On August 2, 2019, the Centers for Medicare & Medicaid Services (CMS) published its 2,273-page 2020 Inpatient Prospective Payment System (IPPS) Final Rule. Importantly, CMS finalized its proposal to reduce the disparity between high and low wage index hospitals by increasing the wage index values for certain hospitals with low wage index values.
Beginning October 1, 2019, and continuing each year for four fiscal years, any hospital with a wage index value below the 25th percentile will receive an increase equal to one-half of the difference between the hospital’s wage index value and the 25th percentile wage index value for all hospitals. For FY 2020, this adjustment will positively impact those hospitals with wage index values less than 0.8457.
Although the increases will be budget neutral, they will be accomplished in a different manner than CMS had initially proposed. Rather than reducing the wage index for hospitals at or above the 75th percentile wage index value, CMS will reduce the national standardized labor payment amount (by -0.38% in FY 2020) for all IPPS hospitals.
The American Hospital Association’s reaction regarding the wage index change was lukewarm at best:
“While we support improving the wage index values for many struggling rural hospitals, this should not be done by penalizing all hospitals, especially when Medicare already pays far less than the cost of providing care. That’s why we strongly urged the agency to use its existing statutory authority to increase the wage index in a non-budget neutral manner.”
In the Final Rule, CMS stated that it intends to monitor the policy’s impact and adjust future rulemaking as the agency gains experience. Will hospitals benefitting from this adjustment use the payment increases to raise salaries, or will other funding needs take priority? It may be a few years before any definitive trends are conclusively observed.
In addition to the wage index, CMS finalized its proposed change to the rural floor calculation. Currently, the IPPS wage index value for an urban hospital cannot be less than the wage index value for hospitals located in rural areas in the state. Concerned that some hospitals may be using urban-to-rural reclassifications to inappropriately influence the rural floor wage index value, CMS eliminated urban-to-rural hospital reclassifications from the calculation of the rural floor wage index value.
There are several factors that determine a provider’s Medicare blended rate in addition to the wage index, including disproportionate share, uncompensated care, value-based purchasing, and readmission adjustments. PYA’s reimbursement team has carefully studied the impact of the Final Rule changes on individual hospital reimbursement. To discuss how your hospital’s estimated Medicare reimbursement per discharge will be impacted by the FY 2020 IPPS Final Rule, contact a PYA executive below at (800) 270-9629.
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