CMS proposes updates to hospital wage index, payments for emerging therapies

Medicare written on paper with a stethoscope
CMS has released its annual Inpatient Prospective Payment System rule. (Getty/Designer491)

The Trump administration has released its annual rule governing payments to inpatient providers and in it takes steps to target rural healthcare and new therapies. 

The Inpatient Prospective Payment System (IPPS) proposed rule (PDF) includes a hospital wage index that allows for adjustments to payment rates based on geographic differences.  

Under the wage index’s current methodology, for example, a hospital in a low-wage rural area would earn $4,000 from Medicare for a patient admitted with pneumonia, while a high-wage urban hospital would earn $6,000 for that same patient. 

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This causes significant disparities between rural and urban hospitals, as the latter can more effectively afford to attract top talent and offer varied services, Centers for Medicare & Medicaid Services Administrator Seema Verma said on a call with reporters. 

“Higher wage index hospitals can get a larger and larger slice of the pie, while lower-wage index hospitals are left with smaller slices,” Verma said. 

RELATED: Rural hospitals facing growing challenges to financial stability, AHA says 

CMS is proposing several changes to address this and is seeking additional feedback from industry stakeholders on which approach would be most effective. 

  • For example, CMS recommends a payment increase for hospitals in the lowest 25% of the wage index, which would begin in 2020 and continue for four years. To offset this boost, the agency suggests trimming down payments for the remaining hospitals.
  • CMS is also considering a change in how it calculates the “rural floor” for these payments. The minimum payment for urban providers can’t be lower than the wage index for rural hospitals under current policy, and Verma said that urban hospitals can game this process to boost their own reimbursement.  

Urban hospitals in some states have reclassified themselves as rural hospitals to drive up that payment floor, she said, and CMS wants to eliminate that potential loophole. 

  • In addition, CMS is proposing several payment changes that aim to boost hospital and Medicare beneficiary access to emerging technologies and therapies. It is planning to increase the technology add-on payment from 50% to 65% beginning Oct. 1, if the rule is finalized. That would make it more certain for providers to know they’ll be covered for new treatments. 

RELATED: How providers, patients could benefit from CMS’ newly-instated price transparency rule 

Verma said that CMS has heard stories of providers rationing access to new therapies because Medicare’s antiquated payment structures were not designed to cover these services. A prime example, she said, is CAR T-cell therapy, a pricey targeted cancer treatment

  • In addition to potentially extending the increased technology add-on payment to CAR-T, CMS is also weighing an update to how it calculates hospital payments for this gene therapy overall. The aim is to make sure it can be offered to patients who would most likely benefit but is still used appropriately and sparingly. 
  • Another area tackled in the rule is coverage for new medical devices. CMS has proposed a two-year waiver for newly approved devices that may lack a strong database of real-world data at launch so that they can be covered as real-world evidence builds. 

Verma noted on the call that CMS is “working with a 1960s law” that they’re trying to make work for the healthcare system of 2020. 

“We must continually update our policies in response to the rapid pace of advancement in medical science,” Verma said in a statement

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