At the Margins

Our take: This year's FY 2020 Inpatient Final Rule winners (and 2 other key insights)

by Eric Fontana

Late Friday, CMS continued the flurry of recent regulations by dropping the Inpatient Prospective Payment System Final Rule for Fiscal Year (FY) 2020. Unlike the headline-grabbing HOPPS proposal, this regulation was not expected to make major waves after a relatively tame inpatient proposal back in April. Nevertheless, our team will be scrubbing through the release over the next two weeks to examine the key provisions that will take effect on October 1, 2019.

Below we've outlined three initial reactions to the proposal. Be sure to join us on Friday, August 16, at 1 p.m. ET., where we'll unpack the final rule in full.

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1. Payment rate updates the strongest in a decade, but wage index related changes take out some of the juice.

We'll start on a positive note: CMS has finalized a payment rate update of 3.1% to the standardized amount, the strongest inpatient payment update since the introduction of the ACA. Those who've followed our rule updates over the last few years will be well versed in the underlying mechanics of this more robust pay bump: As expected, FY 2020 will be the first year that the ACA-mandated market basket reductions will not apply and, despite the persistence of the multifactor productivity (MFP) adjustment (-0.4%), the required ATRA add-back of +0.5% does more than enough to offset it. Barring any unforeseen recoupments from CMS or dramatic changes in economic activity (impacting either the market basket update or the MFP) this trend seems likely to play out over the next few years.

While the payment rate update detailed above may paint a "beer-and-skittles" picture, other wage index related modifications should be a little more sobering. While CMS finalized its proposal to provide a 25% boost to hospitals with the lowest wage indices in the country, the agency relented to a large volume of public feedback including myriad reasons why such a boost should not come at the expense of the highest wage index hospitals only, as proposed. As wage index changes are required to be budget neutral, CMS has chosen to employ an alternate methodology—a budget neutrality adjustment to the standardized amount for each hospital of 0.997987. Simply put, it's not just high wage index hospitals that are paying for it, now everyone gets to chip in. In addition, CMS finalized a key change to the rural floor policy that caps declines of wage indices at 5% in FY 2020, and is thus applying a second neutrality factor of 0.998838 to the standardized amount to, again, maintain budget neutrality.

2. Significant roll back of CC/MCC list deletions likely to result in less payment downgrades across the board

In a surprising reversal, CMS has chosen to not proceed with its proposal to introduce a broad series of modifications to the CC and MCC lists (table 6p1c from the proposed rule). For those unfamiliar with the content of April's proposal, CMS had laid on the table nearly 1,500 code changes, including significant deletions to the MCC and CC lists that would have resulted in broad downgrades of cases from higher severity tier (and higher paying) to lower severity MS-DRGs.

The decision not to proceed is significant. The table below illustrates a small sampling of relatively clean instances, based on our analysis, of how such changes would likely have played out had the proposed rule (PR) been finalized, compared to what is likely to happen in FY 2020 based on the finalized regulations, assuming volumes and case mix holds constant.

However, don't breathe a sigh of relief just yet. CMS is planning on conducting a comprehensive, systematic review of a wide range of services with a view to FY 2021 and beyond. Such changes would not only include the CC/MCC status of many MS-DRGs, but also operating room (OR) designations and ICD-10-PCS procedure codes—all elements that have the potential to dramatically impact payment.  Such broad scale reviews should cast one's mind to recent assessments such as site neutral modifiers that ultimately resulted in substantial payment "corrections" for services. Said more simply: Big reviews usually lead to big changes on where payment is concerned. The agency will continue to solicit public feedback until November 1, 2019 (via MSDRGClassificationChange@cms.hhs.gov). We would recommend all members contribute perspectives ahead of that date.

During our upcoming webinar, we'll also discuss several key changes to various families of MS-DRG triplets, as CMS comprehensive review of several categories of services is expected to redistribute volumes across service lines.

3. 'And the winner is…'

As with every year, we examine how the milieu of finalized provisions plays out at the service line level.  These changes take into account more than the rate updates, but also the theoretical shift in cases—when applied to historical MedPAR data—across service categories given reassignments of various diagnosis and procedure codes. Our analysis indicates a weighted average payment increase of 2.76%, slightly down from the proposed rule. While most service lines are likely to see a lower impact (in both directions) from April's proposal, Neurosurgery, Other Trauma, and Vascular Services are clear "winners" when it comes to expected changes in payment in FY 2020, given relatively similar volumes and case mix.

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