CMS has published its final rule to update the Medicare acute hospital inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2018.

Acute Hospital Rate & Policy Updates

CMS projects that the rate and policy changes in the rule will increase total IPPS payments by about $2.4 billion in FY 2018 compared to FY 2017 levels. Rate adjustments in the rule include:  a 2.7 market basket update reduced by a -0.6% multifactor productivity adjustment and a 0.75% cut mandated by the Affordable Care Act (ACA); a -0.6% adjustment related to the 2017 two midnight policy; and a +0.4588% documentation and coding adjustment under the 21st Century Cures Act.  CMS also made changes to uncompensated care payments that are expected to increase IPPS operating payments by another 0.8%.

Actual updates to a hospital depend on several quality-related adjustments. The potential updates to standardized amounts for FY 2018 range from a high of 1.35% for a hospital that submits quality data under the Hospital Inpatient Quality Reporting (IQR) Program and is a meaningful Electronic Health Record (EHR) user, to a low of -1.35% for a hospital that does not submit quality data and is not a meaningful EHR user.  Specific hospital payments also can be impacted by other factors, including penalties for excess readmissions under the Hospital Readmissions Reduction Program (HRRP), poor performance under the Hospital-Acquired Condition Reduction Program, and bonuses and penalties under the Hospital Value-Based Purchasing Program.  For instance, CMS estimates that 2,577 hospitals will have their base operating MS-DRG payments reduced under the HRRP program in FY 2018, saving approximately $556 million in FY 2018.  The final rule also updates these hospital quality programs, including revisions to HRRP policies to account for a hospital’s proportion of patients who are dually eligible for Medicare and Medicaid (as a proxy for socio-economic status), applicable to discharges beginning in FY 2019.

The final rule also addresses, among many other things: changes to MS-DRG classifications; new technology add-on payment applications; rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis; distribution of Medicare uncompensated care payments; electronic signature and electronic submission of the Certification and Settlement Summary page of Medicare cost reports; and elimination of newspaper notices for the Medicare termination of ambulatory surgical centers, federally qualified health centers, rural health clinics, and organ procurement organizations.  Furthermore, CMS is updating regulatory language to clarify that Medicare does not recognize a provider’s gain or loss on the sale or scrapping of an asset that occurs on or after December 1, 1997, regardless of whether the asset is sold incident to a provider’s change of ownership or is otherwise sold or scrapped as an asset of a Medicare participating provider.  CMS withdrew its proposal to require accrediting organizations to make public provider and supplier survey reports.

LTCH Rates & Policies

CMS projects that FY 2018 LTCH PPS payments will decrease by 2.4% ($110 million) under the final rule compared to FY 2017 levels. CMS attributes much of this reduction to continued phase-in of the Pathway for SGR Reform Act of 2013, which requires CMS to establish an alternative site-neutral payment rate, generally based on IPPS rates, for Medicare inpatient discharges from LTCHs that fail to meet certain statutory-defined, patient-level clinical criteria.  CMS estimates that aggregate LTCH PPS payments for site-neutral payment rate cases will decrease by approximately 20% in FY 2018, compared to a 1% increase in payments to LTCH PPS standard federal payment rate cases (as mandated by the Medicare Access and CHIP Reauthorization Act of 2015). The final standard federal rate for FY 2018 is $41,431 (compared to $42,476 in FY 2017). The final rule also increases the fixed-loss amount for high cost outlier cases to $27,382 (compared to $21,943 in FY 2017); the fixed-loss amount under the site-neutral payment rate is $26,601.

CMS adopted changes to the short-stay outlier (SSO) payment policy.  While current regulations reimburse SSO cases based on the lesser of four payment thresholds, under the final rule CMS will pay a single graduated per diem rate for all SSO cases representing a blend of 120% of the MS LTC DRG specific per diem amount and a per diem rate based on the general acute care hospital IPPS.

In addition, CMS adopted its proposed one-year regulatory moratorium on full implementation of the 25% threshold policy. Under the 25% rule, an LTCH is allowed to admit up to 25% of its patients from a single general acute care hospital; for patients admitted past the 25% threshold, an LTCH faces a significant Medicare reimbursement reduction (with certain exceptions).  As a result of the final rule’s moratorium, the 25% rule does not apply until discharges occurring on or after October 1, 2018.  Furthermore, CMS adopted revisions to its hospital-within-hospital (HwH) regulations so that the separateness and control requirements will only apply to IPPS-excluded HwHs that are co-located with IPPS hospitals, beginning in FY 2018.