On April 10, 2023, CMS issued its annual Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System Proposed Rule for Fiscal Year (FY) 2024 (the Proposed Rule). In the Proposed Rule, CMS proposes to, among other things, update the IPPS and LTCH payment rates, overhaul its methodology for calculating the rural wage index, reverse its policy denying capital DSH payments to reclassified rural hospitals, and pay back hospitals the nursing and allied health Medicare Advantage payment amounts that were recouped under Change Request 11642 for calendar years 2010 through 2019. Comments to the Proposed Rule must be submitted by June 9, 2023. This article provides an overview of the key proposals in the Proposed Rule.
Payment Rates Overview
CMS proposes to increase the operating payment rates for acute care hospitals by 2.8 percent, which reflects a market basket update of 3.0 percent, minus a 0.2 percentage point productive adjustment. The agency estimates that the updated rate, along with other payment policies, will increase Medicare payments to hospitals by $2.7 billion in FY 2024.
CMS estimates that payments to LTCH hospitals will increase by approximately 2.9 percent in FY 2024 due to a 3.1 percent market basket update minus a 0.2 percent productivity adjustment. In all, CMS expects LTCH PPS payments to decrease by approximately $24 million in FY 2024 over FY 2023.
Wage Index
CMS is proposing to change how the rural wage index is calculated. Under the existing methodology, the rural wage index for a state is determined using the highest average hourly wage resulting from the following three calculations: (1) geographically rural hospitals (Calculation 1); (2) only geographically rural hospitals that do not have Medicare Geographic Classification Review Board (MGCRB) or Lugar reclassifications (Calculation 2); or (3) geographically rural hospitals plus reclassified rural hospitals that do not have MGCRB or Lugar reclassifications and out-of-state hospitals that have reclassified into the rural area of the state (Calculation 3).
Under the revised methodology that CMS is proposing, reclassified rural hospitals would be treated the same as geographically rural hospitals. This means that Calculation 1 would include the wage data of all geographically and reclassified rural hospitals. Calculation 2 would include the wage data of all geographically and reclassified rural hospitals that do not have MGCRB or Lugar reclassifications. Finally, Calculation 3 would include the wage data of all geographically and rural reclassified hospitals plus out-of-state hospitals that have reclassified into the rural area of the state.
The agency acknowledges that this proposal “would have significant effects on wage index values,” but the agency explained that a host of recent court decisions held that it must treat reclassified rural hospitals exactly as it treats geographically rural hospitals in calculating the Medicare wage index.
CMS is also proposing to continue the low wage index hospital policy that it first adopted in FY 2020. Under this policy, CMS makes upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile. The adjustment for each eligible hospital is equal to half of the difference between the otherwise applicable final wage index value for the hospital and the 25th percentile wage index value for all hospitals that same year.
When CMS first adopted the low wage index hospital policy in FY 2020, the agency said it intended to keep the policy in effect for four years. CMS is proposing to continue the policy for a fifth year so that it can continue to acquire data to evaluate the effect of the policy of hospitals with low wage index values.
For FY 2024, CMS is proposing that the 25th percentile wage index will be 0.8615. As in past years, CMS is proposing to fund these adjustments by making a budget neutrality adjustment to the standardized amount.
Capital DSH
CMS is proposing to reverse its policy of categorically denying capital disproportionate share payments to urban hospitals that have reclassified as rural. The agency is proposing this change in response the decision of the United States Court of Appeals for the District of Columbia in Toledo Hospital v. Becerra. In that case, an urban hospital that had reclassified as rural challenged CMS’s policy of denying capital Disproportionate Share Hospital (DSH) payments to reclassified rural hospitals. The Court ruled that CMS’s rule is arbitrary because the rulemaking record failed to explain why reclassified rural hospitals should not receive capital DSH payments.
CMS’s proposal is that effective for discharges on or after October 1, 2023, hospitals reclassified as rural under § 412.103 will no longer be considered rural for purposes of determining eligibility for capital DSH payments – thus, qualifying for capital DSH payments. However, for discharges occurring on or after October 1, 2006, and before October 1, 2023, hospitals reclassified as rural under § 412.103 would still be deemed rural for the purposes of the capital PPS and therefore do not qualify for capital DSH payments. In other words, the agency is proposing to acquiesce to Toledo on a prospective basis only.
Nursing and Allied Health
CMS is proposing to implement Section 4143 of the Consolidated Appropriations Act (CAA) of 2023, which directs CMS to recalculate the Nursing and Allied Health (NAH) Medicare Advantage (MA) payment pools for calendar years 2010 through 2019 without the application of the $60 million limit otherwise required by the statute. The Proposed Rule contains a table with the updated payment pools for each calendar year.
To determine which hospitals are eligible for payment using the revised payment pools, CMS would direct the MACs to identify all hospitals that were still receiving NAH MA payments on an interim basis as of December 29, 2022 (the date CAA 2023 was enacted). Second, MACs would be directed to use the updated payment pools to recalculate the NAH MA payment for eligible hospital cost reporting periods overlapping with calendar years 2010 through 2019 that are still within the three-year reopening window. Third, MACs would reduce the amount determined in step 2 from the NAH MA payment amount that the provider previously received for the cost reporting period. Lastly, MACs would add to the amount determined in step three, the difference, if any, between that amount and any amounts that were previously recouped from the provider under Change Request 11642.
As CMS notes in the Proposed Rule, the effect of step 4 is that “the amounts previously recouped under CR 11642…will be returned to hospitals, and recoupments that would have occurred under CR 11642…if not for the enactment of Section 4143 of the CAA 2023 will not occur.” In other words, this proposal would make hospitals whole for the NAH MA recoupments that were made for calendar years 2010 through 2019.
Uncompensated Care Payments
Under the Affordable Care Act, since FY 2014, hospitals have received 25 percent (as estimated by CMS) of the DSH payment they would have received under the payment methodology that existed prior to FY 2014. The remaining 75 percent (Factor 1) is reduced by the change in national uninsured rates (Factor 2) and divided among eligible hospitals based on their proportionate share of UCC (Factor 3). For each hospital, the product of these three factors represents its additional payment for UCC for the applicable fiscal year.
To calculate Factor 1 in the Proposed Rule, CMS used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by CMS’s Office of the Actuary (OACT) using the most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent Medicare DSH patient percentages and Medicare DSH payment adjustments provided in the IPPS Impact File. The OACT estimate for FY 2024 is approximately $13.621 billion. Therefore, Factor 1 for FY 2024, after 25 percent reduction is $10.216 billion.
CMS calculated Factor 2 in the Proposed rule by multiplying Factor 1 by 1 minus the change in the percent of individuals who are uninsured in 2013 to the rate of uninsured in the most recent period for which data is available. The OACT estimates that the uninsured rate for the historical, baseline year of 2013 was 14 percent and that the uninsured rate for CYs 2023 and 2024 is 9.3 percent and 9.2 percent, respectively. Using this data, CMS has calculated a Factor 2 of 65.71 percent. Thus, the UCC payment pool, after applying Factors 1 and 2, is $6.713 billion.
CMS is proposing to begin using three years (FY 2018, FY 2019, and FY 2020) of audited Worksheet S-10 data to calculate Factor 3 in FY 2024. CMS noted FY 2024 is the first year that three years of audited S-10 data will be available. If a hospital does not have data for all three years used in the Factor 3 calculation, CMS will determine Factor 3 based on an average of the hospital’s available data. CMS says it is proposing this change to address concerns from stakeholders about the potential year-to-year fluctuations in uncompensated care payments.
Graduate Medical Education
CMS is proposing to clarify the instructions of Worksheet E Part A of the cost report to more clearly indicate how to the numerator of the resident to bed ratio for the prior year should be adjusted to account for an increase in FTEs in the current year owing to a Medicare GME affiliation agreement. Under the revised instructions, if a provider is participating in a Medicare GME affiliation agreement, and the provider’s FTE cap and FTE count have increased over the prior year, the provider is instructed to increase the numerator of the resident to bed ratio for the prior year by the lower of: a) the difference between the current year FTE count on line 15 and the prior year FTE count on line 12, and b) the number by which the FTE cap on line 8 increased per the affiliation agreement.
CMS is also proposing to permit Rural Emergency Hospitals (REHs) to elect to be treated as non-providers for GME purposes. If an REH makes this election, hospitals would be eligible to claim the FTEs of residents that rotate through the REH. CMS also proposes allowing REHs to elect to receive reimbursement for the reasonable costs they incur training residents. These elections would be mutually exclusive. The agency has previously adopted similar rules for Critical Access Hospitals.
CMS also announced in the Proposed Rule the recent closure of St. Vincent Charity Medical Center, a teaching hospital that had 64.66 cap slots for direct GME and 56.73 FTE cap slots for IME. The agency is now accepting applications from hospitals seeking to receive GME and IME FTE cap slots from the closed hospital. Applications are due July 10, 2023.
Safety Net Request for Information
The Proposed rule contains a request for information from CMS regarding safety-net hospitals. Specifically, CMS is seeking public input on challenges faced by safety-net hospitals and their patients. In addition, CMS asks for potential approaches to help safety-net hospitals meet those challenges, including whether an alternative approach exists to the Safety-Net Index (SNI). SNI is a potential measure of the degree to which a hospital functions as a safety-net hospital. Safety-net hospitals serve vulnerable populations that often face barriers to accessing healthcare.
The Proposed Rule is available here, and a CMS fact sheet is available here. The Proposed Rule is scheduled to be published in the Federal Register on May 1, 2023.
