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David Kennedy, CPA

Medicare Final Rule for Calendar Year 2019: Hospital Inpatient Prospective Payment System (IPPS)

2018-08-08

On July 31, 2018, the Center for Medicare and Medicaid Services (CMS) issued the annual Hospital Inpatient Prospective Payment System (IPPS) Final Rule for Federal Fiscal Year (FFY) 2019 beginning October 1, 2018. The final rule estimates a $4.8 billion increase in payment derived from a combination of factors which include: a payment rate increase, changes in uncompensated care payments, capital payments, and changes to low-volume hospital payments.

In addition to payment updates, CMS proclaims the items addressed in the final rule are designed to improve pricing transparency, drive electronic medical record interoperability, and reduce the reporting burden for hospitals so providers can spend more time focused on patient care. Key aspects of the rule are summarized as follows:

Update Factors

The final increase to operating payments is approximately 1.85% for FFY 2019. The following table depicts the trend in the update factors from FFY 2016 to the proposed rates for FFY 2019:

Increase to Operating Payment Rates Under IPPS* (Final)

FFY
2016

FFY
2017
FFY
2018
FFY
2019
Market basket update  2 .70%  2 .90% 2 .70% 2 .90%
Productivity adjustment -0 .30% -0 .40% -0 .60% -0 .80%
Required by legislation -1 .50% 0 .45% 0 .45% 0 .50%
ACA required decrease  -0 .75% -0 .75% -0 .75% -0 .75%
2 midnight policy
adjustment
  0 .80%     -0 .60%     -0 .60%                 
Increase in operating 
payments
  0 .95%      1 .60%      1 .20%      1 .85%


*Based on general acute care hospitals paid under IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.

Uncompensated Care

CMS will distribute approximately $8.3 billion in uncompensated care payments for FFY 2019, an increase of $1.5 billion over the prior year. CMS will utilize data from WKST S-10 of the Medicare Cost Report as a component of each hospital’s allocation calculation. The uncompensated care allocations for FFY 2019 will be based on a combination of fiscal year 2013 Medicaid and SSI days, and fiscal years 2014 and 2015 Medicare Worksheet S-10 Uncompensated Care Cost data.

Pricing Transparency

CMS updated the guidelines to specifically require hospitals to establish and make public a list of their standard charges via the internet in a machine readable format and to update the information at least annually. By making this change, CMS attempts to further promote healthcare consumerism and build momentum for pricing transparency. With focus in this area, CMS acknowledges the disconnect between pricing and cost continues to be an issue in the industry.

Interoperability and Meaningful Use

The Meaningful Use EHR program began in 2011 when hospitals were first able to demonstrate achievement of Stage 1. Since then, most organizations took advantage of the program and implemented electronic medical record systems that qualified for incentives. However, the exchange of information continues to be a challenge as the systems implemented lack the versatility to communicate with one another. CMS is now overhauling the system to “focus on interoperability, improve flexibility, relieve burden and place emphasis on measures that require the electronic exchange of health information between providers and patients.”

As a result, CMS is renaming the program: “Promoting Interoperability”. Changes to the program involve hospitals self-selecting a calendar quarter in calendar year 2019 to report at least four self-selected Electronic Clinical Quality Measures (eCQMs). CMS intends to reduce the Clinical Quality Measures from 16 to eight during the 2020 reporting period to continue to reduce the administrative burden on hospitals and providers. CMS issued an RFI seeking proposals to further enhance flexibility specific to Interoperability.

Reducing the Reporting Burden of Quality Measures

CMS reviewed the quality measure requirements hospitals report on and determined many of the measures were duplicative or uninformative as “the overwhelming majority of provider performed highly on them.” In an effort to significantly reduce the administrative burden on providers, CMS seeks to reduce the overall number of quality reporting measures.

In addition, the rule recommends measures to cut back on documentation requirements to reducing an estimated two million hours spent filing paper work and potentially reducing administrative denials. Specifically, the final rule will remove a total of 18 measures from CMS quality programs and will de-duplicate another 25 measures.

The full public inspection document is available here:
https://www.federalregister.gov/documents/2018/08/17/2018-16766/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the