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Tag: CMS Ruling

CMS Publishes Rule in apparent response to Allina II Ruling

Last week, CMS published a proposed rule on the treatment of Medicare Advantage (MA) Part C days for discharges prior to October 1, 2013, related to the Medicare DSH calculation.

This proposed rule is purportedly CMS’s long awaited response to the United States Supreme Court’s ruling in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019) (“Allina II”), wherein the Supreme Court upheld a lower court ruling that HHS violated the Medicare Act when it changed its DSH reimbursement formula without providing notice and opportunity for comment. 
As you know, HHS arbitrarily began including Part C days in the Medicare fraction through its 2004 Final Rule, and Toyon has been helping Providers in appealing the agency’s actions on the basis that only Medicare Part A days should be included in the SSI ratio and that dual eligible Part C days belong in the numerator of the Medicaid ratio. While the Supreme Court in Allina II did not rule on the merits of Providers’ position, it did rule that HHS violated its rulemaking obligations by including Part C days in the Medicare fraction between 2004 and 2012. This court ruling should have resulted in CMS restoring the status quo and reinstating HHS’ prior-to-2004 policy (wherein Part C days were NOT included in the Medicare fraction). Such actional would have resulted in substantial additional DSH reimbursement to Providers. 
What it Means to You
Instead, CMS’s proposed rule, published August 6, 2020, states that CMS proposes to “adopt the same policy of including MA patient days in the Medicare fraction that was prospectively adopted in the FY 2014 IPPS/LTCH PPS final rule and to apply this policy retroactively to any cost reports that remain open for cost reporting periods starting before October 1, 2013.” This proposed rule is tantamount to CMS simply disregarding the Supreme Court Allina II ruling in favor of Providers, as the 2014 Final Rule applies CMS’s same flawed policy of including Part C days in the SSI ratio for FYEs 2004-2012. CMS alleges it has the authority to apply this rule retroactively under the guise that it is in the ”public interest.” 85 Fed. Reg. 47,723; 47,725-56 (Aug. 6, 2020).
What now?
Our attorneys (Ropes & Gray) filed a response in the US District Court for the District of Columbia on Friday, objecting to HHS’s proposed rule and requesting the Court entertain further briefing and hearings on HHS’s motion requesting remand of the cases to the agency. A copy of the response is linked here. We will provide you with additional updates as this matter unfolds.
Please contact Karen S. Kim at (925) 685-9312 or if you have any questions or concerns. 
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FFY 2020 Medicare IPPS Final Rule – Correction Notice

CMS-1716-CN2 Published in the Federal Register on 10/8/2019
On October 8, 2019, the Centers for Medicare & Medicaid Services (CMS) issued a correction to the recent FFY2020 IPPS Final Rule in order to address errors in the V. 37 MS-DRG assignments and relative
weights. In addition, CMS is correcting technical errors in the calculation of Factor 3 of the Uncompensated Care DSH. These changes required a recalibration of the IPPS and LTCH PPS base rates, budget neutrality factors, final wage indices, and final outlier threshold, as well. As a result, CMS issued revisions to Tables 1-5, 7, and 18, as well as the DSH Supplemental File and the Impact File.

Because all the changes are effective for discharges on or after October 1, 2019, CMS will be holding IPPS and LTCH PPS claims with discharges on or after October 1 through October 21, 2019.

Overall, the corrected Final Rule is projected to result in an immaterial change in payments to providers from the original Final Rule. The Federal base rate is expected to decrease by 0.1% and the median change in UC DSH payments to most hospitals is favorable by 0.0819%. However, some
specific hospitals will see significant increases or decreases based on the adjustments made to the UCC costs by CMS and its contractors.

Medicare IPPS Base Rates 
CMS is increasing the base rate 2.7% for hospitals, mostly driven by a market basket increase of 3.0%.
FFY2020 Medicare IPPS Final Rule
MS-DRG v 37 Changes
As noted, CMS has revised the MS-DRG weights for FFY2020.
Click here for a table of the MS-DRG v36 to v37 comparison.

UC DSH Payments

CMS also revised the UC DSH Supplemental file and related Table 18 for Factor 3 values, in order to correct for hospitals where a MAC had accepted an amended report and/or adjusted cost report data but for which revisions had been inadvertently omitted from the HCRIS data used. UC DSH payments were materially corrected for nine California hospitals as a result of CMS agreeing to remove “expected payments” from the cost of charity care in FFY2015.
Toyon’s Take: Hospitals should continue to work with their MACs to ensure that the latest revised data has been incorporated into the HCRIS data used by CMS for the publication of any rules. We anticipate that FFY2017 data will be used next to establish the FFY2021 UC DSH payments. This data will be gathered from FYE 9/30/2017, 12/31/2017, 3/31/2018, or 6/30/2018 cost report Worksheet S-10.
For FFY2017 uncompensated care amounts, there is a new set of reporting instructions. There is considerable industry agreement that these instructions are less challenging than instructions in place for FFY2015.
Recommended Action: If your hospital has revisions to its FFY 2017 WS S-10 data, Toyon strongly urges that these revisions be submitted to your MAC before December 31, 2019. This is the deadline for MACs to submit FFY 2017 S-10 revisions for hospitals under audit.
Click here for the DSH Supplemental PUF data.
Toyon has a new national analysis tool to assist hospitals with the evaluation of uncompensated care and the relationship to current and projected DSH UC payments. For additional information, please contact Fred Fisher at
Rate Updates for Sole Community (SCH) and Medicare-Dependent Hospitals (MDH)
CMS did not revise the update factors for the hospital-specific rates of SCHs and MDHs noted below:  
FFY2020 Medicare IPPS Final Rule
However, you will need to be sure to apply the updated recalibrated budget neutrality adjustment factor of 0.996859 to your factor updates.
Other Updates
New Billing Requirements for Periodic Interim Payment (PIP) Providers
For those few hospitals that receive bi-weekly PIP payments, in lieu of operating IPPS DRG payments, CMS issued an update to Pub. 100-04, Chapter 1, Section 80.4. This revision, effective February 19, 2019, requires that providers bill timely and accurately.
In order to remain on PIP, providers must submit 85% of their bills timely and accurately. To meet this standard, bills must be submitted within 30 days of discharge and pass front-end edits for consistency and completeness. Evaluation by the MAC will occur in 4-month intervals for hospitals.
Note: If the provider does not meet these criteria, the MACs are instructed to discontinue PIP immediately.
Evaluation of the 30-day timeline will be based on the difference between the date on Form CMS-1450 FL6 (“Through Date”) and the date received by the MAC. A bill is not considered received unless it can pass MAC edits.
The evaluation of accurate bills excludes the following:
  • MSP cases
  • Special situations beyond the provider’s control that are documented by the MAC and approved by the RO
  • Bills that have not passed MAC front-end edits for acceptance. (Such bills are counted only when acceptable to the shared system edit processes.)
The tabulation of the error percentage is calculated in the following manner:
              Timely and Accurate %  =  Number of non-excluded bills received in 30 days or less
                                                                Total number of bills received
Toyon’s Take: MACs have started to send monthly “PIP Compliance Review Result” letters to providers as warnings when they’re not in compliance for any given month. You should review this manual section and work with your revenue cycle team to ensure that they are aware of these rules, understand the implications for failure to meet these criteria, and are continually monitoring for compliance.
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Wage Index Changes

Based on the CMS proposed changes for FFY2020, the occupational-mix adjusted national average hourly wage is estimated to be $43.99.  

CMS remains concerned that the current wage index system exacerbates disparities between high and low wage index hospitals. In addition, CMS also wants to address concerns that the rural floor calculation has been manipulated by a limited number of states to achieve higher wage index factors at the expense of hospitals in other states. As a result, CMS has proposed several significant changes to the wage index calculation.  

CMS has proposed to reduce disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8482) and decreasing the values for high wage index hospitals above the 75th percentile (or a WIF of 1.0351). The proposed increase for the low wage index hospitals would be equal to half the difference between the original final wage index value for the hospital and the final 25th percentile value (e.g., 0.7573 = 0.6663 + (0.8482 – 0.6663)/2). The proposed decrease for the high wage index hospitals would be equal to the full difference between the original final wage index value for the hospital and the final 75th percentile value, multiplied by the estimated budget neutrality factor for these adjustments, which CMS currently projects to be 4.3% (e.g., 1.8263 = (1.8619 – 1.0351) x 0.043). CMS would like this policy to be effective for a period of at least 4 years in an effort to allow employee compensation increases sufficient time to be reflected in the wage index calculation.  

Note: The budget neutrality factor noted in the body of the rule mentions 3.4%. However, this appears to be a typo by CMS, as Table 2 (Proposed CMI and Wage Index by CCN) is calculated using 4.3%.  

CMS has also proposed to change the rural floor calculation, including the removal of urban-to-rural reclassifications. Beginning in FFY2020, state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.  

In order to mitigate the negative impacts to hospitals with significant decreases, CMS plans to place a cap of 5% on the decrease of any hospital’s wage index from FFY2019 to FFY2020, allowing the effect of these policy changes to be phased in over 2 years. However, no such cap to limit the decrease in a hospital’s wage index would be applied during the second year.  

CMS Proposed Wage Index Alternatives
As instructed under Executive Orders 12866 (10/4/1993) and 13563 (1/21/2011), CMS is directed to assess all costs and benefits of available alternatives for significant regulatory actions that are likely to have an economic effect of $100M or more or that raise novel legal or policy issues that arise out of legal mandates or the President’s priorities, among other criteria. Consequently, CMS has proposed three alternative methods for adjusting the wage index. These alternatives are not described in the body of the Proposed Rule, but are mentioned in Section I.O.1. of the Appendix A and are calculated in the 13th data file posted to the Proposed Rule homepage on the CMS website.

The three alternatives to the Proposed Rule as posed by CMS are the following:

1.  Applying a budget neutrality factor to the standardized amount, rather than focusing the adjustment on the wage index of high wage index hospitals (See III.N.3.d):
* Same as the Proposed Rule, but this alternative removes the reduction to the high wage index hospitals above the 75th percentile, as well as the 5% cap on any negative impacts.
* Budget neutrality factor would be higher, and therefore, the standard Federal rate would decrease for all hospitals, as this alternative would not be funded by reducing the wage index factor for the high wage index hospitals.

2.  Mirroring the proposed approach of raising the wage index for low wage index hospitals in reducing the wage index values for high wage index hospitals:
* The proposed increase for the low wage index hospitals would be equal to half the difference between the otherwise applicable final wage index for these hospitals and the 25th percentile wage index value [e.g., (0.8482 – Hosp WIF)/2].

* The proposed decrease for the high wage index hospitals would be equal to half the difference between the otherwise applicable final wage index value for these hospitals and the 75th percentile wage index value [e.g., (Hosp WIF – 1.0351)/2].

* The 5% cap on negative impacts to the high wage index hospitals would be removed.A budget neutral adjustment factor would be made to the standardized amount.

3.  Creating a single national rural wage index and elimination of the individual state rural floors.

Click here for a comparison of current and prior WIFs for each hospital, as well as the estimated WIFs for each of the alternative CMS proposals.

Toyon’s Take:
In recent years, CMS has hinted at addressing what it describes as “wage index disparities;” however, no specific changes were proposed until this year. The proposed changes are noteworthy and will be heavily commented on by hospital associations and the provider community in the Final Rule. Should the proposed changes be made final, it will have significant reimbursement benefit to states that fall below the 25th percentile in terms of its wage index value and conversely, significant reimbursement reduction to states that have wage index values above the 75th percentile, notably California, New York and New Jersey. Toyon has developed a model analyzing the proposed changes to the wage index using FFY2020 proposed data sources. We are happy to share our analysis specific to your hospital.  

Other Proposed Changes Impacting Wage Index 
The overhead rate calculation would now be equal to the following:

* (Lines 26 through 43 – Lines 28, 33, 35) / ((((Line 1 + Lines 28, 33, 35) – (Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43)) – (Lines 9 and 10)) + (Lines 26 through 43 – Lines 28, 33, 35)).

* The change made by CMS was to eliminate the removal of the sum of overhead contract labor (Lines 28, 33, 35) from the Revised Total Hours calculation in the denominator

*  So (Lines 9, 10, 28, 33, and 35) will now simply be (Lines 9 and 10).

The rounding of values for the wage index calculation would be changed as follows:

* “Raw data” from any individual line item or field would not be rounded.

* Summed or averaged wage amounts would be rounded to 2 decimals.

* Hours would be rounded to the nearest whole number.

* Ratios, percentages, or inflation factors would be rounded to 5 decimals.

* Actual unadjusted and adjusted wage indexes would continue to be rounded to 4 decimals.

A new methodology for calculating the wage index for urban areas without wage data would be calculated by dividing the total urban salaries plus wage-related costs in the state by the total urban hours in the state, all of which would then be divided by the national average hourly wage.

Applications to the MGCRB for FFY2021 reclassifications, as well as cancellations and terminations, are due by 9/3/2019.   All applications and supporting documents must be submitted via the Office of Hearings Case and Document Management System (OH CDMS). Because this new system is available, CMS is eliminating the requirement to copy CMS on these MGCRB filings. More information can be found at

Likewise, applications to CMS for rural redesignations may also now be submitted electronically, by fax, or by other electronic means, as well as by mail.

Rural redesignation cancellation requirements specific to RRCs require that the hospital be paid as a rural hospital for at least one 12-month cost reporting period before the status can be cancelled. CMS believes that these requirements are no longer relevant, now that hospitals may have simultaneous MGCRB and Section 412.103 reclassifications. As a result, CMS is revising these provisions to make any cancellations effective for all hospitals at the beginning of the next Federal fiscal year following the cancellation request, if requested within 45 days of the date of public display of the Proposed Rule prior to the applicable Federal fiscal year end. 

For additional information, please contact Ryan Sader at
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