On April 23, 2019, the Centers for Medicare and Medicaid Services (CMS) released their proposed rules for payment and policy updates for the Medicare Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for fiscal year (FY) 2020.¹ Other than the increase in IPPS and LTCH payments, the most notable portion of the proposed rule is the changes proposed by CMS to Medicare’s reimbursement of rural hospitals.² This Health Capital Topics article discusses the various provisions set forth in the CMS proposed rule.

The proposed rule includes an estimated 3.7% total increase in operating payments to general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and electronic health record (EHR) Meaningful Use program,³ increasing overall Medicare spending by approximately $4.7 billion. Additionally, LTCH PPS payments are projected to increase by 0.9%.⁴ Both of these projected increases are greater than last year’s projections, in which hospital payments were estimated to increase by 1.75%, and LTCH PPS payments were projected to decrease by approximately 0.1%.⁵ In addition, payments for uncompensated care to disproportionate share hospitals (DSH) are expected to increase by $216 million from FY 2019 amounts, totaling $8.5 billion for FY 2020.⁶

Regarding payment for rural hospitals, CMS solicited comments during the 2018 rulemaking process related to the Medicare wage index, which adjusts a hospital’s overall reimbursement depending on the hospital’s location (as hospitals in different areas will have differing labor costs).⁷ Commentators noted that the disparities between those (typically urban) hospitals with a higher wage index (that are thus receiving higher reimbursement), and those with (typically rural) hospital with a lower wage index were exacerbating labor issues in rural areas, as those hospitals are consequently unable to pay their staff higher wages because they are being reimbursed relatively less. In turn, this discrepancy self-perpetuates, exacerbating the gap between high-wage hospitals and low-wage hospitals. To address this discrepancy, CMS proposes increasing the wage index of low-wage index hospitals, i.e., “with a wage index value below the 25^th percentile,” by half of the difference between the hospital’s current wage index value, and the 25th percentile wage index value.⁸ The proposed program would commence in 2020 and be in effect for a minimum of four years, so that employee wages have an opportunity to rise in response to the increased wage index value received.⁹ In order to keep this change budget neutral, CMS proposes decreasing the wage index of high-wage index hospitals, i.e., “with a wage index value above the 75^th percentile,” by the same formula.¹⁰

In addition, CMS proposes instituting both a floor and a decrease cap to the hospital wage index. The “rural floor” will provide that “the IPPS wage index value for an urban hospital cannot be less than the wage index value applicable to hospitals located in rural areas in the state.”¹¹ Further, the decrease of any hospital’s wage index between 2019 and 2020 will be capped at 5%.¹²

CMS Administrator, Seema Verma, asserts that:

“Rural Americans face many obstacles as the result of our fragmented healthcare system, including living in communities with disproportionally higher poverty rates, more chronic conditions, and more uninsured or underinsured individuals. The Trump administration is committed to addressing inequities in health care, which is why we are proposing historic Medicare payment changes that will help bring stability to rural hospitals and improve patients’ access to quality healthcare.”¹³

The CMS proposed rule includes a variety of other suggested actions, including, but not limited to, the following:

1. Increasing the amount of uncompensated care payments distributed to disproportionate share hospitals (DSHs) by $216 million;
2. Revisions related to new technology add-on payments, including an increase in payment rates and streamlining access to those payments; and,
3. The introduction of some new policies related to the Promoting Interoperability Programs (f/k/a Medicare and Medicaid EHR Incentive Programs).¹⁴

The changes proposed by CMS would affect approximately 3,300 acute care hospitals and approximately 390 LTCHs.¹⁵  According to CMS, the goal of the IPPS proposed rule is to achieve a “singular objective: transforming the healthcare delivery system through competition and innovation to provide patients with better value and results.”¹⁶ Specific to rural hospitals, the agency asserts that the proposals outlined above “would represent historic changes to the way rural hospitals are paid...and [would] help guarantee [that] people living in rural America have access to high quality, affordable healthcare.”¹⁷ Comments from industry stakeholders regarding the proposed rule are due by June 24, 2019.¹⁸