Healthcare News & Insights

New CMS payment rule for 2017: What hospitals can expect

Get ready: The Centers for Medicare & Medicaid Services (CMS) has just released the final rule for next year’s inpatient payment system, and there are several changes that’ll affect your hospital’s reimbursement – including a pending pay cut. 

GettyImages-480382317According to the final rule, published on the Federal Register, CMS is attempting to recoup money from $11 billion worth of overpayments resulting from what it alleges are coding changes for inpatient hospital stays that don’t align with real changes in hospitals’ patient mixes.

A provision in the Medicare Access and CHIP Reauthorization Act (MACRA) allowed for a 0.8% payment reduction each year to pay back these funds, which has been in effect since 2014. But for fiscal year 2017, CMS is upping the ante, increasing the adjustment to 1.5%.

Readmissions penalties

The rule also finalizes provisions for pay cuts due to excess readmissions for certain conditions.

For 2017 and beyond, payment reductions will be based on a hospital’s risk-adjusted readmission rate during a three-year period for acute myocardial infarction (heart attack), heart failure, pneumonia, chronic obstructive pulmonary disease, total hip/knee arthroplasty and coronary artery bypass graft.

CMS is currently revising its payment methodology to account for readmissions due to coronary artery bypass grafts. And the agency said it’ll post information about excessive readmissions rates to its Hospital Compare website (along with its star ratings) so the data will be available for hospitals and the general public to view.

DSH payments decrease

An additional payment cut is coming to disproportionate share hospitals (DSHs) that primarily serve low-income patients, many of whom may be uninsured.

For 2017, DSHs will receive approximately 25% of the payments they would’ve received under the current formula for Medicare payments. The remaining 75% will be used to distribute additional payments to DSHs for uncompensated care, after the amount is adjusted to account for changes in the overall percentage of uninsured patients and other factors. These supplemental payments will be proportional to the amount of uncompensated care each facility provide.

Overall, CMS says this will decrease payments by 0.6% next year.

Balancing cuts

Although these pay reductions may be significant for facilities, there are a few other payment-related provisions that soften the blow.

One involves the “two-midnight rule.” CMS is removing the 0.2% payment reduction for hospital stays under the two-midnight rule. In addition, it’ll provide a one-time payment increase to hospitals to account for previous losses under the payment reduction.

In addition, according to an article in Modern Healthcare, Medicare wanted to use a different formula in calculating DSH payments than its current methodology, which looks at the number of dual-eligible (Medicare/Medicaid), Medicaid and disabled patients each hospital treats. The new formula would rely more on data reported by hospitals on Worksheet S-10.

However, in response to criticisms, CMS said it’ll implement additional quality-control measures before using this data to determine payments.

Takeaways for hospitals

After accounting for all these changes, plus increases due to inflation, rates are actually projected to rise by 0.95% next year, according to a statement from the American Hospital Association (AHA).

However, individual hospitals may fare better or worse, depending upon payments and penalties they’ll receive under the revamped meaningful use program, the readmissions reduction program and other initiatives.

Additional provisions of the rule finalize quality reporting requirements for 2017 (which will affect payments in 2019 and 2020) and the implementation of the Medicare Outpatient Observation Notice (MOON) for patients receiving outpatient observation services.

Given the pending payment changes, hospitals would be wise to review their current status under these programs. That way, they can get an idea of where their payment rates will fall next year and start making budgetary adjustments if necessary.

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