Last week the Centers for Medicare & Medicaid Services published a proposal detailing how it envisions paying for Medicare services in FY 2019 under its inpatient prospective payment system.

Yesterday this space features a summary of the proposed regulation, with an emphasis on aspects of the rule of greatest importance to private safety-net hospitals.

Today, we address Medicare inpatient rates, Medicare disproportionate share payments (Medicare DSH) and the Medicare cost report’s S-10 worksheet, and the Medicare area wage index.

Inpatient Rates

CMS proposes increasing Medicare inpatient rates 1.75 percent in FY 2019.  This reflects the projected hospital market basket update of 2.8 percent reduced by a 0.8 percentage point productivity adjustment, increased by a 0.5 percentage point adjustment required by legislation, and reduced 0.75 percentage points as required by the Affordable Care Act.

Medicare DSH Uncompensated Care Payments and the S-10

CMS proposes distributing $8.25 billion in Medicare DSH uncompensated care payments in FY 2019, a $1.5 billion increase from FY 2018, citing as its reason for this increase both an increase in the CMS Office of the Actuary’s estimate of payments that would otherwise be made for Medicare DSH and an updated estimate of the change in the percentage of uninsured individuals since 2014 based on the latest available data.

CMS also proposes continuing its phase-in of the use of S-10 data in the calculation of Medicare DSH uncompensated care payments.  FY 2019 would be year two of this phase-in, and CMS proposes using S-10 data from FY 2014 and FY 2015 cost reports, in combination with insured low-income days data from FY 2013 cost reports, to determine the distribution of Medicare DSH uncompensated care payments.

CMS is engaged in limited review of some of the uncompensated care data hospitals report on their S-10 form.  According to the proposed rule, these efforts have focused on three types of problems:  unreasonably high cost-to-charge ratios, significant increases in charity care from FY 2014 to FY 2015, and hospitals that report uncompensated care that exceeds 50 percent of their operating costs.

 Medicare Area Wage Index

Every three years CMS updates the wage index to reflect more recent data it collects from the occupational mix survey.  FY 2019 is the first year of a new three-year period for using updated data, and this will result in greater changes in wage indexes than might otherwise be expected from year to year.

CMS proposes changing the deadline for when a hospital that reclassifies from urban to rural will have that reclassification considered in the development of the wage index for a fiscal year.  This proposal would change the threshold from being based on the application’s date of submission to the application’s date of approval.

CMS also proposes changes that would address certain situations arising from lags between when wage index data is reported and when that data is evaluated for reclassification purposes.  These changes would address lag issues for new remote locations of hospitals located in counties participating in group reclassifications and for single-hospital MSAs where new hospitals have opened but that have no data in the wage index files for that MSA.

FY 2019 will mark the first year in which the imputed rural floor (which exists in states where there are no rural areas) will be eliminated.  CMS announced this in last year’s rule.  The only states to which the imputed rural floor applied were Delaware, New Jersey, and Rhode Island and this change will actually only affect hospitals in Rhode Island.

Wage Index Invitation to Comment

The proposed rule describes past efforts to revise the wage index, including past proposals from MedPAC and others.  It invites interested parties to submit comments on regulatory and policy improvements related to the wage index.

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Tomorrow we will look at multi-campus hospitals, the Medicare and Medicaid electronic health record (EHR) incentive programs, and the Medicare hospital readmissions reduction program.  On Thursday we will examine the Medicare value-based purchasing program, the hospital inpatient quality reporting program, electronic clinical quality measures, and price transparency.

You also can learn more by reviewing the entire proposed 1883-page rule here or reading the CMS fact sheet here.