CMS Makes Payment Changes to Improve Healthcare in Rural America

November 2019

HIDA Government Affairs Update

By Linda Rouse O'Neill
Vice President, Government Affairs

The Centers for Medicare & Medicaid Services finalized its reimbursement policy for hospitals over the summer. Overall, hospitals will see a positive update from Medicare. However, there was a focus in the final payment rule that reflects a substantial shift in the way rural hospitals are paid with an eye on providing these less-populated regions with better access to high quality and affordable healthcare. The payment changes took effect October 1, 2019 as hospitals are paid on the federal fiscal year.

“Every single American deserves high-quality healthcare no matter where they live. However, 1 in 5 Americans who live in rural areas experience challenges receiving the healthcare they need as provider-to-patient ratios rise dramatically and more hospitals close,” CMS Administrator Seema Verma wrote in a letter promoting the new policies.

Urban areas make up only 3% of all U.S. land, but more than 80% of the nation’s population call urban areas home. There are 3,387 urban hospitals, according to an American Hospital Association 2019 report. Conversely, 97% of U.S. land mass is rural, but only a bit more than 19% of the population lives there. There are about 1,875 rural hospitals, and it can be challenging to woo staff to live and work in remote, sparsely populated areas.

To diminish these rural and urban hospital payment disparities, CMS has finalized policies to:

  • Increase the wage index for hospitals with a wage index value below the 25th percentile;
  • Decrease the wage index for hospitals above the 75th percentile to maintain budget neutrality;
  • Change the wage index “rural floor” calculation by removing urban to rural hospital reclassifications from the calculation of the rural floor wage index beginning in FY 2020; and
  • Institute a 5% cap on any decrease in a hospital’s wage index value beginning in FY 2020, so that a hospital’s final wage index would not be less than 95% of its final wage index of FY 2019.

CMS predicts that it will distribute approximately $8.4 billion to Disproportionate Share Hospitals (DSH) hospitals in uncompensated care payments for FY 2020.

CMS Makes Broader Medicare Payment Changes
CMS also updated Medicare payment policies for all hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital Prospective Payment System (LTCH-PPS) for fiscal 2020 (started October1, 2019).

  • CMS projects an estimated total increase of 3% in IPPS payments, and estimates Medicare spending on inpatient hospital services to increase by $3.8 billion in FY 2020;
  • CMS finalized a new technology add-on payment for medical devices that receive FDA marketing authorization and is part of an FDA expedited program for medical devices. The device will need to meet the cost criterion to receive the add-on payment beginning fiscal 2021;
  • CMS expects LTCH-PPS payments to increase by approximately 1% or $43 million for FY 2020. It adopted two new quality measures addressing LTCH patient data related to admissions, discharges, and a care plan; and data elements used to calculate pressure ulcer measures.