On August 2, 2017, CMS issued the Fiscal Year (FY) 2018 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule (Final Rule) that updates payment and policies for hospital discharges from hospitals from October 1, 2017 to September 30, 2018. Key provisions of the Final Rule are summarized below.

Changes to Payment Rates under IPPS. Operating payment rates under the IPPS will increase by about 1.3 percent, with an additional 0.7 percent available in uncompensated care payments. Other payment adjustments include penalties for excessive readmissions, continuing the one-percent penalty for facilities in the bottom quartile of the Hospital Acquired Condition (HAC) Reduction Program, and payment increases and decreases under the Hospital Value-Based Purchasing Program. Overall, CMS estimates Medicare spending for inpatient services will rise by about $2.4 billion in FY 2018.

Those estimated increases factor in (i) a -0.6 adjustment that removes the one-time adjustment from FY 2017 intended, according to CMS, to address the effect of the 0.2 percent two midnight rate cut, (ii) a +0.46 percentage adjustment from the 21st Century Cures Act, and (iii) a -0.75 percent adjustment required by the Affordable Care Act.

Medicare Uncompensated Care Payments. CMS will pay $800 million more in uncompensated care payments in FY 2018 to Medicare disproportionate share hospitals (DSH) than CMS paid in FY 2017. Uncompensated care payments in FY 2018 are estimated at $6.8 billion. Uncompensated care payments to facilities are an amount equal to 75 percent of the estimate of what CMS otherwise would have paid such facilities in Medicare DSH payments.

CMS has finalized its proposal to begin using data from Worksheet S-10 of the Medicare cost report, in addition to Medicaid low income days data from the two preceding cost reporting periods, to calculate uncompensated care payments. CMS is also allowing hospitals to resubmit S-10 data to their Medicare Administrative Contractors by September 30, 2017, in an effort to ensure accurate data is used to calculate uncompensated care payment amounts.

Imputed Floor. CMS decided to continue the imputed floor policy in FY 2018, which establishes a wage index for hospitals in New Jersey, Rhode Island, and Delaware. The policy was set to expire after FY 2017, but based on public comments, CMS decided to continue the policy for one more year so it can continue to analyze the issue.

LTCH Prospective Payment System (PPS) Changes. CMS increased the LTCH PPS rate by one percent for FY 2018, which applies to LTCH patients who meet certain clinical criteria under the dual rate LTCH PPS payment system required by the Pathway for SGR Reform Act of 2013. Even with the payment rate increase, CMS estimates LTCH PPS payments will fall by about 2.4 percent ($110 million) overall in FY 2018 as CMS continues to phase in the dual payment rate system.

CMS is also finalizing a regulatory moratorium on implementing the 25-percent threshold policy in FY 2018 and will continue to evaluate whether that threshold is necessary. CMS is amending its short-stay outlier payment adjustment as well.

Changes to Critical Access Hospital (CAH) 96-Hour Certification Requirement. A physician must certify that he/she expects a patient may be discharged or transferred to a hospital within 96 hours of admission to a CAH for the CAH services to be payable under Medicare Part A. CMS reiterated in the final rule that starting October 1, 2017, the 96-hour certification requirement is a low priority for medical record reviews, meaning absent concerns of fraud, waste, or abuse, CAHs should not receive medical record requests related to the certification requirement.

HAC Reduction Program. CMS implemented changes to the HAC Reduction program, which (as noted above) imposes a one-percent payment reduction for bottom quartile facilities. Those changes included specifying the dates of the data period used to calculate hospital performance for the FY 2020 HAC Reduction Program and updating the Extraordinary Circumstance Exception policy.

Hospital Readmissions Reduction Program (HRRP). The HRRP reduces a hospital’s base operating DRG payment for excessive readmission related to selected applicable conditions. CMS is changing this payment adjustment for FY 2018 in accordance with the 21st Century Cure Act. The penalties will be based on a hospital’s readmissions relative to other facilities with a similar proportion of patients who are dually eligible for Medicare and full-benefit Medicaid. The specific changes:

• Define the proportion of full benefit dual-eligible beneficiaries as the proportion of dual-eligible patients among all Medicare fee-for-service and Medicare Advantage stays during the three-year period that corresponds to the performance period;
• Stratify hospitals into five peer groupings; and
• Change the payment adjustment formula calculation methodology.

CMS also specified the applicable period and methodology for calculating aggregate payments for excessive readmissions in FY 2018.

Changes to Clinical Quality Measures (CQMs). CMS finalized policies for eligible hospitals or CAHs that reporting CQMs electronically as part of the EHR incentive programs. Those policies include:

• For CY 2017:
  • If those facilities demonstrate meaningful use for the first time in 2017 (or demonstrated meaningful use in any year prior to 2017), the reporting period is one self-selected quarter of CQM data in CY 2017.
  • If an eligible hospital or CAH only participates in the EHR Incentive Program or the EHR Incentive and the Hospital IQR programs, that facility must report on at least four (self-selected) of the available CQMs.

• For CY 2018:
  • If those facilities demonstrate meaningful use for the first time in 2018 (or demonstrated meaningful use in any year prior to 2018), the reporting period is one self-selected quarter of CQM data in CY 2018.
  • If an eligible hospital or CAH only participates in the EHR Incentive Program or the EHR Incentive and the Hospital IQR programs, that facility must report on at least four (self-selected) of the available CQMs.
  • Eligible hospitals and CAHs that report CQMs by attestation must report all 16 available CQMs for the full CY 2018. CMS created an exception for facilities demonstrating meaningful use for the first time under their state’s Medicaid EHR inventive program, setting the reporting period as any continuous 90-day period within CY 2018.

Changes to the Medicare and Medicaid EHR Incentive Programs. Among other changes for FY 2018, CMS will modify the EHR reporting periods from the full year to a minimum of any continuous 90-day period during the calendar year. In addition, CMS is adding a new exception from the Medicare payment adjustments for Eligible Professionals (EPs), eligible hospitals, and CAHs that demonstrate that compliance with the meaningful use requirement is not possible because their certified EHR technology has been decertified under ONC’s Health IT Certification Program.

Hospital Inpatient Quality Reporting (IQR) Program. CMS will refine two previously adopted measures by (1) replacing pain management questions in the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey to focus on the hospital’s communications with patients about the patients’ pain during the hospital stay beginning with surveys administered in January 2018, and (2) updating the risk adjustment methodology used in the Stroke 30-Day Mortality measure to include the use of stroke severity codes (based on the NIH Stroke Scale). In addition, CMS will finalize several modifications with respect to the reporting of electronic clinical quality measures (eCQMs).

Hospital Value-Based Purchasing (VBP) Program. As part of the Final Rule, CMS is finalizing updates to the Hospital VBP Program, specifically to (1) remove the current 8-indicator Patient Safety for Selected Indicators measure from the Safety domain beginning with the FY 2019 program year and replace it with the 10-indicator Patient Safety and Adverse Events Composite measure, which is a modified version of the removed measure beginning with the FY 2023 program, (2) implement a payment measure associated with 30-day episodes of care for pneumonia patients for the Efficiency and Cost Reduction domain beginning with the FY 2022 program year, and (3) modify the weighting of measures in the Efficiency and Cost Reduction domain to reflect the addition of the new condition-specific payment measures along with the overall Medicare Spending per Beneficiary measure beginning with the FY 2021 program year.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program. As part of the PCHQR Program, in FY 2018, CMS will adopt specific measures that assess end-of-life care (e.g., Proportion of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life, Proportion of Patients Who Died from Cancer Admitted to the ICU in the Last 30 Days of Life, Proportion of Patients Who Died from Cancer Not Admitted to Hospice, and Proportion of Patients Who Died from Cancer Admitted to Hospice for Less than Three Days).

Inpatient Psychiatric Facility Quality Reporting Quality Reporting (IPFQR) Program. In the Final Rule, CMS is making several modifications with respect to the IPFQR Program, including updating the IPFQR Program’s extraordinary circumstances exception (ECE) policy to align with other CMS programs’ ECE provisions.

Long Term Care Hospital Quality Reporting Program (LTCH QRP). In the Final Rule, among other things, CMS has adopted several measures for the LTCH QRP, including updating the pressure ulcer measure, and adding measures for changes in skin integrity post-acute care, compliance with spontaneous breathing trial by day 2 of the LTCH stay, and ventilator liberation rate.

Changes to the Application and Re-Application Procedures for National Accrediting Organizations (AOs). In the proposed rule, CMS proposed revising the application and reapplication process for AOs by requiring AOs to make public provider/supplier survey reports and plans of corrections from CMS-approved accreditation programs. After consideration of public comments, CMS withdrew the proposal and will further review and refine the proposal.

Changes to Termination Notices. In the Final Rule, CMS is finalizing the proposal to eliminate newspaper notices for the Medicare termination of ambulatory surgical centers (ASCs), federally qualified health centers (FQHCs), rural health clinics (RHCs), and organ procurement organizations (OPOs), given that newspapers have become an outdated method of communication for these notices.

Rural Community Hospital Demonstration Extension. Section 15003 of the 21st Century Cures Act requires an extension of the Rural Community Hospital Demonstration for an additional five-year period. In the proposed rule, CMS proposed aligning the periods of performance for both previously participating hospitals and newly selected hospitals during the second five-year extension period so that the performance periods would start with a hospital’s first cost reporting period beginning on or after October 1, 2017. However, after considering public commentary regarding potential financial hardship for some of the previously participating hospitals, CMS decided to modify its approach such that the performance period for previously participating hospitals that choose to participate would begin immediately after the date on which the period of performance under the first five-year extension period ended.

The full text of the Final Rule is available here, and CMS’s Fact Sheet on the Final Rule is available here.