CMS recently proposed a rule that it estimates would increase payment to inpatient rehabilitation facilities (IRFs) by $80 million during fiscal year (FY) 2018 (discharges occurring between October 1, 2017 and September 30, 2018) (the IRF Proposed Rule).

The Social Security Act requires the creation of a per-discharge prospective payment system (PPS) that covers the inpatient operating and capital costs for rehabilitation services.  CMS’s IRF Proposed Rule updates those PPS rates as follows –

• Case mix groups.  CMS’s case-mix groups (CMG) for IRFs are weighted to reflect the resources needed by an average inpatient case for that particular group.  For example, a CMG with a relative weight of 2 typically will cost twice that of a CMG with a relative weight of 1. CMS proposes using FY 2016 IRF claims and FY 2015 IRF cost report data to determine its CMG relative weights and average length of stay values for FY 2018.  CMS estimates 99 percent of cases would experience less than a 5 percent change in relative weight as a result of these revisions.
• Facility-level adjustment factors.  CMS adjusts the prospective payment amount associated with a CMG to account for facility-level characteristics, but it froze those facility-level adjustment factors in 2015.  CMS proposes continuing to hold those adjustment factors at FY 2014 levels for FY 2018.
• Market basket index.  CMS also establishes an increase factor that reflects changes in prices for goods and services included in IRF PPS payment (referred to as the market basket index).  For FY 2018, CMS proposes applying an increase factor of 1 percent for the PPS.
• Geographic wage adjustments.  CMS adjusts prospective payment rates based on differences in wages and wage-related costs in geographic areas.  Part of this process involves determining the labor-related share by identifying the national average proportion of total costs that are related to, influenced by, or vary with the local labor market. CMS proposes setting the labor-related share for FY 2018 at 70.7 percent.  In addition, CMS intends to maintain the policies and methodologies described in the FY 2017 IRF PPS final rule related to the labor market area definitions and the wage index methodology for areas with wage data.  Finally, CMS proposes updating wage index classifications for Garfield County, Oklahoma, Bedford City, Virginia, and Macon, Georgia based on updated statistical guidance.
• Rural adjustments.  CMS noted that FY 2018 will be the final year of phasing out the rural adjustment for wage index calculations. CMS will no longer apply the rural adjustment for IRFs that became urban in FY 2016 and is not proposing any additional wage index adjustments for IRF providers.
• Standard payment calculation in FY 2018.  Applying all of the conversion factors together (the wage index and labor-related share and CMG-relative weights) a standard payment of $15,708 in FY 2017 will increase  to $15,835 in FY 2018.
• Outlier thresholds.  CMS proposes increasing the outlier threshold from $7,984 for FY 2017 to $8,656 for FY 2018 to maintain estimated outlier payments at approximately 3 percent of total estimated aggregate IRF payments. CMS calculates the adjusted outlier threshold by adding the IRF PPS payment for the case (the CMG payment adjusted by all of the relevant facility-level adjustments) and the adjusted threshold amount (also adjusted by all of the relevant facility-level adjustments). CMS then calculates the estimated case cost by multiplying the IRF’s overall cost-to-charge ratio (CCR) by the Medicare allowable covered charge. If the estimated cost of the case is higher than the adjusted outlier threshold, CMS make an outlier payment equal to 80 percent of the difference between the estimated cost of the case and the outlier threshold. CMS intends to use the FY 2016 claims data and methodology to calculate the outlier threshold in FY 2018.
• Cost-to-charge ratios.  CMS proposes updating the national urban and rural CCRs for IRFs and the national CCR ceiling for FY 2017.  Specifically, CMS estimates a national average CCR of 0.516 for rural IRFs in FY 2018, which would be calculated by taking an average of the CCRs for all rural IRFs using their most recently submitted cost report data. In addition, CMS estimates a national average CCR of 0.416 for urban IRFs, which would be calculated by taking an average of the CCRs for all urban IRFs using their most recently submitted cost report data. CMS then would apply weights to both of these averages using the IRFs’ estimated costs; thus, the CCRs of IRFs with higher total costs would factor more heavily into the averages than the CCRs of IRFs with lower total costs. In continuing its previous approach, CMS proposes setting the national CCR ceiling at 3 standard deviations above the mean CCR. Using this method, the proposed national CCR ceiling would be 1.28 for FY 2018. Thus, if an IRF’s CCR exceeded this proposed ceiling of 1.28 for FY 2018, CMS would replace the IRF’s CCR with the appropriate proposed national average CCR (either rural or urban, depending on the geographic location of the IRF).

The IRF Proposed Rule also (1) removes the 25-percent penalty for an IRF’s late transmission of a patient assessment instrument (PAI), which is used to classify patients into case-mix groups; (2) revises the lists of ICD-10-CM diagnosis codes used to determine presumptive compliance under the 60 percent rule; (3) provides automatic annual updates to presumptive methodology diagnosis code lists; (4) solicits comments regarding the criteria used to classify facilities for payment under the IRF PPS; (5) uses height/weight items from the IRF PAI to determine patient BMI greater than 50 for cases of lower extremity single-joint replacement under the presumptive methodology; and (6) revises and updates quality measures and reporting requirements under the IRF Quality Reporting Program.

The IRF Proposed Rule was released on April 27, 2017 and will be published in the Federal Register on May 3.  The deadline to submit comments to CMS is June 26, 2017.  The IRF Proposed Rule is available here.