FY 2020 IPPS Proposed Rule: Wage Index Changes

The FY 2020 IPPS Proposed rule introduces a new approach to the hospital wage index to address payment differences between low and high wage index hospitals.  CMS proposes to increase the wage index for hospitals with a wage index value below the 25thpercentile (.8482 for FY 2020) and decrease the wage index for hospitals with a wage index value above the 75thpercentile (1.0351 for FY 2020) as well as changing the calculation of the rural floor.  CMS also proposes these policy changes be effective for at least 4 years.

To what extent is Wage Index changing from FY 2019 to FY 2020?

Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table 2.
Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table.

Regardless of whether the proposed quartile policies are implemented or not, the clear majority of hospitals will expereince an increase or decrease less than 5% or no change at all (86%and 92%).  CMS states in the proposed rule that addressing the wage index disparities at the high and low ends ensures those hospitals in the middle do not have their wage index values affected by this proposed policy.    

Why should hospitals be aware?

Although the proposal to address wage index disparities between high and low wage index hospitals is intended to be budget neutral, the effect to the overall change in payment to an individual hospital could be significant. 

Case Hospital Example:  Urban California Teaching Hospital with Wage Index > 75thPercentile

Reviewing an example hospital illustrates a change in payment from 2019 to 2020 using the proposed FY 2020 wage index and the FY 2020 wage index prior to the policy change. In this example, the volume and case mix index remain static to isolate wage index changes.  The other key ingredients to payment include the labor-related operating base rate and the wage index.

  • FY 2020 Proposed Wage Index = 1.8263
  • FY 2020 Wage Index (Prior to Proposed Policy Change) = 1.8619
  • FY 2019 Wage Index = 1.7827

The increase in the labor-related operating base rate as well as the increase in wage index from FY 2019 to FY 2020 drives an overall increase in payment for this facility.  However, payment is $4.3M less than it would have been prior to adjustments to the FY 2020 wage index.

Interested to comment to CMS on the IPPS Proposed Rule?

Be sure to review Table 2 of the proposed rule to see where your facility stands regarding wage index changes.  Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to http://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

Transparency Fifty™ Update and Observations

What is the Transparency Fifty™?

This report identifies the 50 most common outpatient procedures where hospitals compete with free-standing entities. This helps hospitals who are searching for strategies to reduce prices, by focusing on procedures where they are likely to have the most competition from free-standing providers. 

Cleverley + Associates first released this report about a year ago, using 2016 Medicare charge data, but we updated it for 2017. For this current version, we compared volumes and charges for free-standing entities to hospitals for imaging, laboratory tests, outpatient surgery, therapy and sleep lab to determine the top codes where they compete.

  • We replaced seven HCPCS codes with the following due to changes in usage between 2016 and 2017:
    • Imaging
      • CAT scan of head or brain
      • CT abdomen & pelvis w/o contrast
      • Contrast CAT scan of chest
      • CT abdomen & pelvis 1+ sections/regions
    • Lab
      • Presumptive drug class screening
    • Therapy
      • PT evaluation moderate complexity 30 minutes
    • Surgical Procedures
      • Interlaminar lumbar/sacral epidural injection with imaging guidance (new code in 2017)
      • Transforaminal epidural injection; lumbar or sacral, single level 

We had a few interesting reflections on the new and improved report.

For the 18 imaging codes on this report, the US hospital price compared to the US Free-standing price is 216% higher on average. One interesting exception where the hospital price and free-standing price were almost equal is for Screening Mammography.

For the 17 laboratory tests on this report, the US hospital price compared to the US Free-standing price is 209% higher on average. The lone exception in this area was for the newly added code for Presumptive Drug Class Screening where the average hospital price is lower.

For the six therapy procedures, the US hospital price is about 231% higher on average than the US free-standing price. The percentage difference between hospitals and free-standing is very consistent across these codes. 

Sleep lab and ECG monitoring procedures for hospitals are priced 174% higher than free-standing entities on average.

In Summary, we believe the Transparency Fifty™report will help hospitals compare their prices in areas where competition is high from free-standing centers and will help them position themselves to better compete for ambulatory patients who engage in price shopping. 

For more information about the report, or any of our other reports, give us a call at 888.779.5663.

Data Sample: Hospital Charge Index®

Pricing is certainly a hot topic right now with the disclosure requirement becoming effective on January 1, 2019.  The Hospital Charge Index® helps hospitals understand how high or low they are relative to peers for both inpatient and outpatient charges.  The metric utilizes total claim charges and is adjusted for resource intensity and cost of living.  Because the new requirement includes a provision to display average charges by MSDRG, the Hospital Charge Index® can help busy executives evaluate encounter-level charge comparisons for their hospital to any other in the country in one central place.  As seen in the data display, there are several low-charge states and MSAs in the New England area.  Maryland – and the Baltimore MSA – continue to be the lowest charge benchmarks nationally as the state has strict price and payment regulations.  Still, these low charges don’t always translate to lower payments as Maryland and Massachusetts are two of the top three highest payment states as measured by Net Patient Revenue per Equivalent Discharge™.  The State of the Hospital Industry publication highlights several other interesting points about relative charge positions nationally.  Among them, higher charge hospitals tend to be larger, urban facilities that also tend to have a less favorable payer mix which creates upward price pressure to recover payment deficiencies.  Proprietary facilities, as a group, also have higher median charge levels than other organization types.  And, finally, while many in the industry question the connection between gross charges and net revenue, there are significant charge differences between high and low operating margin groups.   

To see more detail on the data above and more than 80 other metrics of hospital performance, click here for the 2018 – State of the Hospital Industry”

2019 Changes to Provider Based Departments

Simply put, a provider based department is a location where hospitals provide services to their patients that is outside of the traditional main hospital. This year, there are a few changes to how these departments are defined and billed as prescribed in the CY19 Medicare Physician Fee Schedule Final Rule.

The 4 types of Provider Based Departments (PBDs) remain unchanged.

  1. On Campus – Less than 250 yards from main hospital
  2. Off Campus – More than 250 yards from main hospital
  3. Remote Hospital Locations – Remote building created or acquired by hospital to provide inpatient services under the name, ownership, and financial and administrative control of the main hospital (i.e. multi-campus)
  4. Satellite Hospital Facilities – Part of hospital that provides inpatient services in a building also used by another hospital, or in one or more entire buildings located on the same campus as buildings used by another hospital

But a few things are changing this year. 

First off, in order to see how much Outpatient Prospective Payment System (OPPS) services are shifting to off campus, provider based emergency departments, The Centers for Medicare & Medicaid Services (CMS) will collect data on the types of services furnished in off campus emergency departments. These services are exempt from the site-neutral payment reductions affecting in non-excepted PBDs.  Hospitals should utilize the new modifier ER to identify these services for every claim line of the UB-04. While there are no payment adjustments specified for this change yet, there could be in the future.

Second, the CMS is concerned about the shift in services from freestanding physician offices to hospital outpatient department settings, and the financial effect on beneficiaries. To address this, reduced Medicare Physician Fee Schedule (MPFS) facility payment rates for clinic visits to all off campus PBDs will be extended, even if they’re excepted under Section 603 of the Bipartisan Budget Act of 2015. The CMS estimates a savings of $380 million from this change, with beneficiaries saving approximately $80 million of that total in the form of lower copayments.

Although it is unclear if the CMS has the authority to make these payment cuts in a non-budget neutral manner, hospitals should monitor their change in payments. These site-neutral payments will gradually phase in between 2019 and 2020.

Next, the CMS expressed a concern that a difference in payment amounts for 340B acquired drugs provided by hospital outpatient departments creates an incentive for hospitals to move drug administration services to non-excepted PBDs, rather than excepted, to receive higher payment. The CMS’ basis for this change is if drugs are being purchased at a reduced rate, providers should also be reimbursed at a discount, regardless of the PBD status or location. To address this, Part B drug payment methodology for separately payable 340B drugs billed by non-excepted, off campus PBDs will be changed to the same formula applied to excepted, off campus PBDs – which is: ASP – 22.5% instead of ASP + 6%.

In addition, the payment amount for status indicator (SI) “K” (non-pass through drugs and biologicals, therapeutic radiopharmaceuticals, brachytherapy sources, and blood/blood products), purchased through the 340B program in non-excepted PBDs will decrease by -28.5%. SI “K” drugs not purchased through the 340B program, but billed by non-excepted off campus PBDs will continue to be paid ASP + 6%.  Non-excepted PBDs are required to append modifier JG to the same claim line as the drug or biological HCPCS code to indicate it was acquired by the 340B drug pricing program discount.

As in previous years, the CMS once again proposed excepted off campus PBDs should be paid the same adjusted MPFS rate as non-excepted locations; specifically, for any new services not furnished at that location 12-months prior to the Bipartisan Budget Act of 2015. The concern is additional physician practices could be purchased and operated under the existing excepted off campus PBD umbrella, resulting in higher OPPS payment. The CMS believed Congress did not intend for new service lines in excepted locations to be paid OPPS rates so this proposal is an attempt to limit service line expansion for higher payment.

This service line expansion proposal hasn’t yet been finalized due to the CMS’ concerns that the implementation of this policy is operationally complex and could create administrative burdens for hospitals. Instead, the following actions were put into place for 1/1/19:

  • Off Campus PBDs will continue to receive full payment under OPPS as long as it remains excepted, not including clinic visit services.
  • The CMS will continue to monitor the expansion and volume of services in off campus PBDs in the interim.

To talk to one of our consultants about what this might mean for your hospital, give us a call at 888.779.5663.

Negotiation Skills Have an Impact on Health Plan Terms

A clear sense of current market trends, cost of care, and demonstrated efficiencies that reduce cost are essential elements of contract negotiation preparations.

Negotiation leverage, in terms of hospital control, comes from several sources. The most recognized driver is market power based on geographical area or demographic factors. However, hospital/payer relationships, service offerings needed in the community, and negotiation skill and/or negotiation philosophy are other important drivers.

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