FY 2019 IPPS Final Rule: Questions on Drugs and Supplies

We had several questions following our webinar on the FY 2019 IPPS Final Rule regarding drugs and supplies. We created a matrix to help you understand the options based on billing methodology.

If you’d like to watch the full webinar, you can see it here!

Data Sample: 2-Year Change in Discharges

Equivalent discharges™, our replacement measure for “adjusted discharges,” continues to gain acceptance as the new standard for volume measurement as it isn’t influenced by pricing changes and calculates a volume value specific to inpatient and outpatient areas.  The latest research shows that positive growth occurred in all but three states/territories (HI, MD, PR).  The national average has continued to increase, as well; climbing from 1.5% growth in our 2015 study to 5.8% in our current study.  Our top five states are primarily in the West, which as a region saw the highest growth.  Metro areas among the top five appear to be among areas that have seen population growth.  Still, while volume growth could be good economically for hospitals with fee-for-service reimbursement, areas that have been able to contain equivalent discharge growth might be better positioned in value-based structures.  If payment moves in that direction, we could see more emphasis on restricting volume growth.

To download the pdf click here.

FY 2019 IPPS Final Rule: A Closer Look at Payment Per Discharge

CMS reports an estimated increase by 2.4 percent for FY 2019 in overall payments to hospitals paid under the IPPS. This increase is due to the applicable percentage increase and changes to policies related to MSDRGs, geographic adjustments, and outliers. National standardized amount increases by 1.85 percent. Hospitals paid under the hospital-specific rate will receive a 1.35 percent hospital update.

The annual hospital update includes:

  • 9 percent market basket update
  • 8 percentage point reduction for the multifactor productivity adjustment
  • 75 percentage point reduction under section 3401 of the Affordable Care Act

*Data Source; FY 2019 IPPS Final Rule, CMS Table II

By payment classification, urban areas hospitals are estimated to experience a 2.3 percent increase in payments per discharge in FY 2019. Rural area hospital payments per discharge are estimated to increase by 2.7 percent in FY 2019.

*Data Source; FY 2019 IPPS Final Rule, CMS Table II

In review of payment changes by Bed Size, larger hospitals (urban hospitals with 500 or more beds, rural hospitals with 200 or more beds) are estimated to experience the largest increase in payments at 2.9% and 1.6% change, respectively. However, the bed size category of 500 or more beds only accounts for approximate 8.8% of all urban geographic location hospitals and 5.2% of all rural geographic location hospitals.

*Data Source; FY 2019 IPPS Final Rule, CMS Table II

What are the effects of the changes to Medicare Disproportionate Share Hospital (DSH) and Uncompensated Care (UC) Payments?

Hospitals eligible to receive Medicare DSH payments will receive:

  • 25 percent of the amount they previously would have received under the statutory formula for Medicare DSH payments under section 1886(d)(5)(F) of the Act.
  • 75 percent of the remainder of what formerly would have been paid as Medicare DSH payments (Factor 1), reduced to reflect changes in the percentage of uninsured individuals and additional statutory adjustments (Factor 2), plus additional payment based on estimated share of the total amount of uncompensated care (Factor 3).

Note: The change to Medicare DSH payments under section 3133 of the Affordable Care Act is not budget neutral.

*Data Source; FY 2019 IPPS Final Rule, CMS Modeled Uncompensated Care Payments for Estimated FY 2019 DSHs by Hospital Type: Model UCP $ (in Millions) from FY 2018 to FY 2019

CMS included 2,448 hospitals projected to be eligible for DSH in FY 2019.

*Data Source; FY 2019 IPPS Final Rule, CMS Modeled Uncompensated Care Payments for Estimated FY 2019 DSHs by Hospital Type: Model UCP $ (in Millions) from FY 2018 to FY 2019

CMS is continuing to incorporate data from Worksheet S-10 to determine Factor 3 for amount of uncompensated care.  For FY 2019, Worksheet S-10 for FYs 2014, 2015 with proxy data regarding a hospital’s share of low-income insured dates for FY 2013 were utilized.

Why should hospitals be aware of Overall Payment Changes?

Overall payment changes are affected by several policy factors, of which key factors are:

  • Operating Base Rate
  • Wage Index
  • MSDRG Relative Weight
  • Unique service volumes

IPPS payments before and after changes are required to result to be budget neutral, which include the factors of wage index, geographic reclassification, and MSDRG recalibration and reclassification. Yet, impacts to each hospital could vary. With changes in these factors from year to year, hospitals should understand what is driving any significant payment differences specific to the provider.

In addition, hospitals need to provide appropriate attention to the completion of Worksheet S-10 due to direct impact in UCP payments.

Case Hospital Example: Urban Ohio Hospital

An Urban Ohio case hospital is showing to experience an overall 1.2% increase in operating payments from FY 2018 to FY 2019, despite this hospital’s overall Wage Index decreasing by 1.72% from 0.971 in FY 2018 to 0.9543 in FY 2019.

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2018 & 2019 IPPS Final Rule Impact Files, 2017 MedPAR

However, this projection was created under the assumption unique service volumes are not changing. Keeping that assumption in mind, the hospital should keep a watch on any individual MSDRG changes and how those changes affect overall payment. If volume increases in negatively impacted MSDRG payment areas, the hospital may not experience the projections set forth in the Final Rule polices.

What is the Impact to my Hospital?

Assessing the impact to Prospective Payment Rule polices is essential is understanding future Medicare payments and Medicare-like payments. Identifying driving factors could assist the hospital in offering feedback to CMS, other payers, and/or budgetary purposes at the facility and departmental levels. 

Want further information?

FY 2019 IPPS Final Rule posted to the Federal Register on August 17, 2018: www.federalregister.gov/documents/2018/08/17/2018-16766/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the

CMS’s Acute Inpatient PPS, FY 2019 Final Rule Home Page: www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2019-IPPS-Final-Rule-Home-Page.html

CMS’s Acute Care Hospital Inpatient Prospective Payment System FACT SHEET: www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/acutepaymtsysfctsht.pdf

 

 If you would like to discuss our coverage or what this might mean for your hospital, give us a call at 888.779.5663

 

 

 

FY 2019 IPPS Final Rule: A Closer Look at Wage Index Changes

To what extent is Wage Index based on payment CBSA changing from FY 2018 to FY 2019?

*Data Source: CMS, FY 2018 & 2019 IPPS Final Rule Impact Files, FY 2019 URSPA variable

*Data Source: CMS, FY 2018 & 2019 IPPS Final Rule Impact Files, FY 2019 URSPA variable

Based on the data above, the clear majority of hospitals are experiencing an increase or decrease less than 5% or no change at all (92%).

Why should hospitals be aware?

Even small changes with wage index (WI) combined with MSDRG relative weight (RW) changes could mean significant payment differences based on a hospital’s case mix. The WI is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. WI is updated annually and applied to the labor-related share of the national IPPS base payment rate. A provision of the Act requires updates or adjustments to the WI be made in a manner that ensures aggregate payments to hospitals are not affected by the change in the WI. However, to an individual hospital, overall change in payment will also depend on changing services and volumes in addition to policy change factors such as Operating Base Payment and MSDRG RWs.

Case Hospital Example: Urban Ohio Hospital with > 10% Decrease in WI

Reviewing the top 3 MSDRGs for an example hospital illustrates a change in payment from 2018 to 2019.  In this example, the volumes by MSDRG remain static, with the assumption volumes will remain the same or similar in subsequent years. The other key ingredients to payment include Operating Base Rate and MSDRG RWs in addition to WI.

  • FY 2019 Wage Index = 0.8237
  • FY 2018 Wage Index = 0.9366

Operating base rate increases from FY 2018 to FY 2019. MSDRG RWs are various in terms of increasing or decreasing from FY 2018 to FY 2019. However, the overall decrease in the WI for this hospital example is showing to drive the decrease in overall payment, especially prominent with MSDRG 871.

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2018 & 2019 IPPS Final Rule Impact Files, 2017 MedPAR.

1Payment Differences due to WI Changes: FY 2019 Operating base rate and FY 2019 MSDRG Relative Weights to isolate Wage Index impact with static volumes

2Payment Differences due to RW Changes: FY 2019 Operating base rate and FY 2019 Wage Index to isolate Relative Weight impact with static volumes

3Payment Differences due to Operating Base Payment Changes: FY 2019 MSDRG Relative Weights and FY 2019 Wage Index to isolate Operating Base Payment impact with static volumes

4Total Payment Differences: FY 2018 and 2019 Operating base rate, FY 2018 and 2019 MSDRG Relative Weights, and FY 2018 and 2019 Wage Index to illustrate overall payment change with static volumes

 

What is the Impact to my Hospital?

Assessing the impact to Prospective Payment Rule polices is essential is understanding future Medicare payments. Identifying driving factors could assist the hospital in offering feedback to CMS, budgetary purposes at the facility and departmental levels, or potentially pursuing reclassification designation.

Is Wage Index reclassification beneficial for your Organization?

While the process to reclassify is complex, if a hospital meets the criteria to potentially reclassify to be advantageous, the process may be worth the efforts.

FY 2020 Geographic Reclassification Deadlines:https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/wageindex.html

NOTE:Hospitals may also appeal denials of MGCRB decisions to the CMS Administrator. Hospitals have 45 daysfrom the date the IPPS proposed rule is issued in the Federal Register (published in Federal Register on August 17, 2018) to decide whether to withdraw or terminate an approved geographic reclassification for the following year.

 

FY 2019 IPPS Final Rule: A Closer Look at MSDRG Changes

Version 36 incorporates changes to our MSDRG list as well as associated relative weights.  From FY 2018 to FY 2019, 742MSDRGs are present in both versions.

Does FY 2019 (MSDRG V36) involve any new or deleted MSDRG?

It sure does! Eleven (11) MSDRGs are removed for FY 2019 and eighteen (18) MSDRGs have been created.

To what extent is Relative Weight changing from FY 2018 to FY 2019?

 

*Data Source: CMS, FY 2018 & 2019 Table 5

*Data Source: CMS, FY 2018 & 2019 Table 5

Based on the data presented, the clear majority of MSDRG relative weights are experiencing an increase or decrease less than 5% or no change at all (76%).

What are the top 10 MSDRGs experiencing Relative Weight change?

 

*Data Source: CMS, FY 2018 & 2019 Table 5

Why should hospitals be aware?

MSDRG relative weight (RW) is assigned to each MSDRG indicating a relative costliness or average resources required to care for cases assigned to that diagnosis related group compared to the average Medicare case costliness.  MSDRG relative weights are recalibrated annually, intended to not affect overall payments.  However, MSDRG relative weight changes could mean significant payment differences based on a hospital’s unique mix of services and volumes.

Case Hospital Example: Urban Ohio Hospital

Reviewing the top 5 MSDRGs for increase in payment and the top 5 MSDRGs for decreases in payment for FY 2018 to FY 2019 for an example hospital illustrates impact of payment due to changing MSDRG relative weights.  In this example, the volumes by MSDRG remain static, with the assumption volumes will remain the same or similar in subsequent years.

OHIO Hospital: Top 5 MSDRG Increases in Payment FY 2018 to FY 20191

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2019 IPPS Final Rule, 2017 MedPAR 1

Payment Differences due to RW Changes:FY 2019 Operating base rate and FY 2019 Wage Index to isolate Relative Weight impact with static volumes

In review of the top 5 increases and decreases in payment isolated by MSDRG relative weight for an individual hospital, the overall related payment differences for all MSDRGs could be vastly different when compared to the National payments – again due to Hospital specific volumes.

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2019 IPPS Final Rule, 2017 MedPAR

1Payment Differences due to RW Changes: FY 2019 Operating base rate and FY 2019 Wage Index to isolate Relative Weight impact with static volumes

 

OHIO Hospital: Top 5 MSDRG Decreases in Payment FY 2018 to FY 20191

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2019 IPPS Final Rule, 2017 MedPAR

1Payment Differences due to RW Changes: FY 2019 Operating base rate and FY 2019 Wage Index to isolate Relative Weight impact with static volumes

 

*Data Source: CMS, FY 2018 & 2019 Table 5, FY 2019 IPPS Final Rule, 2017 MedPAR

1Payment Differences due to RW Changes: FY 2019 Operating base rate and FY 2019 Wage Index to isolate Relative Weight impact with static volumes

 

What is the Impact to my Hospital?

Assessing the impact to Prospective Payment Rule polices is essential is understanding future Medicare payments. Identifying driving factors could assist the hospital in offering feedback to CMS and/or budgetary purposes at the facility and departmental levels.

Interested to comment to CMS on MSDRG Classification concerns?

The deadline to request updates to the MS-DRGs is now November 1 of each year. Interested parties needed to submit any comments and suggestions for FY 2019 by November 1, 2017. CMS encourages comments and suggestions for FY 2020 by November 1, 2018 via the CMS MS-DRG Classification Change Request Mailbox located at:MSDRGClassificationChange@cms.hhs.gov

CMS’s Acute Care Hospital Inpatient Prospective Payment System FACT SHEET: www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/acutepaymtsysfctsht.pdf