Stretching the healthcare dollar: Changes coming to the IPPS?

July 17, 2019 / By Barbara Aubry, RN

The country is revving up for the next election cycle. Like it or not, health care is a focus again and some sword-rattling is taking place regarding the IPPS (Inpatient Prospective Payment System).

Recently, CMS published an article titled “CMS Advances Agenda to Re-think Rural Health and Unleash Innovation

Two priorities were addressed. First, Medicare payment to rural providers is based on wage index calculations. Because the cost of doing business is less in rural areas compared to urban communities, rural providers are paid less than their urban counterparts. This results in ever fewer providers to care for a large rural population. Second is the plan to modernize payment for medical devices that meet FDA Breakthrough Device designations. The goal is to “promote patient access and reduce the uncertainty that innovators face regarding payment for new medical technologies for Medicare beneficiaries.” This blog is focused on the proposed changes to the IPPS.

According to CMS Administrator Seema Verma, “One in five Americans are living in rural areas and the hospitals that serve them are the backbone of our nation’s healthcare system.. She goes on to say, “Rural Americans face many obstacles as the result of our fragmented healthcare system, including living in communities with disproportionally higher poverty rates, more chronic conditions, and more uninsured or underinsured individuals.”

The announcement was quickly met with a reply from the National Law Review titled “CMS Proposes Changes to Medicare Wage Index that Would Increase Reimbursement Rates to Rural Hospitals at the Expense of Urban Hospitals.”  Because the IPPS is based on budget neutrality, theoretically some urban hospitals would have their reimbursement cut, shifting dollars to increase rural reimbursement rates. The article argues this is akin to “a Robin Hood-like effect – robbing from the rich to give to the poor. Like in Sherwood Forest, there are winners and losers in the world of Medicare reimbursement.” CMS sites an example of reimbursement discrepancy: “A rural community could receive a Medicare payment of about $4000 for treating a beneficiary admitted for pneumonia while a hospital in a high wage area (like many urban communities) could receive a Medicare payment of nearly $6000 for the same case, due to differences in their wage index.”

To counter the long-held argument regarding differences in the wage index calculations, CMS is proposing some complex changes for 2020, which you can read about below, or skip to get “My Take”:

“The current wage index system perpetuates and exacerbates the disparities between high and low wage index hospitals,”[5] and, as noted by the Office of Inspector General of the U.S. Department of Health and Human Services in an 2018 Audit Report, the wage index may not accurately measure local labor prices. Under the proposed rule, CMS plans to introduce three basic changes to the current wage index payment structure for fiscal year (“FY”) 2020.

    1. First, CMS intends to increase the wage index for hospitals with a wage index value below the 25th percentile.[6]The increase would be determined by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals.[7] In order to ensure sufficient time to reflect hospital employee compensation increases in the index, the policy would be effective for at least 4 years, beginning in FY 2020.[8]
    2. Second, to offset the increase in spending, CMS intends to decrease reimbursement rates for hospitals above the 75th percentile.[9] This complementary decrease is necessary to conform with budget neutrality requirements.[10]To provide some level of insulation from rapid changes in reimbursement rates, the policy would include a 5-percent cap on any decrease in a hospital’s wage index from its final wage index for FY 2019.[11] Additionally, CMS intends to preserve the rank order of the hospitals relative reimbursement rates, affirming that rank order “generally reflects meaningful distinctions between the employee compensation costs faced by hospitals in different geographic areas.”[12]
    3. Third, CMS proposes changes to the wage index “rural floor” calculation. CMS proposes removing urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020.[13] Under current law, the IPPS wage index value for an urban hospital cannot be less than the wage index value applicable to hospitals located in rural areas in the state—the “rural floor” provision.[14]However, according to an April 23, 2019 CMS Fact Sheet and as referenced in the Proposed Rule, urban hospitals in a limited number of states have inappropriately used this provision to influence the rural floor wage index value “at the expense of hospitals in other States, which also contributes to wage index disparities.”[15]

States with large rural populations applaud the initiative while those with urban centers contest their current Medicare reimbursement does not cover the cost of care.

My Take

Personally, having only ever worked in large urban healthcare settings, I understand the plight of urban providers. Many urban patients are multi-cultural, indigent and rely on facility clinics to obtain health care. Granted, urban communities have multiple competing hospitals that offer care options and reasonably priced transportation is readily available but cost of living is usually very high. Many of the large urban hospitals are teaching facilities with access to relatively low-cost resident physicians, medical students, nursing students, radiology tech students, etc. Their workforce is somewhat transient as the students complete their training and move on to employment in other geographic areas, but at least they can always attract new students and positions do not remain unfilled for long.

I had not given the challenges of rural care much thought until a family member was injured while visiting a rural area. She was at least 45 minutes’ drive from the nearest acute care hospital and she required transport and in-patient admission. Once discharged, she was expected to attend continuing outpatient rehab but was unable to drive. The closest therapist was nearly two hours from where she was located. She is insured and able to afford the care required but access was a challenge. How do patients in rural areas fare when their Critical Access Hospitals close due to low wage index reimbursement resulting in the inability to pay their staff? How can providers be enticed to practice in rural areas when the income levels are so low? How do chronically ill, under insured patients access care when it is highly fragmented? How do they manage transportation challenges in order to access care? There are no ready answers and, unfortunately, the status quo impacts healthcare quality for a sizeable percentage of Americans living in rural areas. Might access to improved health care entice more folks to relocate to rural areas if technology can support more job opportunities? I applaud CMS for at least opening the discussion regarding this unmet need.

Of course, if the IPPS reimbursement changes, what happens to the urban provider when they receive lower payments to boost rural care reimbursement? There is no simple answer, but it is an important question that I believe will be a major discussion point between Red and Blue states in the coming election season. Stay tuned.

Barbara Aubry is a regulatory analyst for 3M Health Information Systems.