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  • Washington Highlights

    CMS Releases FY 2017 IPPS Proposed Rule – Rescinds Two Midnight Cuts

    Len Marquez, Senior Director, Government Relations

    The Centers for Medicare and Medicaid Services (CMS) April 17 released the Inpatient Prospective Payment System (IPPS) proposed rule containing changes to Medicare payment policies and rates under the IPPS and Prospective Payment System (PPS) payment update for fiscal year (FY) 2017.

    CMS is proposing to reverse the 0.2 percent reduction in hospital payments implemented to adjust for an expected increase in expenditures under the Two Midnight Policy. Additionally, CMS is proposing a temporary one-time increase of 0.6 percent in FY 2017 to offset cuts made in the three preceding fiscal years.

    CMS is also proposing a negative 1.5 percent adjustment to complete the last year of recoupment adjustments required by the American Taxpayer Relief Act, which required CMS to recover $11 billion in documentation and coding overpayments by FY 2017.

    CMS continues to implement changes to Medicare disproportionate share hospital (DSH) payments. Beginning in FY 2014, hospitals started receiving 25 percent of what they would have received under the former statutory Medicare DSH formula. The remaining 75 percent was adjusted and redistributed to hospitals as uncompensated care payments. In the FY 2017 proposed rule, CMS proposes two changes to the methodology for distributing these funds, including using data from three cost reporting periods instead of one cost reporting period. For FY 2018, CMS proposes to incorporate uncompensated care cost data from Worksheet S-10 of the Medicare Cost report.

    CMS proposes changes to graduate medical education (GME) for urban hospitals with rural training track (RTT) programs to allow five years rather than the current three years to establish the actual number of full time equivalent (FTE) residents training in the urban hospital’s rural training track. The rural track FTE limitation would take effect beginning with the urban hospital’s cost reporting period that coincides with or follows the start of the sixth program year of the rural training track program. This proposal will give rural training tracks a sufficient amount of time to establish a rural track FTE limitation that reflects the number of the residents that will actually train when the program is fully established. However, FTEs in rural tracks at urban hospitals are immediately subject to the three-year rolling average and are subject to the indirect medical education (IME) intern-resident bed (IRB) ratio cap for hospitals with established FTE caps.

    Finally, CMS proposes implementing the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, which requires hospitals and Critical Access Hospitals (CAHs) to provide written and oral notification to individuals receiving observation outpatient care for more than 24 hours. CMS is proposing the use of a standardized notice that will be known as the Medicare Outpatient Observation Notice (MOON). Once the MOON receives the required approvals it will be posted to the CMS website and there will be a 60-day comment period.

    CMS also proposes significant changes in the hospital quality pay-for-performance programs, including a new scoring methodology in the Hospital Acquired Condition Reduction Program (HACRP) starting FY 2018 that would assess a hospital’s performance on individual measures based on its Winsorized z-score. The z-score represents how deviated a hospital’s quality measure score is compared to the national mean. The z-score approach would replace CMS’s decile-based scoring methodology. CMS estimates that this scoring change would result in a reduction in the number of penalized hospitals who have more than 500 beds, with an increase in penalization rate for moderately high DSH hospitals.

    For the Hospital Readmissions Reduction Program (HRRP), CMS did not propose new conditions for the program or any adjustments to account for sociodemographic status (SDS). In the Hospital Value Based Purchasing (HVBP) Program, CMS proposes to expand the pneumonia mortality measure cohort in FY 2021, add two new 30-day episode-of-care payment measures for acute myocardial infarction and heart failure in FY 2021, and a new 30-day mortality measure following CABG surgery starting FY 2022.

    CMS is also proposing significant changes to the Inpatient Quality Reporting (IQR) Program, including the addition of four payment and coordination measures starting in FY 2019 and the removal of 15 measures in FY 2019.

    The proposed rule will be published in the Federal Register on April 27. Comments are due by June 17 and CMS expects to issue the final rule by Aug. 1. The AAMC will be providing members with additional information and will submit a comment letter.