weighting to address concerns raised about disproportionate weighting at the measure level for the subset of hospitals with relatively few NHSN HAI measures.

EHR Incentive Program Changes 

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

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

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

Click here for a table of the proposed new scoring methodology.

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


Additional Cost Reporting Requirements

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

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

  • IRIS total counts for DGME FTEs (weighted and unweighted) and IME FTEs
  • Medicare bad debt listings
  • For DSH-eligible hospitals, Medicaid-eligible days listings and detailed listings of charity care and uninsured discounts provided
  • For hospitals that are part of a healthcare system, a completed Home Office cost statement

Failure to submit this data will result in the cost report being rejected for lack of supporting documentation.

For additional information, please contact Daniel Pelayo at

IPPS-Excluded Hospital Changes

CMS is proposing to allow IPPS-excluded hospitals to operate IPPS-excluded units.

In another CMS proposal, an IPPS-excluded satellite of an IPPS-excluded unit of an IPPS-excluded hospital would not have to comply with the separateness and control requirements.

Pricing Transparency

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

CMS is proposing to take the following actions:

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

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

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

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

Changes to Inpatient Admission Order Documentation

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


Other Proposed Rules Recently Published

Inpatient Psych Facility PPS Proposed Rule [CMS-1690-P]

(Display Copy available here 4/27/2018; FR Publish Date 5/8/2018)

Fact Sheet Link

Federal Register Link

– Per diem base rate increase from $771.35 to $782.01


Inpatient Rehab Facility PPS Proposed Rule [CMS-1688-P]

(Display Copy available here 4/27/2018; FR Publish Date 5/8/2018)

Fact Sheet Link

Federal Register Link

– IRF-PAI v. 3.0 is effective October 1, 2019 (FFY2020)


Long-Term Care Hospital PPS Proposed Rule [CMS-1694-P]

(Display Copy available here 4/24/2018; FR Publish Date 5/7/2018) – Published as part of the IPPS Acute Care Hospital Proposed Rule

Fact Sheet Link

Federal Register Link

– Elimination of the 25% threshold policy and payment adjustment for

LTCHs that was originally established in FY2005

– Estimated overall decrease of $5M in Medicare payments for FFY2019


Skilled Nursing Facility PPS Proposed Rule [CMS-1696-P]

(Display Copy available here 4/27/2018; FR Publish Date 5/8/2018)

Fact Sheet Link

Federal Register Link


– Revised case-mix methodology called the Patient-Driven Payment Model

(PDPM) will bring significant changes to the SNF PPS


Hospice Wage Index and Payment Rate Update [CMS-1692-P]

(Display Copy available here 4/27/2018; FR Publish Date 5/8/2018)

Fact Sheet Link

Federal Register Link

– FFY2019 payment rate update of 1.8%


Extension of Payment for Low-Volume Adjustments and Medicare-Dependent Hospital (MDH) Program

(FR Publish Date 4/26/2018)


Click here for a copy of the published rule for the LVA and MDH extension.


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AHA Calls Administration’s FY 2016 Budget Request ‘Bad Medicine’ for Nation’s Hospitals

From: AHA News – 2/5/15

President Obama’s call for deep funding cuts to hospital care “are bad medicine for our nation’s seniors and other vulnerable patients,” AHA President and CEO Rich Umbdenstock said in a Feb. 2 statement following release of the president’s fiscal year (FY) 2016 budget request.

The president’s $4 trillion budget request includes $431 billion in proposed reductions to Medicare, of which $350 billion would come from health care providers and $83.8 billion from structural reforms.

Specifically, the budget proposal would reduce payments to providers by $29.5 billion by implementing site-neutral policies; cut bad debt payments to providers, including hospitals, by $31.1 billion; reduce Medicare graduate medical education (GME) payments by $16.3 billion; reduce critical access hospital (CAH) payments from 101% to 100% of reasonable costs for a savings of $1.73 billion; and eliminate the CAH designation for hospitals located fewer than 10 miles from the nearest hospital for savings of $770 million.

It also proposes to reduce the payment updates for post-acute care providers for savings of $102.1 billion and make other post-acute program changes. The proposed cuts are over 10 years. The budget request would increase Medicaid funding overall by $7.7 billion over 10 years, but cut the program in certain areas.

In his statement, the AHA’s Umbdenstock faulted the administration for proposing further cuts to hospital care as the field is carrying out “enormous changes that continue to improve the quality of patient care.” He called the proposed cuts “short-sighted at a time when our nation’s health care infrastructure needs to be strengthened.”  

On a more positive note, the AHA was pleased with the administration’s willingness to pursue structural reforms that could strengthen Medicare’s financial viability, and its call to replace the remaining Medicare sequestration cuts that were imposed under the 2011 Budget Control Act. Under sequestration, Medicare rates are reduced by 2% through 2021.

The budget assumes reforms to the Medicare sustainable growth rate for physician payments would be enacted, but it does not identify a funding source.

Among other Medicare measures, the president’s FY 2016 budget proposes to:

• boost efforts to eliminate waste, fraud and abuse for savings of $1.8 billion;

• raise the “60% Rule” threshold for inpatient rehabilitation facilities back to 75 percent for savings of $2.2 billion;

• implement bundled post-acute care payments for savings of $9.3 billion;

• eliminate the 190-day lifetime limit on inpatient psychiatric care, which costs the federal government $5 billion;

• strengthen the Medicare Independent Payment Advisory Board for savings of $20.9 billion;

• make changes to beneficiary premiums, deductibles and co-pays for savings of $83.8 billion;

• introduce home health co-payments for new beneficiaries for a savings of $830 million; and

• encourage the use of generic drugs by low-income beneficiaries for a savings of $8.9 billion.

Medicaid and CHIP. The president’s plan would reduce Medicaid disproportionate share hospital payments in FY 2025 for savings of $3.29 billion. The budget also would provide $11.9 billion to extend the Children’s Health Insurance Program through 2019, and extend Medicare rates for primary care physicians under Medicaid, but do so in a budget-neutral manner.

Discretionary funding. The president’s budget seeks $83.8 billion in discretionary funding for the Department of Health and Human Services. The Children’s Hospitals GME program would be funded at $100 million, which is $150 million less than the program received in 2015.

In addition, the budget proposes $128 million for rural health programs, including $59 million for rural health outreach grants, $26 million for rural hospital flexibility grants and $15 million for telehealth. Other provisions include $255 million for the Hospital Preparedness Program, the same amount as FY 2015; $2.3 billion for the Ryan White HIV/AIDS Program; $637 million for maternal and child health block grants; and $232 million for nursing workforce development.

Discretionary spending is subject to annual approval by Congress. Legislators have less control over mandatory spending, which is devoted to entitlement programs.

The president’s budget request is the first step in the annual budget process. Based on the president’s proposal, the House and Senate budget committees propose budget resolutions that set targets for spending and tax revenue and identify any policies that will need to move through reconciliation. These are sent to the floor for a vote, and differences are resolved in conference. The House and Senate appropriations committees divide the discretionary spending that is contained in the budget resolution among each of their 12 subcommittees.

For more on the president’s budget, click here.


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MedPAC Adopts Recommendations for 2016 Payment Updates

From: CHA – 1/16/15

The Medicare Payment Advisory Commission (MedPAC) has approved final recommendations for 2015 Medicare payment updates, which will be released in March. The recommendations are nearly identical to the commission’s 2014 recommendations, with some additions, and will be closely watched by Congress as it looks for savings to fund a long-term repeal of the Medicare sustainable growth rate for physician payments. A complete list of specific MedPAC recommendations follows.

MedPAC’s recommendations include:

  • Hospital inpatient and outpatient payments: MedPAC adopted its draft December recommendation and recommends a 3.25 percent increase for hospital inpatient and outpatient prospective payment systems (PPS) in 2016, noting that its recommendation is 5.25 percent if the sequester continues in 2016. MedPAC notes that even the most efficient hospitals it has identified will experience negative Medicare margins in 2016. However, MedPAC also stands by its recommendation to Congress to reduce or eliminate payment differences between hospital outpatient departments and physician offices for 66 selected procedures. The commission also recommends Congress pay long-term care hospitals (LTCHs) the same rates as general acute care hospitals for cases involving patients who are not deemed “chronically critically ill” (CCI) — defined as an intensive care unit stay of at least eight days. Savings realized by cutting LTCH payments would be redistributed to create a new outlier pool for CCI cases treated in inpatient PPS hospitals. The LTCH policy would be phased in over three years.

    Despite hospital opposition to the site-neutral recommendations noted above, MedPAC believes strongly in the principal that clinically similar patients can be seen in multiple provider settings and, as such, the payment rates should be equal. CHA has argued that both of these site-neutral recommendations are not only harmful to hospitals and patients, but that the analysis MedPAC engaged in setting forward these recommendations is outdated. Both the outpatient PPS and LTCH PPS have adopted significant policy changes that have not been accounted for by MedPAC. CHA is very disappointed in the site-neutral recommendations.

  • Inpatient rehabilitation facilities and skilled-nursing facilities: MedPAC finalized its recommendation to eliminate the payment update for SNFs and IRFs in 2015. MedPAC continues to call for a recalibration of the SNF PPS to pay more for medically complex patients and to rebase the payment system over a period of time. In addition, MedPAC has voted to recommend that Congress direct the Secretary to eliminate the differences in payment between IRFs and SNFs for selected conditions. While its analysis focused on 22 MS DRGs for consideration, MedPAC stepped back from its more specific draft recommendation and noted that the conditions should be selected by the Secretary and considered through a notice of public comment. MedPAC also notes that this policy should be implemented over three years and that the IRF would retain its current add-on payments, but that the site-neutral payment should be set to the average SNF rate. Further, MedPAC recommends that regulations related to the 60 percent rule be reviewed and that such cases be removed from the threshold in order to remain compliant. The commission noted that while the payment would change in the IRF, this benefit would remain a Part A benefit and, therefore, subject to the same cost sharing as currently applied to the SNF stay.
  • Ambulatory surgery center payments: MedPAC finalized its recommendation to eliminate the payment update for ASCs in 2016.
  • Long-term care hospitals: MedPAC finalized its recommendation to eliminate the payment update for LTCHs in 2016.
  • Home health: The commission restated previous recommendations from 2011 and 2012 in reforming the payment system and recommends that Congress direct the Secretary to reduce payments for those with higher readmission rates than the benchmark rate that would be known in advance. The previous recommendations included reducing payments through a full “rebasing” of reimbursement. This month the commission adopted its recommendation to eliminate the update for FFY 2015.
  • Hospice: The commission adopted its recommendation to eliminate the update for FFY 2015.

Read more: MedPAC Adopts Recommendations for 2016 Payment Updates

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