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CMS Releases Proposed FY 2018 Medicare Payment Policies and Rates

April 17, 2017

The Centers for Medicare & Medicaid Services (CMS) released the proposed fiscal year (FY) 2018 Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System.

CMS proposes a 1.6 percent increase in payment rates for hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record users.

This increase reflects:

  • Adjustment of -0.40 percentage point to the projected hospital market basket update of 2.90 percent as required for productivity
  • Decrease of 0.60 percent to remove the one-time adjustment of 0.60 percent made in FY 2017 for the FYs 2014–2016 effect of the adjustment to offset the estimated costs of the two midnight policy
  • Increase of roughly 0.46 percentage point required by the statute, as recently amended by the 21<sup>st</sup> Century Cures Act
  • Decrease of 0.75 percentage point as required by the Affordable Care Act

The proposed rule also:

  • Increases uncompensated care payments by $1.0 billion from the FY 2017 amount reflecting the CMS proposal to incorporate data from its National Health Expenditure Accounts into the calculation in the rate of uninsured
  • Begins incorporation of Worksheet S-10 data of the Medicare cost report in the methodology for distributing uncompensated care payments for FY 2018, using S-10 data from the FY 2014 cost reports in combination with data from two preceding cost reporting periods

CMS projects that the rate increase, together with other proposed changes to IPPS payment policies, will increase IPPS operating payments by approximately 1.7 percent, and that proposed changes in uncompensated care payments will increase IPPS operating payments by an additional 1.2 percent for a total increase in IPPS operating payments of 2.9 percent.

CMS is proposing to update the LTCH PPS payment rate by 1 percent, consistent with the provisions of the Medicare Access and CHIP Reauthorization Act of 2015. Overall, based on the changes included in this proposed rule, CMS projects that LTCH PPS payments would decrease by approximately 3.75 percent, or $173 million in FY 2018, which is due in large part to the continued phase in of the dual payment rate system.

In addition, CMS is evaluating if the 25-percent threshold policy is still needed. For FY 2018, CMS is proposing a regulatory moratorium on the implementation of the 25-percent threshold policy for FY 2018 while it conducts the evaluation. CMS is also proposing to revise its short-stay outlier payment adjustment and implementing various provisions of the 21st Century Cures Act that affect LTCHs.

Other changes proposed in the rule include:

  • Making the Critical Access Hospitals 96-hour certification requirement a low priority for quality improvement organizations and auditors (absent any concerns about fraud, waste or abuse)
  • Proposed revisions to the hospital readmissions reduction program, hospital value based purchasing program, hospital acquired conditions reduction program, and hospital inpatient quality reporting program
  • Proposed revisions to the application and re-application procedures for national Accrediting Organizations
  • Proposed changes to termination notices
  • Rural Community Hospital Demonstration Extension

In addition to payment and policy proposals, CMS released a request for information aimed at identifying regulatory, policy, practice, and procedural changes that would create flexibility, simplification, and innovation in CMS programs. 

The CMS fact sheet provides additional information about the proposed rule. Additional information about the IPPS and LTCH PPS also are available.

CMS will accept comments about the proposed rule until June 13, 2017.

HAP will be analyzing the proposed rule and sharing additional details with member hospitals and health systems as it develops comments. 

Please contact Kate Slatt, HAP’s senior director, health care finance policy, with any questions.

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