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FFY 2024 IPPS Proposed Rule – Wage Index

May 15, 2023

On April 10, the Centers for Medicare & Medicaid Services (CMS) published the FFY 2024 IPPS Proposed Rule (effective for discharges on or after October 1, 2023).” Toyon is pleased to provide our summary of: Topic 6 – FFY 2024 IPPS Proposed Rule – Wage Index

Based on the CMS proposed rates for FFY 2024, the occupational-mix adjusted national average hourly wage is estimated to be $50.27, representing an increase of 5.32% from the prior year (in comparison to a 2.86% increase in FFY 2023), which is based on wage data from FFY 2020 cost reports.

Rural Floor Wage Index Calculation – Revisited

CMS is proposing to include all urban-to-rural reclassified hospitals (under 42 CFR §412.103) when determining a state’s rural floor wage index⁷. Rural reclassified hospitals are considered in the rural floor determination, regardless of their MGCRB reclassification status, only if it results in a higher rural wage index per CMS’s “hold harmless” provision, which is only applicable to rural areas. The following chart, provided by CMS in the Proposed Rule, summarizes the current “hold harmless” policy and proposed rural wage index calculation using the highest of these calculations in accordance with the “hold harmless” policy:

Continuation of Prior Year Wage Index Policy Changes

In FFY 2024, CMS proposes to continue increasing wage indices for hospitals below the 25th wage index percentile (or a WIF of 0.8615). In FFY 2020, CMS anticipated it would continue this policy for at least four years, acknowledging that providers in these lower-quartile areas would improve employee compensation within four years (as a result of the higher wage index). However, despite the four years as well as recent litigation where a district court ruled in the provider’s favor (Bridgeport Hospital, et al., v. Becerra), which CMS has appealed, CMS is proposing to continue this policy in FFY 2024. CMS acknowledges that it only has one year of relevant data (from FFY 2020) that it could use to evaluate the impact of this policy on wages, and thereby, CMS is proposing to continue this policy until it is able to obtain sufficient data to evaluate the low wage index policy. Consistent with the finalized policy in previous years, in FFY 2024 CMS will “fund” this policy by applying a uniform budget neutrality adjustment.

Permanent Cap Policy for Wage Index

Consistent with the policy finalized in FFY 2023, CMS applies a cap of 5% on the decrease of any hospital’s wage index from the prior year. Therefore, in FFY 2024, no hospital can receive a wage index less than 5% less as compared to FFY 2023.

Please refer to CMS Table 2 of current and prior WIFs, including application of the bottom-quartile wage index adjustment and 5% cap policy. CMS Table 2 is here on CMS website under file “Proposed Rule Tables 2, 3 and 4A and 4B (Wage Index Tables).”

Toyon’s Take:

CMS’s consideration of all urban-to-rural reclassified hospitals in the rural wage index is a notable change to how the rural floor is determined and will likely result in providers re-evaluating rural status under 42 CFR §412.103 and existing reclassification opportunities. The 5% cap on wage index decreases is favorable to providers, particularly given the impacts of the COVID-19 PHE and it remains to be seen how that will impact labor rates and the wage index on a prospective basis. Toyon is currently modeling the financial impact of the inclusion of urban-to-rural reclassified hospitals in the rural wage indices. Please feel free to contact Toyon for an estimated impact to your state(‘s) rural wage index.

Important Dates regarding Wage Index

CMS publishes various dates that correspond to wage index geographic reclassification deadlines for FFY 2024 rulemaking. Refer to the CMS website here for key dates.

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

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⁷Additional background – In FFY 2023 CMS reverted to prior policy (from FFY 2019) linking the statewide rural floor with the rural wage index, including urban-to-rural reclassifications that otherwise did not have a MGCRB reclassification (“dual status”). The change in policy in FFY 2023 was a result of public comments and a recent court case (Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra) where the court found that CMS did not have the authority to establish a rural floor lower than the rural wage index for a state. The key difference between FFY 2023 and the proposed FFY 2024 calculation is the inclusion of all 42 CFR §412.103 providers (including those with an MGCRB reclassification) in the determination of the rural floor wage index.

Comments are due to CMS by Friday, June 9 via https://www.regulations.gov/ (see instructions under the “submit a comment” tab and reference file code “CMS-1785-P”). Toyon will share our comment letter in the coming weeks.

CARES PRF Update

February 5, 2022

CARES Phase 4 / Rural ARP Consideration

CARES PROVIDER RELIEF FUND (PRF)

Phase 4 and Rural ARP Reconsideration Update

Toyon is pleased to provide this update on the CARES Provider Relief Fund (PRF). Please feel free to contact Fred Fisher at 888.514.9312, fred.fisher@toyonassociates.com with any questions.

Providers in receipt of CARES Phase 4 and/or rural payments from the American Rescue Plan (ARP) have until May 2, 2022 to request a payment reconsideration. The reconsideration process is available to any provider looking to correct potential errors in their Phase 4 and/or Rural ARP payment according to HRSA’s methodology. HRSA will only consider correction of any errors; and will not consider changes to its payment methodology or policy in the reconsideration process. To request a Phase 4 and/Rural ARP reconsideration, providers must:

1) Review HRSA’s methodology. Providers may also contact HRSA at 866.569.3522 (TTY dial 711) to receive additional information on how Phase 4/Rural ARP payments were determined.

2) Gather the following documents:

a. Payment determination letter from HRSA

b. DocuSign envelope ID for the ARP Rural/Phase 4 application

c. The contact information and Tax ID Number (TIN) included on the original Phase 4/ARP Rural application

d. The reason believed the Phase 4/Rural ARP payment was calculated incorrectly, (related to the PRF Phase 4 and ARP Rural Payment Methodology)

3) Complete and submit the PRF Reconsideration Request Form by 11:59:59 pm EST on May 2, 2022. HRSA states not to include any supplemental information or documentation beyond completing the PRF Reconsideration Request Form and uploading your Phase 4/ARP Rural payment determination letter. HRSA will only review your original submitted application and will request any clarifying information directly, as needed.

Providers expecting, but not yet in receipt of, CARES Phase 4 and/or Rural ARP payments will have 45 days to apply for reconsideration after receipt of a payment determination notice from HRSA. More information is available at HRSA’s PRF Reconsideration site as well as HRSA’s PRF Reconsideration FAQ site. Please also see Toyon’s updated CARES PRF Presentation (February 4) for information on recent CARES PRF allocations, Period 2 Reporting, and new FAQs issued January 27, 2022.

Medicare Graduate Medical Education and Organ Acquisition Payment Policy Changes

January 10, 2022

On Monday December 27, CMS published Federal Register / Vol. 86. No. 245 [CMS–1752–FC3. This Final Rule with comment period includes new teaching slots for graduate medical education, modifications to organ acquisition reimbursement, and postpones potential changes related to Section 1115 waiver days for empirical DSH payments. February 25 is the deadline to submit comments to CMS for the issues (discussed below) whereby CMS is seeking feedback.

Graduate Medical Education

CMS’s changes for graduate medical education new teaching slots are directed by legislation provided in the Consolidated Appropriations Act (CAA), 2021. The CAA provides three new opportunities for teaching hospitals: 1) Additional 1,000 FTE cap slots for indirect medical education (IME) and direct graduate medical education (GME); 2) New opportunities for rural training track programs; and 3) Reset of FTE caps or per-resident reimbursement amounts that were established for hospitals using fewer than one or three FTEs, depending on the base year of the existing teaching cap or per-resident amounts. More about these respective changes are detailed below.

1) Additional IME and GME Slots (Section 126 of CAA)

Important Deadline: March 31, 2022 to Apply for Slots in Federal Year 2023

CMS finalized rules on the distribution of 1,000 new resident FTE cap slots over five years (200 per year) under Section 126 of the CAA for hospitals looking to establish or expand residency programs. Hospitals may apply for up to five new FTE cap slots by March 31, 2022 for distribution in Federal Year 2023 (March 31 preceding the federal fiscal year is the deadline for each of the applicable five fiscal years). Further instructions and the application for FTE cap slots will be available on the CMS DGME website.

The additional cap slots will be distributed to hospitals that are included in the following four categories (with at least 10% of slots going to each category):

Hospitals located in rural areas or that are treated as being in a rural area.
Hospitals that are training residents over their cap amount.
Hospitals located in the 35 states (listed in the rule) with new medical schools or additional locations and branches of existing campuses.
Hospitals that train residents in a program where at least 50 percent of the residents’ training time occurs at site(s) physically located in (a) geographic Health Professional Shortage Area(s) (HPSA).

HPSA scores will be a key criterion for all four categories, not just category four. Hospitals can find information about the HPSA or HPSAs associated with their training program locations using the HRSA search tool at: https://data.hrsa.gov/tools/shortage-area/by-address. CMS will prioritize applications by descending HPSA score. When hospitals have the same HPSA score, applications are next prioritized for hospitals with fewer than 250 beds. CMS is seeking comment on the dependence of geographic HPSA residents on health services provided outside of their HPSA, and a feasible alternative for potential use in future rulemaking.

2) Rural Training Track Programs (Section 127 of CAA)

Beginning Federal Year 2023

For cost reporting periods beginning on or after October 1, 2022, non-rural hospitals (“primary clinical sites”) and their rural hospital partners (“rural hospital participation sites”) with “rural track” residency programs may receive resident FTE cap slots. This FTE adjustment is intended to provide flexibility for both rural and urban hospitals focusing on additional physicians in rural markets. In its Final Rule, CMS codified four changes to the rural training track (“RTT”) program rules, as follows:

Each time an RTT program begins or is expanded between an urban and rural hospital, both may receive an adjustment to the FTE resident limit, regardless of whether the RTT program meets the newness criteria for Medicare payment purposes. Eligible expanded programs include new tracks (rural participating sites) added to an existing rural track program, but exclude expansion of existing tracks at an existing rural participating site.
Urban hospitals with existing RTT caps can receive RTT cap adjustments for additional qualifying RTT programs. Rural hospitals would also receive an RTT cap increase.
The requirement that a new rural track must be ‘‘separately accredited” is nullified, provided that the program in its entirety is accredited by the ACGME, and at least 50% of the RTP (“rural track program”) residents’ time is spent in rural areas. If these conditions are met, then it may qualify as an RTT and both hospitals (urban and rural) will receive RTT caps.
RTT program residents will not be included in the hospital’s 3-year rolling average resident cap calculation or subject to the IRB ratio during the build-up period.

3) Hospitals Qualifying to Reset Their PRAs and/or FTE Resident Caps (Section 131 of CAA)

Important Deadline: July 1, 2022 to Correct Medical Education FTE Counts in

CMS’s New (Upcoming) Public Use File

Certain hospitals with low or $0 per resident amounts (PRAs) may reset and establish new PRAs if the hospital trains more than the threshold number of resident(s) in a cost reporting period beginning on or after December 27, 2020 and before December 26, 2025. Certain hospitals with low caps may be eligible for revised FTE caps, if the hospital starts a brand-new program after December 27, 2020. 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 fewer than 3.0 FTEs in a cost reporting period beginning on or after October 1, 1997 and before December 27, 2020.

CMS will post a public use file here on its website containing an extract of the HCRIS cost report worksheets on which the FTE counts, caps, and PRAs, if any, would have been reported, starting with cost reports beginning in 1995. If a hospital wishes to receive a PRA or cap determination from its MAC for a possible reset of an open or reopenable cost report, the hospital must first check the posted public use file. CMS is seeking comment on treatment of PRAs or FTE caps from cost reports beyond the 3-year reopening period that do not agree with data in the forthcoming public use file.

Providers have a one-time deadline of July 1, 2022 to request MAC reconsideration if the provider is a Category B hospital, has an open or reopenable cost report, and believes its PRA in CMS’s public use file is incomplete or incorrect (i.e., FTEs are actually based on not more than 3.0 FTEs, or its IME and/or DGME FTE caps were based on not more than 3.0 FTEs).

Providers qualifying to reset their PRA will establish the replacement PRA resulting from the lower of:

The hospital’s actual cost per resident incurred in connection with the GME program(s) based on the cost and resident data from the hospital’s replacement base year cost reporting period; and
The updated weighted mean value of per resident amounts of all hospitals located in the same geographic wage area, calculated using all per resident amounts (including primary care and obstetrics and gynecology and nonprimary care) and FTE resident counts from the most recently settled cost reports of those teaching hospitals^[1].

Please contact Tom Hubner with questions at 888.514.9312, or tom.hubner@toyonassociates.com.

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^[1] If there are fewer than three existing teaching hospitals with per resident amounts that can be used to calculate the weighted mean value per resident amount, for base periods beginning on or after October 1, 1997, the per resident amount equals the updated weighted mean value of per resident amounts of all hospitals located in the same census region.

Organ Acquisition Payment Policy

CMS finalized their policy regarding Medicare-certified transplant hospitals and non-transplant hospitals’ charges for services to cadaveric donors. CMS also codified and clarified organ acquisition policies, including definitions, acquisition charges, coverage of living donor complications by the Medicare program, Medicare as a secondary payor for organ acquisitions, and paired donations for kidney transplants. The CMS proposal for both organ counting policy and research facility organ counting will be considered in future rulemaking.

The Federal Year 2022 IPPS Proposed Rule contained Section X. of the preamble which included proposed changes pertaining to Medicare’s share of organ acquisition costs for organs transplanted into Medicare beneficiaries and the charges for services provided to cadaveric organ donors by donor community hospitals and transplants hospitals. Listed below are the rules codified by CMS.

Change to Organ Acquisition Policy: CMS finalized the codification and compilation of Medicare organ acquisition policies under a new 42 CFR Part 413 subpart L, which was mentioned in the proposed rule. This new section will include changes to policies and creation of new policies from the Medicare Modernization Act (Pub. L. 108-173) and the 21st Century Cures Act (Pub. L. 114-255). CMS recognizes the need for a more coordinated approach across all organ types (kidney, liver, heart, lung, pancreas, or intestine)^[2].

Clarifying Definitions: CMS will define the term in the new section (42 CFR §413.400) “organ” for Medicare purposes and will exclude organs procured for research. The definition of organ for Medicare payment purposes differs from the definition set forth in 42 CFR §486.302 for Organ Procurement Organizations (OPOs). For Medicare payment purposes, an organ procured for research is not counted as a Medicare organ in Medicare’s share of organ acquisition costs, except where explicitly required by law.

Additional clarification to existing definitions of OPO, hospital-based OPO (HOPO), independent OPO (IOPO), transplant hospital/HOPO (TH/HOPO), and histocompatibility laboratory are added to 42 CFR §413.400.

Organ Acquisition Costs: New Section L will include CFR 42 §413.402(a) specifying costs which are incurred in the acquisition of organs from a living donor or a cadaver by either the hospital or OPO are considered organ acquisition costs. Also, CFR 42 §413.402(b) will codify the 12 elements regarding costs incurred in the acquisition of organs (living/cadaveric by hospital or an OPO) and apply the existing elements of kidney acquisition costs to all organs and include additional revisions that would apply to kidney acquisition only.

Standard Acquisition Charges: CMS also codifies current Medicare policies on Standard Acquisition Charges (SACs) for THs, HOPOs, and IOPOs (CFR 42 §413.404). SACs are amounts that represent the estimated costs that a TH and/or OPO expect to incur during the acquisition of the organ. It is generally the average rather than the actual organ acquisition costs.

Accurate Organ Count (No Current Changes; Medicare and Non-Medicare): CMS, in their proposed rule, suggested revisions to the overall counting of organs used to determine Medicare’s share of organ acquisition costs. CMS planned to follow through with one of two solutions, withdraw the proposal or finalize the proposal but with a delay during the transition period. CMS is not applying changes to organ counting, as further analysis is needed to understand the concerns of all parties. CMS notes changes to organ counting may bear costs that apply to non-Medicare patients.

Please contact Scott Besler with questions at 888.514.9312, or scott.besler@toyonassociates.com.

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^[2] Currently, Medicare reimburses Transplant Hospitals (THs) for organ acquisition costs, the transplant surgery, inpatient, and post-transplant costs for the Medicare recipients, but through different payment systems. Medicare Part A pays for hospital costs of a transplant surgery and certain follow-up care through a DRG payment, and the organ acquisition costs associated with a transplant on a reasonable cost basis. Medicare B pays for the physician and other services related to the procedure.

Section 1115 Demonstration Waiver Days for Empirical DSH Payments

CMS is not currently addressing proposed revisions on the treatment of Section 1115 waiver days for purposes of the DSH adjustment. In the Federal Year 2022 IPPS Proposed Rule, CMS proposed that Section 1115 waiver days can only be claimed in the Medicaid fraction if the patient directly receives inpatient hospital insurance coverage under an approved waiver. This excludes from the Medicaid fraction patient days for which hospitals received a payment from a UC pool. CMS expects to revisit the issue of Section 1115 waiver days in future rulemaking, and encourages stakeholders to review the future proposal and to submit their comments at that time.

Please contact Dylan Chinea with questions at 888.514.9312, ext. 3121, or dylan.chinea@toyonassociates.com

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