Rural Hospitals Get a Boost From CMS

Ken Terry

August 07, 2019

The Centers for Medicare & Medicaid Services (CMS) is giving a boost to rural hospitals by revising the wage index system that partly determines Medicare payment rates to individual hospitals.

"The Trump Administration is providing relief to rural communities and addressing payment policies that have disadvantaged rural hospitals, making it harder for them to stay open and provide care to the one in five Americans living in rural areas," said CMS Administrator Seema Verma in a news release. "The changes we're finalizing in today's rule are long overdue and improve the way Medicare pays hospitals, which will help many rural hospitals maintain their healthcare labor force, to ensure that patients have access to high-quality, affordable healthcare."

The wage index, which adjusts inpatient payment rates to account for local differences in wages, has a major impact on Medicare payments to hospitals. For example, a hospital in a low-wage rural community might receive a Medicare payment of about $4000 for treating a beneficiary admitted with pneumonia, whereas a hospital in a high-wage area could receive $6000 for the same case, according to CMS.

Some Hospitals Will Get Less

In a fact sheet on the final rule for the Inpatient Prospective Payment System (IPPS), CMS said it will increase the wage index for hospitals with a wage index value below the 25th percentile. The wage indexes of these institutions will be increased by half the difference between the otherwise applicable wage index value and the 25th percentile wage index value across all hospitals. This policy will be effective for at least 4 years, starting in fiscal year (FY) 2020, to allow time for compensation increases by hospitals in low-wage areas to be reflected in the wage index calculation.

Because CMS intends this change to be revenue neutral, the boost to rural hospitals must be balanced by lower wage indexes for other hospitals. Initially, CMS proposed raising the additional money by reducing the wage index of hospitals above the 75th percentile. According to the final rule, however, a budget neutrality adjustment will be applied to all IPPS hospitals. No hospital's wage index for FY 2020 will be less than 95% of its wage index for FY 2019.

Nevertheless, the American Hospital Association (AHA) protested CMS's decision to take money away from urban hospitals to benefit rural and low-volume hospitals. "While we support improving the wage index values for many struggling rural hospitals, this should not be done by penalizing all hospitals, especially when Medicare already pays far less than the cost of providing care," said the AHA Executive Vice President Tom Nickels in a statement.

Technologic Innovation

The IPPS final rule also loosens the reins on CMS's coverage of new technologies. Currently, the US Food and Drug Administration's (FDA's) Breakthrough Devices Program expedites the development and review of new devices that are intended to treat serious or life-threatening diseases or conditions for which there are unmet medical needs.

But to get CMS's new technology add-on payments (NTAPs), designed for very high-cost items, a device must be shown to provide "substantial clinical improvement" over similar devices. Under the final rule, any device in the Breakthrough Devices Program that has received FDA marketing authorization will qualify for an NTAP without having to meet the substantial clinical improvement criterion.

Similarly, the FDA will designate certain antimicrobial drugs as qualified infectious disease products that will not be required to offer substantial clinical improvement. These antibiotics are designed to treat drug-resistant infections, the news release said.

Under the current NTAP calculation, Medicare pays 50% of the estimated costs of a case in excess of a hospital's full diagnosis-related group payment, up to a maximum of 50% of the technology's cost. Starting in FY 2020, that maximum will rise to 65% of the cost and to 75% for designated antimicrobials.

In FY 2020, CMS will make NTAPs for 18 technologies, including the nine that currently receive them. One of the approved new technologies is chimeric antigen receptor (CAR) T-cell therapies, for which a course of treatment costs hundreds of thousands of dollars.

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