Court Upholds Delay of Medicare Site-Neutral Payment Cut

Medicare cannot proceed with its plan to pay for outpatient care on a site-neutral basis while it appeals a court ruling rejecting that policy, a federal court has ruled.

A federal judge found that Medicare has not articulated an adequate reason to delay the $380 million a year in site-neutral payment cuts while the Centers for Medicare & Medicaid Services appeals the September decision rejecting the payment policy change.  The court also found that, contrary to CMS’s claim, Medicare still has an appropriate methodology for making payments that are not site-neutral and that the agency has not proved that it would suffer irreparable harm if the cuts are delayed while it considers CMS’s appeal.

The cut took effect on January 1, 2019 but the court did not address how Medicare should compensate hospitals for lost payments, instead ordering CMS and the plaintiffs in the case to submit reports on how the payment shortfalls can best be addressed.

NASH has opposed implementation of the site-neutral payment policy on several occasions in recent years, doing so most recently in its letter last month to CMS (scroll down to page 5) about the agency’s proposed policy for paying for Medicare-covered outpatient services for 2020.

Learn more about the Medicare site-neutral payment cut and why the federal court again ruled against that cut in the Fierce Healthcare article “Judge denies bid to preserve site-neutral payment cuts while awaiting appeal.”

MedPAC Meets

Last week the Medicare Payment Advisory Commission met in Washington, D.C. to discuss a number of Medicare payment issues.

Among issues on MedPAC’s October agenda of potential interest to private safety-net hospitals were:

  • restructuring Medicare Part D
  • updates to the methods used to assess the adequacy of Medicare’s payments for physicians and other health professionals
  • population-based outcome measures: avoidable hospitalizations and emergency department visits
  • aligning benefits and cost-sharing under a unified payment system for post-acute care

MedPAC is an independent congressional agency that advises Congress on issues involving the Medicare program. While its recommendations are not binding on either Congress or the administration, MedPAC is highly influential in governing circles and its recommendations often find their way into legislation, regulations, and new public policy.

Go here for links to the policy briefs and presentations that supported MedPAC’s discussion of these issues.

NASH Comments on Proposed Medicare Outpatient Payment Regulation (part 4 of 4)

The National Alliance of Safety-Net Hospitals has submitted extensive comments to the Centers for Medicare & Medicaid Services about its proposed changes in the Medicare outpatient prospective payment system for 2020.

In its letter to CMS, NASH focused on four issues:

  • CMS’s price transparency proposal
  • Reimbursement for 340B-covered prescription drugs
  • Medicare site-neutral payment policy
  • Proposed updates of the inpatient-only list of medical procedures

Today this blog features NASH’s comments about proposed updates of Medicare’s list of medical procedures that can only be performed on an inpatient basis but that Medicare now proposes can be performed for outpatients as well.  Last Wednesday we presented NASH’s views on CNN’s price transparency proposal and last Thursday we presented NASH’s views on reimbursement for 340B-covered prescription drugs.  Last Friday we presented proposed changes in Medicare’s site-neutral payment policies for outpatient care.

See the complete NASH letter to CMS here.

Updates of the Inpatient-Only List

In the proposed rule, CMS proposes removing arthroplasty – acetabular and proximal femoral prosthetic replacement total hip arthroplasty with or without autograft or allograft – from the list of procedures and services that will be paid only under Medicare’s inpatient prospective payment system.  NASH objects to this change as it has been proposed.  While we acknowledge that it may be possible to perform hip replacement on an outpatient basis on some patients under some circumstances, hip replacement is medically complex and invasive surgery – far more so than knee replacement, which has already been removed from the inpatient-only list.  Complications can arise even in the most otherwise healthy of patients.  Often, in fact, hip replacement is performed on an emergency basis, which can complicate both the procedure and recovery from it.  The opportunity for full and safe convalescence is important:  patients who have hip replacement on an outpatient basis and who end up needing post-acute care because of complications would not even, under this proposed rule, be eligible for Medicare-covered skilled nursing care because they spent less than 24 hours in a hospital.  This could jeopardize their complete recovery from serious surgery.  In this respect, this proposed change is not in the best interests of the Medicare population.  NASH suggests that before implementing this proposal, CMS address this problem through additional rule-making.

NASH also is concerned about how making hip replacement available on an outpatient basis could affect private safety-net hospitals that participate in the Comprehensive Care for Joint Replacement (CJR) and Bundled Payments for Care Improvement (BPCI) Advanced programs.  These programs face the prospect of decreases in inpatient volume and the effect of such decreases on provider target prices, yet the regulation does not address how this would be addressed in the context of those programs.  This, too, would benefit from additional rule-making before hip replacement is removed from the inpatient-only list.

NASH supports CMS’s proposal to establish a one-year exemption from medical review activities for procedures removed from the inpatient-only list beginning with 2020.  While a step in the right direction, more can and should be done to allow time both for provider education and to ensure that CMS and its quality review contractors are aligned on medical review guidance for providers.

In addition, NASH supports CMS’s proposal to continue quality reviews of short-stay inpatient claims for procedures that have been removed from the inpatient-only list within the first year.  Such claims will not be counted against a provider in the context of the two-midnight rule.  We do not believe medical review guidance questions have been fully addressed and think additional time is needed for processing claims and for contractors to gain experience in medical review in this area before putting hospitals at risk for recovery audit contractor (RAC) referrals.

We appreciate that these procedures would not be eligible for referral to RACs for non-compliance with the two-midnight rule and RAC patient status review during their first calendar year of removal from the list but believe one year is not enough time.  NASH urges CMS to consider the challenges that occurred when procedures were removed from the inpatient-only list in the past and give itself and contractors additional time to develop guidance that can be shared for stakeholder input prior to implementation.

See the complete NASH letter to CMS here.

NASH Comments on Proposed Medicare Outpatient Payment Regulation (part 3 of 4)

The National Alliance of Safety-Net Hospitals has submitted extensive comments to the Centers for Medicare & Medicaid Services about its proposed changes in the Medicare outpatient prospective payment system for 2020.

In its letter to CMS, NASH focuses on four issues:

  • CMS’s price transparency proposal
  • Reimbursement for 340B-covered prescription drugs
  • Medicare site-neutral payment policy
  • Proposed updates of the inpatient-only list of medical procedures

Today this blog features NASH’s comments about proposed changes in Medicare’s site-neutral payment policy for outpatient services.  On Wednesday we presented NASH’s views on CNN’s price transparency proposal and yesterday we presented NASH’s views on reimbursement for 340B-covered prescription drugs.  On Monday we will present NASH’s perspective on CMS’s proposal to permit Medicare to pay for certain medical services on an outpatient basis rather than limiting them to being performed only on patients admitted to a hospital.

See the complete NASH letter to CMS here.

Site-Neutral Payment Policy

In the proposed regulation, CMS calls for completing its two-year phase-in for paying for off-campus clinic visits at the same rates as the physician fee schedule even if those clinics are grandfathered.  As a result, clinic visits to grandfathered, off-campus outpatient departments would be reimbursed at the site-neutral rate of 40 percent of the outpatient fee.

NASH continues to oppose the implementation of site-neutral payment policy for Medicare-covered outpatient services.  Implementation of this policy is based on authority granted to the Secretary under §1833t)(2)(F) to “develop a method for controlling unnecessary increases in the volume of covered OPD services.”  NASH disagrees with the idea that reducing reimbursement for clinic visits is an appropriate method for controlling unnecessary increases in the volume of covered outpatient services.  First, and most fundamentally, there has been no credible finding that Medicare is experiencing “…unnecessary increases in the volume of covered outpatient services.”  Increased volume?  Yes.  Unnecessary increases?  There is no evidence that this increase is unnecessary.  In fact, the federal government for years now has pursued policies that seek to reduce hospital inpatient utilization and encourage the delivery of more care on an outpatient basis.  If anything, increased outpatient utilization should be viewed as a sign that this effort has succeeded and should be further encouraged, not discouraged and suddenly viewed as “unnecessary” and punished.

Second, although similar outpatient services can be safely provided in more than one setting, CMS’s conclusion that providing care in the more expensive setting is unnecessary presumes that patients who require these services have access to both types of settings.  In reality, they often do not:  many private safety-net hospitals that operate off-campus, provider-based departments do so because they are addressing a need in their communities.  Rather than increasing the volume of unnecessary services, the payment differential enables safety-net hospitals to create access to necessary services in communities where these services would otherwise be unavailable in any setting.  NASH asks CMS to stop this misguided drive to “throw out the baby with the bath water” by continuing to cut reimbursement for necessary outpatient department services just because there may be circumstances in which alternative settings might be available.  The proposed regulation continues to take the site-neutral payment policy too far, and in so doing it ultimately could jeopardize access to vital forms of care for the residents of many low-income communities served by private safety-net hospitals.

This continued practice of reducing payments even to exempted hospital-based, off-campus facilities is harmful:  harmful to those medical practices, harmful to the hospitals that own and operate those practices, and most of all harmful in the long run to many of the patients these practices serve.  NASH continues to object to Medicare reimbursing non-excepted, provider-based physician practices at physician fee schedule rates.  These rates fail to reflect the hospital-related costs associated with such practices – costs such as maintaining emergency departments, operating laboratories, offering comprehensive radiology services, complying with regulatory requirements not imposed on independent physician practices, and much more.  These are valid costs that benefit entire communities, and further reducing these payments, as proposed in this regulation, would jeopardize major parts of the health care infrastructure that every community truly needs.

Finally, last week a federal court ruled that CMS’s implementation of its site-neutral payment policy for Medicare-covered outpatient services exceeded the agency’s authority.  NASH understands that CMS may appeal this ruling, as is certainly its right, but we suggest that continued implementation of the policy be suspended until this matter is adjudicated.

See the complete NASH letter to CMS here.

NASH Comments on Proposed Medicare Outpatient Payment Regulation (part 2 of 4)

The National Alliance of Safety-Net Hospitals has submitted extensive comments to the Centers for Medicare & Medicaid Services about its proposed changes in the Medicare outpatient prospective payment system for 2020.

In its letter to CMS, NASH focuses on four issues:

  • CMS’s price transparency proposal
  • Reimbursement for 340B-covered prescription drugs
  • Medicare site-neutral payment policy
  • Proposed updates of the inpatient-only list of medical procedures

Today this blog features NASH’s comments about reimbursement for 340B-covered prescription drugs.  Yesterday we presented NASH’s views on CNN’s price transparency proposal; on Friday we present NASH’s views on Medicare site-neutral payment policy; and on Monday we present NASH’s perspective on CMS’s proposal to permit Medicare to pay for certain medical services on an outpatient basis rather than limiting them to being performed only on patients admitted to a hospital.

See the complete NASH letter to CMS here.

Reimbursement for 340B-Covered Prescription Drugs

The 340B prescription drug discount program helps improve access to high-cost prescription drugs for low-income patients and helps put additional resources into the hands of qualified providers so those providers can do more for such patients:  provide more care that their patients might otherwise not be able to afford, offer more services that might otherwise by unavailable to such patients, and do more outreach into communities consisting primarily of low-income residents.  Only providers that care for especially large numbers of low-income patients qualify to participate in the 340B program.

In this year’s proposed rule, CMS calls for reimbursing 340B-eligible providers at average sale price less 22.5 percent for 340B-covered prescription drugs.  NASH strongly opposes this proposal.

For the past two years CMS also has reimbursed 340B-eligible providers at average sale price less 22.5 percent for 340B-covered prescription drugs, a break from past policy, which reimbursed eligible providers at average sale price plus six percent.  This policy change was implemented even though Congress, which created the program, did not direct CMS to reduce payments to 340B providers that serve especially large numbers of low-income patients just to save money and certainly did not direct CMS to introduce new policies that seek to reduce the federal government’s commitment to serving low-income Americans.

Shortly after implementation of the reimbursement reduction that took effect in calendar year 2018, various stakeholders sued CMS over the payment cut and the courts agreed with the stakeholders and rejected the cut.  Despite the court’s ruling, CMS did not restore payments to average sale price plus six percent but continued to pay average sale price less 22.5 percent even though the court rejected this payment.

Despite the court’s rejection, CMS proposed the same payment cut for calendar year 2019:  average sale price minus 22.5 percent.  The stakeholders again sued and the courts again sided with stakeholders and rejected the payment cut.  Despite this, CMS again did not restore payments to average sale price plus six percent but continues to pay average sale price less 22.5 percent even though the court had now twice rejected this payment.

In light of these continued rejections by the courts, NASH encourages CMS to restore 340B payments to their previous level of average sale price plus six percent.  The courts have spoken and it is time to respect their verdict.

This leaves the question of how to reimburse providers for the revenue they lost when CMS continued to make essentially illegal underpayments for two full years, refusing to adjust its payments in the face of its losses in court – a question posed in the proposed regulation.  NASH believes the best way, the only way, to repair the damage done to safety-net providers by two years of underpayments is to restore those payments retroactively through a one-time, lump-sum payment that compensates them for every underpaid claim, every under-reimbursed prescription drug during the two-year period during which CMS continued to pay eligible providers average sale price less 22.5 percent despite not one but two court rulings that it must not do so.  These lump-sum payments, NASH believes, should be made in their entirety to all affected hospitals by the end of calendar year 2020.  To do this, NASH urges CMS to identify the amount of individual hospitals’ underpayments based on data hospitals have already submitted rather than requiring additional action by the injured parties.

As explained by the web site of the Health Resources and Services Administration, which operates the 340B program,

The 340B Program enables covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.

Federal policy should enhance this program and help it achieve its objectives, not make it harder for low-income patients and the providers that serve them.  NASH urges CMS to heed the federal government’s own rationale for the program and restore 340B payments to their previous level

See the complete NASH letter to CMS here.

Tomorrow:  NASH addresses CMS’s proposed changes in site-neutral payment policy

NASH Comments on Proposed Medicare Outpatient Payment Regulation (part 1 of 4)

The National Alliance of Safety-Net Hospitals has submitted extensive comments to the Centers for Medicare & Medicaid Services about its proposed changes in the Medicare outpatient prospective payment system for 2020.

In its letter to CMS, NASH focuses on four issues:

• CMS’s price transparency proposal
• Reimbursement for 340B-covered prescription drugs
• Medicare site-neutral payment policy
• Proposed updates of the inpatient-only list of medical procedures

Today this blog features NASH’s comments about CMS’s price transparency proposal. Tomorrow, we present NASH’s views on reimbursement for 340B-covered prescription drugs; on Friday, we present NASH’s views on Medicare site-neutral payment policy; and on Monday we present NASH’s perspective on CMS’s proposal to permit Medicare to pay for certain medical services on an outpatient basis rather than limiting them to being performed only on patients admitted to a hospital.

See the complete NASH letter to CMS here.

The Price Transparency Proposal

NASH appreciates CMS’s interest in fostering greater consumer awareness of the prices hospitals charge for their services and in facilitating price shopping among consumers for non-emergency “shoppable” outpatient services. Despite this, NASH believes the price transparency requirements presented in the proposed regulation reflect an imperfect understanding of how hospitals charge and are paid for their services, how patients find their way to doctors and hospitals, and how providers interact with health insurers. Most important, we do not believe the proposed requirements, even if implemented perfectly by every hospital in the country by January 1, 2020, would be at all helpful to consumers shopping for the best prices for the outpatient care they need.

Problems Inherent When Listing Service “Prices”

Our first concern is that the proposed means of achieving price transparency for shoppable outpatient services, by requiring hospitals to post their gross charges (from their chargemaster) and their payer-specific charges (as negotiated with the insurers with which they work), does not reflect an adequate understanding of how hospitals work with insurers to charge for their services. Specifically:

  • Hospitals do not bundle services the same way Medicare does and often bundle them differently with different insurers, creating apples-to-oranges comparisons that would be of little value to consumers – and that could even be misleading to consumers.
  • Some private payers discount multiple surgeries in different ways.
  • While Medicare pays for services using HCPCS codes, DRGs, and APCs, such codes often are not used as the basis for payments between hospitals and commercial insurers.
  • Some insurers reimburse hospitals based on Medicare APCs, which include an entire logic of bundled or incidental codes, which means that the incidental code, when billed in another context, might be payable separately. Other private insurers might pay for the same services based on a percentage of a hospital’s charges on a line-by-line basis.
  • A few insurers’ radiology payments bundle professional services into their payments to the hospital but most do not.
  • Hospitals may charge for each item and service but each item and service is not necessarily associated with an HCPCS code, DRG, NDC, or APC, as the proposed regulation anticipates – nor do hospitals and insurers necessarily negotiate prices for each individual item and service.
  • As a result of hospitals and insurers not necessarily negotiating prices for each individual item and service, this proposed regulation may be requiring hospitals to publish data that does not exist.
  • Within individual DRGs or APCs, hospitals do not provide a standard set of items and services. Their standard services could differ from patient to patient, depending on patients’ needs; from insurer to insurer, depending on the outcome of rate negotiations between individual hospitals and individual insurers; and from hospital to hospital, because such matters are not standardized, freeing hospitals to make their own decisions about how to set their prices and negotiate payments with insurers.
  • Some insurers bundle the cost of implants and drugs into outpatient case rates while others do not, preferring hospitals to bill separately for those implants and drugs.
  • Physician services may or may not be included by some hospitals in their standard service packages.
  • Because private safety-net hospitals need to engage in more cost-shifting than the typical community hospital to compensate for the losses they incur caring for large numbers of uninsured and Medicaid patients, their commercial rates may be higher than those other hospitals. This could lead people to see these price differences and assume they would have to pay more for the services of such hospitals – which in most cases they would not. Thus, posting such prices without appropriate context could damage the very private safety-net hospitals that society has a great stake in protecting.
The Underestimated Cost of Posting Hospital Prices

In the proposed regulation, CMS estimates that posting the required information should take hospitals approximately 12 hours and cost them about $1000 in staff time. NASH believes this grossly underestimates the work involved in such an undertaking. One NASH member, for example, reports that in one calendar quarter of 2019 it interacted with 250 distinct insurers (including Medicare), and in the case of 41 of those insurers, that interaction involved just one patient. That means this hospital would need to post charge and price data for at least 250 insurers, a meaningful proportion of which have members the hospital only rarely serves.

Another NASH member shared agendas for two meetings for relevant staff to discuss the price-posting requirements from the 2019 outpatient prospective payment system regulation. Those staff meetings, held in the fall of 2018 to address new requirements that were less demanding than those proposed for 2020, both involved 32 participants, many of whom were there to report on work already undertaken to meet the 2019 requirements and others who left the meeting with new assignments. This contrasts sharply with the proposed rule’s assertion that compliance would require the participation of just one lawyer, one operations manager, one business specialist, and one computer systems administrator. This member’s business services team, in fact, estimated that compliance with this requirement, if adopted as proposed, would necessitate the year-round services of two full-time employees.

This suggests that CMS has significantly underestimated the time and cost involved in posting the proposed information. This is a legitimate concern for hospitals – as it should be for CMS as well in light of its frequent, publicly articulated commitment to reducing the paperwork burden on health care providers so those providers can focus on providing care rather than on paperwork.

The Problem Posed by Sharing Proprietary and Confidential Information

The rates set between hospitals and insurers are not objective, universal measures: they are the product of careful, deliberate, and at times contentious negotiations between the parties. As a result of these negotiations, some hospitals gain more advantageous rates than others. As tempting as it might be for hospitals to learn if their competitors are doing “better” than they are in rate negotiations, it is more important to them to keep the results of their own negotiations confidential. Coca-Cola is not required to share its soft drink recipe with its competitors and NASH believes it would be inappropriate, and possibly even foster a form of collusion, to require hospitals to share so publicly their rate information – proprietary information – with their competitors. Doing so also could violate confidentiality agreements between the negotiating parties.

The Biggest Challenge: The Required Information is Not Useful

The underlying rationale for this price transparency proposal appears to be that if consumers have more information they will be more likely to make better, more informed health care purchasing decisions. In the case of this particular proposal, however, NASH believes that more information will not be better information and that it will not lead to better, more informed purchasing decisions.

Without question, NASH’s biggest objection is that after all of the work hospitals would have to do to meet this proposed regulation’s requirements and after all of the “shopping” consumers might do once such information becomes available, we are convinced that consumers will find this information to be of little value. In the experience of hospitals, the reality of this situation, as opposed to the theory underlying it, is that patients are not interested in whether the shoppable service they need “costs” $10,000 or $15,000 – not interested because they have health insurance and know they will not be paying that $10,000 or $15,000 cost. In the experience of hospitals, patients are interested only – only – in what their out-of-pocket costs will be, which means their co-pays and deductibles for the outpatient service in question. In short, the “price” that this entire undertaking seeks to provide to consumers is not viewed by those consumers as a price at all and is irrelevant to them. This is comparable to a consumer purchasing a mattress with a list price of $3000 for a sale price of $1250. No one cares that the list price is $3000; all that matters is that the mattress can be purchased for $1250.

Instead, the overwhelming majority of patients who contact hospitals about costs prior to receiving outpatient services inquire only – only – about their anticipated out-of-pocket costs. Months can go by without patients referring to or asking about a hospital’s charges or its prices, let alone about its chargemaster; in fact, the word “chargemaster” is unknown to the vast majority of health care consumers. NASH encourages CMS officials to spend a few days in a hospital billing office and sit with customer service representatives as they field calls from patients who are considering procedures or have procedures scheduled. When you do, you will find that these patients virtually never inquire about a procedure’s price or cost; they are interested only in its cost to them, which is very different – and which will not be included in the vast amount of data this proposed regulation would compel hospitals to publish for consumer use. This has certainly been the experience of NASH members in California and Connecticut, where hospitals are already required to post extensive price and charge data on their web sites and where those hospitals tell us they seldom are asked by patients about their actual charges.

In the end, NASH believes, there are virtually no true “consumers” for this data at all, with the possible exception of competitors eager to learn if they are doing better, or doing worse, than nearby hospitals when negotiating rates with health insurers (or, for that matter, insurers eager to learn if they are overpaying or underpaying compared to other insurers). In the end, the time patients might spend visiting hospital web sites to research the cost of outpatient care and talking to hospital billing offices about their potential out-of-pocket costs would unquestionably be better spent talking to their insurers because those insurers, rather than hospitals, are more likely to have the answers to these questions and ultimately are the best source of information about the out-of-pocket costs patients can expect to incur when seeking medical care. This information is controlled and managed by insurers, not providers, so it is insurers that would be a more appropriate focus of CMS’s laudable effort to provide information that would be relevant to consumers and help inform their health care purchasing decisions.

See the complete NASH letter to CMS here.

Tomorrow: NASH addresses CMS proposal governing reimbursement for 340B-covered prescription drugs.

Court Halts Medicare Site-Neutral Payment Changes

The Centers for Medicare & Medicaid Services did not have the authority to implement the site-neutral payment system for Medicare-covered outpatient services that it introduced last year, a federal court has concluded.

According to the court, CMS exceeded its authority because it

…was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective Payment System and to lower payment rates only for certain services provided by certain providers.

In general, hospitals oppose the movement toward site-neutral payments and independent physician groups support it.

The court did not order CMS to reimburse affected physician practices for lost revenue.  Instead, it directed CMS to develop an appropriate remedy.

CMS is likely to appeal the ruling.

Meanwhile, CMS has proposed continuing its phase-in of the site-neutral payment policy in its proposed 2020 outpatient prospective payment system regulation that will take effect on January 1, 2020.  It is not clear how or if – the court ruling might affect CMS’s decision to move ahead with this proposal.

NASH opposed the 2019 change in a formal regulatory comment letter to CMS last year (see pages 2 and 3) on behalf of private safety-net hospitals and next week will submit another comment letter expressing the same view about year two of the proposed changes in Medicare outpatient payment policy.

Learn more about the case, the court decision, and what might happen next in the Healthcare Dive article “Hospitals score victory as judge tosses CMS site neutral rule.”

 

MedPAC Weighs in on Proposed Medicare Payment Changes

The Medicare Payment Advisory Commission has submitted formal comments to the Centers for Medicare & Medicaid Services in response to the latter’s publication of a proposed regulation that would govern how Medicare will pay for acute-care hospital inpatient services and long-term hospital care in the coming 2020 fiscal year.

The 14-page MedPAC report addresses four aspects of the proposed Medicare payment regulation:

  • inpatient- and outpatient drug- and device related payment proposals
  • proposed changes in the hospital area wage index
  • the reporting of hospitals’ uncompensated care on the Medicare cost report’s S-10 worksheet
  • the long-term hospital prospective payment system

MedPAC is an independent congressional agency that advises Congress on issues involving the Medicare program.  While its recommendations are not binding on either Congress or the administration, MedPAC is highly influential in governing circles and its recommendations often find their way into legislation, regulations, and new public policy.

See MedPAC’s letter to CMS here.

See NASH’s reponse to the same CMS proposed regulation here.

NASH Comments on Proposed Medicare Regulation (Part 3 of 3)

The National Alliance of Safety-Net Hospitals has submitted formal comments to the Centers for Medicare & Medicaid Services in response to the latter’s proposed hospital payment plan for FY 2020.

Responding to the proposed inpatient prospective payment system published by CMS in April, NASH primarily addressed a CMS proposal to change how it calculates Medicare disproportionate share (Medicare DSH) uncompensated care payments and proposed changes in the Medicare area wage index system.

On Tuesday, the NASH blog presented the alliance’s written comments about proposed changes in Medicare DSH uncompensated care payments.  Yesterday, it presented a detailed alternative proposal to CMS’s April 2019 recommendation for calculating those payments.  Today, the blog presents NASH’s response to proposed changes in the Medicare area wage index system.  The complete NASH response to the proposed CMS regulation can be found here.

Proposed Changes in the Medicare Area Wage Classification System

The “Compression Proposal”

The Medicare area wage classification system adjusts Medicare payments to hospitals based on hospitals’ labor costs relative to the average labor costs of hospitals across the country.  Parts of the country where labor costs are greater than average are assigned a higher wage index, more than 1.0, which is applied to Medicare’s standard payments; areas with lower wage costs, on the other hand, are assigned a lower wage index, less than 1.0, which is applied to the same standard Medicare payments.  The wage index assigned to each hospital is based on an objective formula that reflects hospitals’ actual incurred labor costs in different parts of the country.

CMS has proposed what is being referred to as a “compression proposal” that would inflate the wage indexes of hospitals with indexes below the 25th percentile so Medicare can direct more money to those hospitals.  To pay for this increase and make this proposal budget-neutral, CMS calls for arbitrarily cutting the wage indexes of hospitals currently above the 75th percentile for wage index values.

This wage index proposal seeks to address what CMS describes as “growing disparities between low and high wage index hospitals, including rural hospitals that may be in financial distress and facing potential closure” by providing “certain low wage index hospitals with an opportunity to increase employee compensation without the usual lag in those increases being reflected in the calculation of the wage index.”

NASH does not dispute CMS’s conclusion that some distressed hospitals may need additional financial assistance from Medicare and urges CMS to identify such hospitals.  At the same time, however, NASH believes CMS should explore means other than the proposed wage index changes for providing this additional assistance.

This wage index compression proposal raises a number of concerns.  There is, to be sure, a growing disparity in the wage indexes of hospitals because there is a growing disparity in wages in different parts of the country.  The wage index itself, however, has neither caused nor contributed to this disparity; it is, instead, a reflection of this disparity.  Previous commenters have suggested that it is possible that the lag in wage data could suppress a hospital’s ability to increase wages, but the existence of such wage suppression is undocumented and its potential impact is limited by several factors, including the presence of other hospitals in a labor market area; Medicare fee for service representing only a portion of hospital reimbursement; and probably most significantly, the FY 2005 modification of the wage index that artificially reduces the labor-related share for labor market areas with a wage index adjustment less than 1.0 that was expressly created by Congress to address this perceived issue.

The assertion that this proposal would help rural hospitals facing financial struggles is undermined by NASH’s analysis that only 26 percent of the redistributed money would even reach rural hospitals while 74 percent of the redistributed money would go to urban hospitals.  In fact, there are more than 60 rural hospitals in 20 different states that lose money under the proposal.

Finally, it is not clear from the explanation provided in the proposed rule that the Secretary has the authority to implement this change.  The rule states that the adjustment would be made under

…section 1886(d)(3)(E) of the Act, which gives the Secretary broad authority to adjust for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level, and requires those adjustments to be budget neutral, and our exceptions and adjustments authority under section 1886(d)(5)(I) of the Act.

Between CMS’s proposed inflation of the lowest quartile and its proposed reduction to the highest quartile, it is not reasonable to conclude that the proposed policy change would continue to reflect “…the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level…”  CMS cannot, as the rule seems to argue, arbitrarily alter wage adjustments as long as it ensures that those above the national average are greater than 1.0 while those below the national average are below 1.0.  Inherent in the concept of an area’s relative wage is the proportionality of that relativity, which is lost under this proposal.

NASH asks CMS to withdraw this proposal.  There undoubtedly are hospitals in need of additional financial support and many are located in low-wage areas, but we do not believe the wage index is either the cause of their troubles or an appropriate means of addressing them.  NASH believes CMS should identify the true root causes of these financial challenges and then work with Congress to secure the funding needed to address this problem.

The Proposed Exclusion of the Wage Data of Some Hospitals

NASH also objects to CMS’s decision to exclude wage data from eight hospitals located in the “northern” region of a single state because the wages these providers pay are noticeably higher than the wages paid by other hospitals in the area.  In this case, one entity owns multiple hospitals and negotiates common wages with its workforce throughout the region in which its hospitals are located.  CMS has expressed concern that these common wages are not representative of the wages hospitals need to pay in the areas in question.

CMS asserts that it does not believe these wages “accurately reflect the economic conditions in their respective labor market areas during the FY 2016 cost reporting period.”  NASH believes this conclusion misses the point:  The actual wages paid in a region are not a proxy meant to reflect economic conditions.  They are the economic conditions that the wage index is meant to reflect.  In this situation, a hospital or hospitals in a region paying higher wages forces other hospitals in that region to increase their wages to compete for staff.  It is these local market conditions, and not Medicare fee-for-service payments, that dictate the wages paid to hospital staff.

NASH objects to CMS’s proposal to eliminate wage data that it acknowledges to be legitimate.  Doing so for these particular hospitals for the reasons articulated in the proposed rule would set a dangerous precedent for the future elimination of other unquestionably legitimate wage data.  We believe this is a step CMS should not take and urge the agency to restore the wage data of the excluded hospitals to the calculation of the average wages in the wage index areas in which they are being paid.

*          *          *

See NASH’s entire response to the proposed Medicare regulation here.

NASH Comments on Proposed Medicare Regulation (Part 2 of 3)

The National Alliance of Safety-Net Hospitals has submitted formal comments to the Centers for Medicare & Medicaid Services in response to the latter’s proposed hospital payment plan for FY 2020.

Responding to the proposed inpatient prospective payment system published by CMS in April, NASH primarily addressed a CMS proposal to change how it calculates Medicare disproportionate share (Medicare DSH) uncompensated care payments and proposed changes in the Medicare area wage index system.

Yesterday, the NASH blog presented the alliance’s written comments about proposed changes in Medicare DSH uncompensated care payments.  Today, it presents a detailed alternative proposal to CMS’s April 2019 recommendation for calculating those payments.  On Thursday the blog presents NASH’s response to proposed changes in the Medicare area wage index system.  The complete NASH response to the proposed CMS regulation can be found here.

Calculation of Medicare DSH Uncompensated Care Payments for FY 2020

Factor 3 represents a hospital’s share (as estimated by the Secretary) of the total uncompensated care provided by all hospitals eligible to receive DSH payments.  CMS has, in recent years, calculated UCC DSH payments using an average of three factor 3 calculations subject to a budget neutrality adjustment that modifies the average factor 3 for each hospital to spend the appropriate amount of money (i.e., factor 1 times factor 2) for the fiscal year.

For the reasons stated in the accompanying comment letter, NASH recommends that for FY 2020, CMS implement year one of a three-year transition to using a three-year average of audited post-transmittal 11 data.  The schedule for this transition would be as follows:

  • Year one (FY 2020) would consist of a blend of 2/3 of a hospital’s 2019 UCC DSH payment with 1/3 of the hospital’s UCC DSH payment based on unaudited 2017 S-10 data. During FY 2020, CMS could engage in audits of the 2017 data.
  • Year two (FY 2021) would consist of a blend of 1/3 of a hospital’s 2019 UCC DSH payment with 2/3 of the hospital’s UCC DSH payment based on the average factor 3 derived from the hospital’s audited 2017 data and unaudited 2018 data. During FY 2021, CMS could engage in audits of the 2018 data.
  • Year three (FY 2022) would consist of an equally weighted blend of the hospital’s audited 2017 and 2018 data and unaudited 2019 data.

Each year thereafter, CMS could continue to engage in audits while rolling forward the three-year average, adding a new year of data to the calculation and dropping the oldest year of data.  The result balances timeliness and accuracy while also maintaining year-over-year stability.

Specifically, for FY 2020, a hospital’s final factor 3 would be calculated by:

  • Calculating for each hospital a preliminary 2017 factor 3 by dividing the hospital’s reported line 30 uncompensated care (subject to any adjustments or trims) by the total reported line 30 uncompensated care (subject to any adjustments or trims) reported by all hospitals expected to receive DSH in FY 2020 on their 2017 cost reports.
  • Calculating for each hospital a blended FY 2020 factor 3 by summing the hospital’s preliminary 2017 factor 3 plus its FY 2019 final factor 3 plus its FY 2019 final factor 3 and dividing by 3 if the hospital received a payment in 2019 and 1 if the hospital received no payment in 2019.
  • Deriving a standardization factor by calculating the average factor 3 for all hospitals projected to receive DSH and dividing the result by 1.0.
  • Calculating each hospital’s final FY 2020 factor 3 by multiplying its blended FY 2020 factor 3 by the standardization factor.

Puerto Rico hospitals, Indian Health Service and Tribal hospitals would continue receive a factor 3 based on low-income insured days from FY 2013.

For 2021, each hospital’s factor three would be based on the three-year average of its 2019 final factor 3, its 2017 factor 3 and its 2018 factor 3.

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Tomorrow, see NASH’s comments on CMS’s proposal for changes in the Medicare geographic wage classification system.

See NASH’s entire response to the proposed Medicare regulation here.