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Hospital and Healthcare Systems Reimbursement Update

February 21st, 2020

This article was written and produced by Scott Rau, M.S. Hall & Associates. Looking to get in touch with Scott? Reach out today:

Reimbursement Update

Hospitals and health systems that participate in third-party payment programs, particularly with governments, need to consider the industry environment when determining potential third-party accounting considerations. The following information details several current industry updates for your organization’s consideration in finalizing the year-end financial statements.

Indigent Care Pools – Upper Payment Limit (UPL)

  • The NYS DOH is processing the 2017 Outpatient Voluntary UPL within the next two months.
  • The NYS DOH will be processing the 2018 Voluntary UPL recast in the near future.
  • For 2019 NYS DOH is waiting on CMS approval for the final UPL margin for both the public and voluntary hospitals before they can recast the model.

Medicaid DSH Cuts

CMS published a final rule calculating $4 billion in state Medicaid disproportionate share hospital cuts for fiscal 2020 and $8 billion for each subsequent year through 2025. The rule does not mean that the DSH cuts will go through, it just finalized the methodology that CMS would use to allocate the cuts to states if the cuts are implemented. The final method considers:

  • The rate of uninsured in each state, the number of Medicaid inpatients, the level of uncompensated care in the state, and other budget-neutrality factors.
  • It also clarifies the definition of total hospital costs and specifies state data submission requirements.
  • It also adjusts the weighting of certain factors required in the methodology by the Affordable Care Act.

Medicaid Rates

  • Budgeted 2019 capital surveys, submitted in September 2018 were incorporated into the January 2019 notice rates.
  • The 2017-2019 budget to actual capital reconciliations are still open. (See below for additional capital information)
  • 2% Hospital Investment. The 2018-2019 enacted state budget established a Health Care Transformation Fund. A portion of these funds has been allocated to hospitals to provide a 2% investment on all the operating components of the Medicaid Inpatient rates. For those hospitals where the estimated annual Medicaid impact from the 2% operating investment is less than $75,000, lump-sum payments may be issued for $75,000 per year. The rate sheets will indicate those hospitals that are eligible for lump-sum payments versus 2%.
  • A Minimum Wage adjustment was added to the Medicaid rates for minimum wage increases. The rates were adjusted based on wage survey data that was submitted and attested to by hospitals. Facilities who failed to complete the survey will receive the adjustment based on their facilities 2016 ICR and as such this may result in no additional payment.
    • Adjustment is for inpatient only.
    • The 2019 add-on was calculated by dividing total minimum wage costs by total 2016 reported ICR acute discharges.
    • Prior year acute add-ons were left as is and will be updated to new methodology at the time of reconciliation.
  • Budget Neutrality and Transition Factors:
    • Budget Neutrality remains the same as the July 1, 2018 rates.
    • Transition factors have been updated as a result of the limit on losses increasing from 1% to 2% and the cap on gains increasing from 3.56% to 4.56%, effective January 1, 2019.
  • Service Intensity Weights (SIW)
    • Department will continue to use the July 1, 2018 SIWs.
    • Claims with discharge dates on and after January 1, 2019 will also continue to be processed using v34 of the 3M APR-DRG grouping software.
  • Re-basing of Acute Rates
    • Per regulation, Acute rates should be re-based by July 2022. A base year will depend upon the latest audited data, most likely from the 2018 or later cost reports.

Medicare DSH

  • Current SSI ratios on the CMS website are 2017.
  • FY2020 DSH payments are estimated at approximately $8.35 billion, or an increase of approximately $78 million from FY2019.
  • For FY2020, CMS also finalized the proposal to continue incorporating uncompensated care cost data from Worksheet S-10 of the Medicare cost report into the methodology for distributing these funds. Specifically, for FY2020, CMS will use Worksheet S-10 data from a single year – FY2015 cost reports, in combination with insured low-income day’s data from FY2013 cost reports, to determine the distribution of uncompensated care payments.
  • CMS noted that it has started to audit FY2017 cost report data, with the goal of using this audited data in future rulemaking.

Medicare Dependent Hospital

  • The Medicare Dependent Hospital program remained effective through September 30, 2017. Section 50205 of the Bipartisan Budget Act (BBA) of 2018 provides for an extension of the MDH program for discharges occurring on or after October 1, 2017, through FY 2022.

Low Volume Add-on Payment

  • Section 50204 of the BBA modified the definition of a low-volume hospital, as well as the methodology for determining the payment adjustment for hospitals meeting that definition. Specifically, Section 50204 amended the qualifying criteria for low-volume hospitals to specify that, for FYs2019-2022, a subsection (d) hospital qualifies as a low-volume hospital if it is:
    • More than 15 road miles from another subsection (d) hospital and
    • It has less than 3,800 total discharges during the FY.
  • Hospitals must attest to this payment by September 1 each year.

Wage Index

  • CMS finalized the proposal to increase the wage index for hospitals with a wage index value below the 25th percentile. These hospitals’ wage indexes would be increased by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals.
  • This final policy would be effective for at least 4 years, beginning in FY2020, in order to allow employee compensation increases implemented by these hospitals enough time to be reflected in the wage index calculation.
  • In response to public comments, CMS is modifying the budget neutrality adjustment for the policy. Overall Medicare spending will still not increase as a result of this policy; however, CMS will adjust the standardized amount that is applied across all IPPS hospitals instead of the proposed decrease to the wage index for hospitals above the 75th percentile.

Outlier Threshold

  • CMS didn’t detect the outlier overpayments from fiscal years 2011-14 because they didn’t meet the 10-percentage-point threshold, according to the OIG. Most of the cost reports reviewed by the OIG had a ratio of less than 5 percent.
  • Based on its findings, the OIG recommended that CMS require reconciliation of all hospital cost reports with outlier payments. In comments on the OIG’s draft report, CMS concurred with the OIG’s recommendation and said it will consider whether to propose any modifications to its outlier reconciliation policy in future rulemaking.

Nursing Allied Health

  • The Nursing and Allied Health reimbursement is still a hot topic for CMS.
  • Any program that is administered jointly between providers and colleges have been placed under scrutiny.
  • The hospital needs to be the legal operator of the Nursing Allied Health program.

Hospital-Acquired Conditions (HACs):

  • CMS finalized the proposals to:
    • Specify the dates to collect data used to calculate hospital performance for the FY2022 HAC Reduction Program.
    • Adopt eight factors CMS would use when deciding whether a measure should be removed from the HAC Reduction Program; each of these factors were previously adopted by the Hospital IQR and Hospital VBP Programs.
    • Clarify administrative processes for validating National Healthcare Safety Network (NHSN) Healthcare-associated Infection (HAI) data submitted by hospitals to the Centers for Disease Control and Prevention (CDC).

Readmission Reduction Program – FY2020

  • CMS finalized the proposals to:
    • Establish the performance period for the FY2022 program year.
    • Adopt eight factors CMS would use when deciding whether a measure should be removed from the Hospital Re-admissions Reduction Program; each of these factors were previously adopted by the Hospital IQR and Hospital VBP Programs.
    • Update the definition of “dual eligible”.
    • Adopt a sub-regulatory process to address potential non-substantive changes to the payment adjustment factor components.
    • CMS estimates that the hospital readmissions reduction program will save approximately $550 million in FY2020 as 2,599 hospitals would have their base operating DRG payments reduced.

Hospital Value-Based Purchasing

  • CMS finalized the proposal that the Hospital VBP Program would use the same data as the HAC Reduction Program to calculate the National Health Safety Network (NHSN) Healthcare-Associated Infection (HAI) measures beginning with CY2020 data collection, which is when the Hospital IQR Program will cease collecting data on those measures.
  • CMS also finalized the proposal that the Hospital VBP Program would rely on the process used by the HAC Reduction Program to validate the NHSN HAI measures to ensure that the measure rates are accurate for use in the Hospital VBP Program.
  • In addition, CMS is estimating the performance standards that would apply to numerous measures in future program years.
  • The estimated amount available for value-based incentive payments for FY2020 discharges is approximately $1.9 billion.

340B Update

  • The American Hospital Association, along with other hospital groups, sued the Secretary of the U.S. Department of Health and Human Services challenging the adjustment to payment rates for 340B drugs from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent for CY2018.
  • CMS proposed for CY2020 to continue its reduced payment rate for 340B drugs of ASP minus 22.5 percent.

Off-Campus Clinic Visit Repayment

  • In its final Outpatient Prospective Payment System Rule for 2019, CMS made payments for clinic visits site-neutral by reducing the payment rate for the technical office services provided at off-campus provider-based departments by 60 percent.
  • Although found to be unlawful for the FY2019 Final Rule, no ruling has been made yet on FY2020, and CMS will be appealing the decision.
  • The AHA claimed that affected hospitals were shorted about $380 million in Medicare payments in 2019 from the rate cut.
  • Beginning Jan. 1, 2020, Medicare administrative contractors will begin repaying hospitals that were paid at the 60 percent reduced rate. Providers will be repaid automatically.

Connect with Aimee Jozic or Jonathan Miller, members of our Hospital and Healthcare Systems Team, for more information.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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