Hospital and Healthcare Systems Reimbursement Update

By Mario Urso, on February 13th, 2019

Upper Payment Limit (UPL)
Paid in twelve fixed monthly installments as lump sum add-ons. Only the state share of the UPL is being paid pending federal financial participation approval. Federal financial participation approval is still outstanding for 2018, DOH received notice that the federal CMS approval of the final 2017 inpatient (IP) UPL demonstration was for $298,448,000. This amount was lower than the original UPL of $339 million. Therefore, the initial 2017 Voluntary UPL distribution, originally swapped from the Indigent Care Pool, will be reallocated back to the ICP payments so that there would be no loss of funds to the providers.

The 2018 UPL has yet to receive the CMS approval for the federal portion as of February 5, 2019.

DSH Audits
Currently KPMG has completed the audit of the 2015 DSH Tool. This was reconciled to the actual 2015 payments and used as a proxy for 2019.

Medicaid Rates – 2018
Medicaid rates (components)

  • Budgeted 2018 capital surveys, submitted October 2017 were incorporated into the January 2018 notice rates. The 2017-2018 budget to actual reconciliations are still open.
  • Statewide Base Price: the acute rate sheets reflect the same statewide base price as the January 1, 2017 rates.
  • Potentially Preventable Negative Outcomes (PPNOs): the 2015/2016 State budget eliminated the hospital-specific PPNO reductions effective April 1, 2015. These reductions were previously applied to the statewide price and non-comparable components of the acute DRG rates. The 2016/2017 notice rates reflect the elimination of PPNOs since the extension to continue them for state fiscal year 2015/2016 was not submitted to CMS. At the time that the April 1, 2015 rates are finalized, the PPNO reductions will be eliminated from those rates as well.
  • The Department is also in the process of calculating the 2018 SIWs and outlier thresholds to be effective January 1, 2018. Since it is not anticipated that these will be available for use by January 1, the current weights and thresholds (from July 1, 2014) will continue to be used for claims processing.

Medicaid Rates – 2019
Medicaid rates (components)

Utilize the same information and methodology as the acute rates effective July 1, 2018 and the exempt unit and exempt hospital rates effective April 1, 2018, but take into consideration the below noted items:

  • Budgeted 2019 capital surveys, submitted October 2018 were incorporated into the January 2019 notice rates. The 2017-2019 budget to actual reconciliations are still open.
  • The 2018-2019 enacted State Budget establish a Health Care Transformation Fund. A portion of these funds has been allocated to hospitals to provide a 2% investment on all of 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 payments may be issued for $75,000 per state fiscal year ($32,250 for SFY 2018/19 due to pro-ration).
  • Minimum Wage adjustments to acute services were updated based on new minimum wage increases effective January 1, 2019. Facilities who failed to complete the survey defaulted to the use of an average wage calculation based on their facility’s 2016 institutional cost report and as such may have resulted in no additional reimbursement.
  • The Department will use the July 1, 2018 All Patient Refined Diagnosis Related Groups (APR-DRGs) SIWs, average length of stay and outlier thresholds for discharge dates on and after January 1, 2019.
  • The Budget Neutrality Factor will remain the same as the July 1, 2018 rates.

Medicaid Global Cap
The Medicaid Global Spending Cap has increased from $18.6 billion in FY 2017 to $19.5 billion (including the Essential Plan) in FY 2018, an increase of 5.2 percent.

  • The Medicaid cap is consistent with the Governor´s goal to limit total Medicaid spending growth to no greater than the ten–year average rate for the long–term medical component of the Consumer Price Index (currently estimated at 3.2 percent).
  • In order to implement the cap, the Department of Health (DOH) and the Division of Budget (DOB) will monitor and report program spending on a monthly basis to determine if spending growth is expected to exceed the forecasted Medicaid spending cap. Reports will be posted monthly on this website.
  • If spending is projected to exceed the spending cap and Industry led activities are not successful, DOH and DOB will develop and implement a plan of actions (known as the “Medicaid Savings Allocation Plans”) to bring spending in line with the cap.
  • Medicaid Savings Allocation Plans could include actions such as modifying/suspending reimbursement methods (e.g., fees, premium levels, rates) and modifying program benefits. Once developed, such plans will be posted to the DOH Web site and written copies will be provided to the Legislature at least 30 days prior to implementation.
  • Through October, total State Medicaid expenditures under the Medicaid Global Spending Cap for FY 2019 were $49 million above projections. Spending through October resulted in total expenditures of $13.857 billion compared to the projection of $13.808 billion.

Medicare Issues
SSI Ratios

  • Medicare SSI% is calculated by CMS and used in the Disproportionate Share Hospital (DSH) calculation
  • The most recent SSI% available to hospitals is the 2016 SSI%.
    – On Tuesday January 15, 2019, the Supreme Court began hearing arguments on the dispute over the Medicare DSH formula.
    – U.S. Department of Health and Human Services (HHS) altered the calculation of the SSI% by adding Medicare Part C (HMO) days to the denominator. This has direct negative impact on the SSI% which in turn has a negative impact on the over DSH Payment Percentage.
    – In 2017, an appellate court ruled against HHS indicating they did not utilize the proper process prior to release of the change.
    – It is estimated that this change would be an impact to HHS of $3-4 billion.
    – Case: Azar v. Allina Health Services, Docket No. 17-1484

Low Volume Add-on payment

  • This adjustment allows hospitals 15 miles or greater from the nearest “subsection (d)” (section 1886(d) of the Act) hospital (IPPS hospital) as defined in 412.92 (c)(1) and have less than 1,600 Medicare discharges as specified in 412.101 to receive additional Medicare payments.
  • Section 50204 of the Bipartisan Budget Act of 2018 extended the temporary changes to the low-volume hospital payment adjustment through September 30, 2018. On October 1, 2018, the low-volume add-on qualifying criteria was modified by the Bipartisan Budget Act of 2018 which will last FY 2022. This means to qualify a hospital (IPPS hospital) must be located more than 15 road miles from the nearest hospital and have fewer than 3,800 total discharges.

Outlier Threshold – Increase
The final regulations will decrease the outlier threshold for FY2019 to $25,743 from the FY2018 threshold of $26,713). The adjustment to the outlier threshold is to ensure outliers payments are 5.1% of total Medicare DRG payments.

Financial components include Medicare Inpatient Acute Care Hospital Final Regulations (IPPS) for FY2019:

summary of major issues impact
Net Market Basket Update 1.35%
Documentation and Coding Adjustment 0.50%
Frontier State Wage Index and Outmigration Adjustment 0.10%
Other Adjustments 0.40%
Net Operating Rate Update 2.40%

Documentation and Coding “Case Mix” Adjustment

For FY 2019, the Hospital Specific (HSP) amount in the PSF for Sole Community Hospitals (SCH) (and Medicare-Dependent Hospitals (MDH) as applicable) will continue to be entered in FY 2012 dollars. PRICER will apply the cumulative documentation and coding adjustment factor for FYs 2011 through 2014 of 0.9480 and apply all of the updates and DRG budget neutrality factors to the HSP amount for FY 2013 and beyond.

2-Midnight Policy

There is no rate adjustment in FY 19 as CMS applied a .6 reduction to rates in FY 2018 to reverse the one-time adjustment from FY 17.

Hospital Acquired Condition Reduction Program (HAC)

Section 3008 of the Affordable Care Act establishes a program, beginning in FY 2015, for IPPS hospitals to improve patient safety, by imposing financial penalties on hospitals that perform poorly with regard to certain HACs.

Under the HAC Reduction Program, a one (1) percent payment reduction applies to a hospital whose ranking is in the top quartile (25 percent) of all applicable hospitals, relative to the national average, of HACs acquired during the applicable period, and applies to all of the hospital’s discharges for the specified fiscal year.

A list of providers subject to the HAC Reduction Program for FY 2019 was not publicly available in the final rule because the review and correction process was not yet completed. Updated hospital level data for the HAC Reduction Program will be made publicly available following the review and corrections process.

Hospital Value Based Purchasing

Section 3001 of the Affordable Care Act added Section 1886(o) to the Social Security Act, establishing the Hospital Value-Based Purchasing (VBP) Program. This program began adjusting base operating DRG payment amounts for discharges from subsection (d) hospitals, beginning in FY 2013.
For fiscal year (FY) 2019, the law requires that CMS reduce a portion of the base operating Diagnosis-Related Group (DRG) payment amounts otherwise applicable to a participating hospital for each discharge by two percent (2.0%), and that the estimated sum total of these reductions be the amount redistributed to participating hospitals based on their performance on a previously-announced set of quality and cost measures. CMS estimates that the total amount available for value-based incentive payments in FY 2019 will be approximately $1.9 billion.

CMS posted the Hospital VBP Program incentive payment adjustment factors for each participating hospital for FY 2019 in Table 16B here.

Hospital Readmissions Reduction Program

Section 3025 of the Affordable Care Act added section 1886(q) to the Social Security Act establishing the Hospital Readmissions Reduction Program, which requires CMS to reduce payments to IPPS hospitals with excess readmissions, effective for discharges beginning on October 1, 2012

The readmissions payment adjustment factors for FY 2019 are in Table 15 of the FY 2019 IPPS/LTCH PPS final rule (which are available through the Internet on the FY 2019 IPPS Final Rule Tables webpage). Hospitals that are not subject to a reduction under the Hospital Readmissions Reduction Program in FY 2019 have a readmission adjustment factor of 1.0000. For FY 2019, hospitals should only have a readmission adjustment factor between 1.0000 and 0.9700 as the payment reduction is capped at 3%.

Medicare Disproportionate Share Hospitals (DSH) Program

The FY2018 Uncompensated Care amount is: $6,766,695,164. CMS decided to calculate Factor 3 for FY2018 based on an average of Factor 3 calculated using low-income insured days (proxy data determined using Medicaid days from FY2012 and FY2013 cost reports and FY2014 and FY2015 SSI ratios, and Factor 3 calculated using uncompensated care data based on FY2014 Worksheet S-10.

The FY2019 Uncompensated Care amount is: $8,272,872,447. For FY 2019, a hospital’s Factor 3 is the average of three individual Factor 3s calculated based on cost reporting periods beginning in FY 2013, FY 2014, and FY 2015. The individual Factor 3 for FY 2013 is based on Medicaid days and Medicare SSI days, while the Factor 3 for FY 2014 and FY 2015 is based on hospital uncompensated care costs.

FY2019 DSH payments are estimated at approximately $8.273 billion, or an increase of approximately $1.5 billion from the FY2018.

Medicare-Dependent Hospital (MDH) & Sole Community Hospital (SCH)

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

For FY 2018, the HSP amount in the PSF for SCHs (and MDHs as applicable) will continue to be entered in FY 2012 dollars. PRICER will apply the cumulative documentation and coding adjustment factor for FYs 2011 through 2014 of 0.9480 and apply all of the updates and DRG budget neutrality factors to the HSP amount for FY 2013 and beyond.

340B Update

On January 2nd a federal judge recently ruled against the 30 percent cut to Medicare payments for 340B drugs which was released in the 2018 final rule. The impact and implementation of this ruling has yet to be determined.

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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Written By

Mario Urso April 2020
Mario Urso
Senior Counsel

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