The Trump administration released its annual rule governing payments to inpatient providers—representing an increase in total Medicare spending on inpatient hospital services of $4.7 billion in fiscal 2020—and the Medicare rate proposal might've caught some health systems by surprise.
After all, the proposed rule includes a hospital wage index that allows for adjustments to payment rates based on geographic differences to address significant disparities between rural and urban hospitals.
For instance, CMS recommended payment increases for hospitals in the lowest 25% of the wage index, which would begin in 2020, offsetting the boost by trimming down payments for the remaining hospitals.
But for health system giant Tenet Healthcare, top officials said the proposed Inpatient Prospective Payment System (IPPS) was pretty close to what they were projecting.
“In terms of the proposed rule for Medicare inpatient rights that will go into effect October 1, it was in line with our expectations,” said Tenet Healthcare’s Chief Financial Officer Daniel Cancelmi in a first-quarter earnings call. “Net-net, it's about a 1.1% increase. And that does include the impact of the change in disproportionate share revenue.”
The Centers for Medicare & Medicaid Services is also considering a change in how it calculates the “rural floor” for these payments and proposed distributing roughly $8.5 billion in uncompensated care payments to “Medicare disproportionate share hospitals” based on their relative share of uncompensated care in fiscal year 2020, an increase of approximately $216 million from 2019. CMS projects the rate increase, along with other proposed changes to IPPS payment policies, will increase IPPS operating payments by approximately 3.5%.
Hospitals may be subject to other payment adjustments under the IPPS, including penalties for excess readmissions, a penalty for the worst-performing quartile under the Hospital-Acquired Condition Reduction Program and upward or downward adjustments under the Value-Based Purchasing Program.
Cancelmi said it may have been at or a little above what some health systems were expecting. But “we also have taken into consideration the impact from any wage index adjustments,” he said. “So all-in, it was in line where we thought it was going to be.”
That seemed to be the consensus among hospital leaders, at least those running major publicly traded systems as they released their first-quarter earnings over the last week and faced questions from analysts about the IPPS rule.
“We'll continue to evaluate that as we go through the comment period,” Rutherford said. “Relative to our guidance, I will say our guidance anticipates in the fourth quarter that we will return back to kind of a normal Medicare rate update.”
He said there is a favorable rate in the current year that led to the guidance of a return to normal: “We’ll have to see what that final IPPS rate turns out to be once we go through the comment period.”
Universal Health Services CFO Steve Filton called the IPPS rule “a push.”
“We had in our 2019 guidance, beginning in October, I believe, an assumption that the IPPS would increase on sort of an all-in basis by something like 2.6% or 2.7%,” he said. “I think when we calculated the impact of the final rule that's out now, again all-in, with the effect of DSH and with the effect of wage index changes, we were coming very close to our estimates. So I think from our perspective and certainly, as it impacts our 2019 guidance, it's largely a push.”