Hospitals may seek redesignation to a neighboring core-based statistical area for wage index purposes under the rules that set forth the geographic reclassification process.  See 42 C.F.R. § 412.230 et seq.  Those rules require that applications for geographic reclassification be made 13 months in advance of the Federal fiscal year for which reclassification is being sought.  The deadline for Fiscal Year 2018 reclassifications is September 1, 2016.  As that date approaches, urban hospitals are evaluating the additional advantages of “stacking” reclassifications – that is, seeking first to reclassify as a rural hospital under the rules set forth in 42 C.F.R. § 412.103 and then seeking to use the more relaxed geographic reclassification requirements for rural hospitals to reclassify to a higher wage index area.

“Stacking” reclassifications in this way was prohibited until CMS reversed this policy in an Interim Final Rule published in April 2016.  The Interim Final Rule, available here, has presented many urban hospitals with another geographic reclassification option.  Urban hospitals are also finding that “rural” status can offer other benefits, discussed below, but these benefits may not be without risk.  These hospitals are quickly working through the risks and benefits of rural reclassification in advance of the September 1 geographic reclassification deadline. 

The April Interim Final Rule provides that a hospital that has reclassified as rural can retain its rural status in applying for redesignation to a neighboring area for wage index purposes.  Likewise, the Interim Final Rule provides that a hospital that has already been reclassified to a neighboring area can reclassify as rural without jeopardizing its current status.  CMS’s longstanding policy had been to prohibit such “stacking” of reclassifications, but CMS lifted this prohibition in the wake of decisions from the United States Courts of Appeal for the Second and Third Circuits, respectively, which held that the prohibition on stacking reclassifications was inconsistent with the plain language of the Medicare statue. 

Because the Interim Final Rule allows an urban hospital to reclassify as “rural” under 42 C.F.R. § 412.103 and also allows that hospital to seek geographic reclassification, giving it a pathway to a higher wage index, hospitals are evaluating a number other advantages to being reclassified as a “rural” hospital, such as:

• Relaxed requirements to qualify for geographic reclassification to a neighboring area of choice;
• Access to the benefits afforded to rural hospitals without forfeiting an existing geographic reclassification;
• Reduced DSH thresholds to qualify for the Section 340B Drug Pricing Program (eight percent), if the hospital becomes a rural referral center;
• Upward adjustments to IME FTE caps; and
• Reduced stop-loss thresholds for hospitals participating in the Comprehensive Joint Replacement Program.

Each of these advantages may come with additional risks that require careful evaluation, which may pose difficulties for hospitals to work through in advance of the September 1 geographic reclassification deadline.