Hospitals expected the cut to remain at 0.8%—as it has been ever year since 2014, two years after Congress mandated the CMS to recover funds allegedly lost as a result of incorrect coding on inpatient hospital stays.
Industry leaders say they were shocked when in April, the CMS proposed a bigger cut given the Medicare Access and CHIP Reauthorization Act (MACRA) held the reduction at 0.8%.
On Tuesday, industry leaders expressed at the final rule. “CMS is undermining Congress’ intent by imposing a cut that is nearly two times what Congress specified,” Tom Nickels, executive vice president at the American Hospital Association said in a statement.
The CMS, however, estimated that another 0.8% reduction would have left the government $5 billion short of recouping the overpayments by its deadline of 2017. The agency said changing economic and healthcare trends upended its earlier projections and made it necessary to increase the cut.
In a move that’s likely to please industry stakeholders, the CMS will delay changes to the way it distributes disproportionate-share payments (DSH) to safety-net hospitals. The new formula would have relied mostly on the amounts of uncompensated care and charitable care each hospital claims on its Medicare cost report. Previously, it relied mostly on the number of Medicaid, dual-eligible and disabled patients each hospital served.
The agency proposed making the change starting in fiscal year 2018. However, industry stakeholders said the formula was inaccurate. Some claimed it would favor hospitals that see large numbers of uninsured patients.
“Under CMS’s proposed rule, this would result in lower uncompensated care distributions to Medicaid expansion states and would reward non-expansion states with higher uncompensated care distributions,” said Phyllis Lantos, chief financial officer at NewYork-Presbyterian Hospital in a comment letter.
“This appears to be adverse to the principles of the Affordable Care Act, sending more dollars to states that have chosen voluntarily to have a higher share of uninsured patients.”
Because of those and other comments, the agency said it was not finalizing this proposal. The CMS hopes to use a version of the formula by fiscal year 2021.
In Tuesday’s final rule, the CMS said it will distribute almost $6 billion in uncompensated care payments next year. That’s a drop of approximately $400 million from last fiscal year. The cut for was outlined in the ACA which called for adjustments based on the rate of uninsured individuals and other factors.
Overall, hospitals will still receive $746 million more under the 2017 Inpatient Prospective Payment System than they did in fiscal 2016 as a result of several changes, including the reversal of the 0.2% payment reduction under the two-midnight rule and a one-time increase to offset the two-midnight cut applied in fiscal 2014-2016.
Finally, long-term-care hospitals will see rates fall by 7.1% or approximately $363 million in 2017 because of a new site-neutral policy that states off-campus hospital outpatient departments will be paid under Medicare Part B systems instead of outpatient prospective payment systems. It is set to go into effect January 2017.