Regulatory Update: September 2016

September 2016

Proposed 2018 Benefits and Payment Parameters for the ACA Marketplace

The Centers for Medicare & Medicaid Services (CMS) has published the 2018 proposed Benefit and Payment parameters that govern the health insurance marketplace. Some key proposed revisions to the 2018 plan year that could be relevant to rural areas:

  • Revising the risk adjustment methodology to change weighting for part-year enrollees, use prescription drug data to identify chronic illness and modify the transfer process for high-cost enrollees is intended to better account for high-cost, high-utilization enrollees. Considering rural residents tend to be sicker and poorer, these revisions could impact how insurance is offered in rural areas
  • Proposed refinements to the standardized benefit options are intended to align benefit design with state laws and include a fourth standardized option at the bronze level of coverage that qualifies as a high deductible health plan (HDHP) eligible for use with a health savings account (HSA). CMS also proposes to broaden the range for the actuarial value of bronze plans to permit greater flexibility in benefit design. These proposals are intended to improve coverage provided at the bronze plan level, which is an attractive option to many consumers due to the lower premium
  • For 2018, CMS proposes to continue to count essential community providers (ECPs) at the facility level, so a federally qualified health clinic (FQHC) or rural health clinic (RHC) with multiple physicians would count as one ECP. CMS is considering changing the counting of hospital ECPs in 2019 and seeks comment on the best approach for measuring hospital participation. How ECPs are counted, especially hospitals, will be important to monitor to ensure that rural area providers are appropriately counted
  • Regarding network adequacy, CMS released a letter in August announcing that the policy to provide information on about a qualified health plan’s (QHP) network breadth will be piloted in certain states in 2017. CMS is considering conducting the pilot in 6 states in geographic areas with a range of network availability. The results of the pilot will determine whether to expand to more states in 2018. CMS is also proposing to refine the measure of network depth to account for whether a QHP is part of an integrated delivery system

Comments are due to CMS no later than October 6, 2016.

CMS Announces Reporting Flexibility for the Quality Payment Program  

With the Quality Payment Program set to begin January 1, 2107, CMS announced it will allow providers to choose the level and pace at which they comply with the new payment reform model aimed at emphasizing quality patient care over volume. The announcement comes after feedback from physicians and other clinicians to ease implementation of the Quality Payment Program, which is set to begin January 1, 2107. Next year, eligible physicians and other clinicians, including rural providers, will be given four options to comply with new payment models:

Option 1: Test the Quality Payment Program
With this option, as long as an eligible clinician submits some data to the Quality Payment Program, including data from after January 1, 2017, the clinician will avoid a negative payment adjustment. This first option is designed to ensure that the clinician’s system is working and that they are prepared for broader participation in 2018 and 2019 as you learn more.

Option 2: Participate for part of the calendar year
An eligible clinician may choose to submit Quality Payment Program information for a reduced number of days. This means the first performance period could begin later than January 1, 2017 and the eligible clinician could still qualify for a small positive payment adjustment.

Option 3: Participate for the full calendar year
For practices that are ready to go on January 1, 2017, they may choose to submit Quality Payment Program information for a full calendar year. This means the first performance period would begin on January 1, 2017.

Option 4: Participate in an Advanced Alternative Payment Model in 2017.  
Instead of reporting quality data and other information, the law allows providers to participate in the Quality Payment Program by joining an Advanced Alternative Payment Model, such as Medicare Shared Savings Track 2 or 3 in 2017. If the provider receives enough of their Medicare payments or sees enough of their Medicare patients through the Advanced Alternative Payment Model in 2017, then they would qualify for a 5 percent incentive payment in 2019.

For more information about CMS’s options for reporting go to Note: These options and other supporting details will be described fully in the final rule. No other further information about the Quality Payment Program has been published by CMS

Final Rule -- Emergency Preparedness Requirements for Medicare and Medicaid Participating Providers and Suppliers

On September 16, CMS finalized a rule to establish consistent emergency preparedness requirements for health care providers participating in Medicare and Medicaid, increase patient safety during emergencies and establish a more coordinated response to natural and man-made disasters. The following are of note for rural providers: 

  • RHCs and FQHCs are not required to comply with many of the requirements for hospitals (e.g. provide patient information during an evacuation). However, these facilities must conduct a risk assessment and include policies and procedures in their communication plan to share patient information during an emergency with other facilities
  • Critical Access Hospitals (CAHs) must follow similar regulations as other hospitals including
    • Having a communication plan that includes information for other CAHs and hospitals or both
    • Documenting the specific name and location of the receiving facility or other location for patients who leave the facility during the emergency
    • Complying with current generator testing requirements (no additional testing would be mandated)
    • Having a plan for how it will keep emergency power systems operational during the emergency, unless it evacuates

For more information please see This final rule becomes effective on November 15, 2016. However, providers have up to 1 year to implement the requirements. 

FY 2017 Inpatient Prospective Payment System (IPPS) Update

On August 22, CMS published its final rule updating payment rates and rules for hospital inpatient services for fiscal year (FY) 2017. CMS estimates total payments for inpatient services will increase by 0.95%, or about $746 million, compared to FY 2016, including changes due to the permanent withdrawal of the controversial two-midnight policy. CMS also made significant changes to the calculation and administration of the Medicare Disproportionate Share Hospital (DSH) payment adjustment. Beginning FY 2017, CMS will use the average of hospitals’ uncompensated care costs over three years, rather than only one. Beginning FY 2021, after editing the instructions for Worksheet S-10, CMS will phase in direct accounting of uncompensated care costs reported on the worksheet, replacing the current method which uses proxy data. CMS also implements several statutory provisions. Per the Notice of Observation Treatment and Implication for Care Eligibility Act, hospitals and CAHs are now required to notify individuals receiving outpatient observation services for more than 24 hours using the standard Medicare Outpatient Observation Notice currently under development. Per the Medicare Access and CHIP Reauthorization Act, CMS has extended both the Low-Volume Hospital payment adjustment and the Medicare-Dependent Hospital program through FY 2017, though both will expire October 1, 2018 without further action from Congress. For more information, see the CMS fact sheet on this year’s rule.

Specifically, CMS has finalized the following regulatory changes:

Payment Changes

  • Increases overall payments to hospitals by 0.95%, or $746 million, compared to FY 2016, inclusive of changes in operating and capital payment
  • Sets four applicable percentage increases to hospital payment for FY 2017, including for SCHs and MDHs, depending on a hospital’s submission of quality data under the hospital inpatient quality reporting (IQR) program and participation in the Medicare EHR Incentive Payment program (i.e., “meaningful use”):
    • 1.65% for hospitals that submit IQR data and are meaningful users
    • -0.375% for hospitals that submit IQR data but are not meaningful users (approx. 147 hospitals)
    • 0.975% for hospitals that do not submit IQR data but are meaningful users (approx. 90 hospitals)
    • -1.05% for hospitals that do not submit IQR data and are not meaningful users (approx. 30 hospitals)
  • Withdraws the two-midnight rule, thereby permanently increasing payment by 0.2%, with an additional one-year increase of 0.6% to account for reductions in FYs 2014-2016
  • Reduces payment by 1.5% for FY 2017 to recoup the final $5.05 billion remaining of the $11 billion to account for previous changes in documentation and coding that do not reflect real changes in case-mix (i.e., “up-coding”), per American Taxpayer Relief Act of 2012
  • Extends the criteria and payment adjustment for low-volume IPPS hospitals through FY 2017 (September 30, 2017), per MACRA
  • CMS requires hospitals to provide written notification requesting low-volume status and documentation that it meets discharge and mileage criteria to their MACs by September 1, 2016 in order to receive the low-volume payment adjustment for FY 2017 discharges
  • Extends the MDH program for discharges occurring before October 1, 2017, per MACRA
  • Extends the imputed rural floor policy for wage index calculations and payments for hospitals in three all-urban states (i.e., DE, NJ, RI), for one additional year, through September 30, 2017
  • Applies national IPPS payment rates to hospitals in Puerto Rico, including the same update to national standardized payment (1.55%), wage index, average hourly wage and labor-related share

Medicare DSH Changes

  • Defines “uncompensated care” as “the cost of charity care and the costs of non-Medicare bad debt” (i.e., Worksheet S-10, line 30), excluding Medicaid shortfalls, for the purposes of calculating uncompensated care costs and DSH payments, beginning FY 2018
  • Implements a three-year transition period beginning FY 2021 that replaces proxy data (i.e., low-income insured days) with data from cost report Worksheet S-10 to determine the amounts and distribution of DSH payments to eligible hospitals
  • Uses the average of data from three cost-reporting periods rather than data from only one cost-reporting period to calculate hospitals’ uncompensated care payment amounts, beginning FY 2017

Hospital Program Changes

  • Reduces hospital payments by 2% for the hospital value-based purchasing (VBP) program, creating a value-based incentive payment pool of approx. $1.7 billion for FY 2017
  • Updates VBP performance standards, baseline and performance periods and measures, including the addition of two new condition-specific payment-efficiency measures (i.e., AMI and heart failure) to begin with the FY 2021 program year and one new 30-day mortality measure (CABG surgery) to begin with the FY 2022 program year
  • Adopts a continuous scoring methodology (using z scores) for calculating measures in the HAC reduction program beginning in the FY 2018 program year, replacing the current decile-based methodology
  • Extends the growth window for rural training track (RTT) programs from three years to five years, effective as of FY 2013 (i.e., October 1, 2012) in line with changes made in the FY 2013 IPPS/LTCH PPS rule which inadvertently excluded RTTs
  • The extension of the growth window for RTT programs increases the limit on the number of medical residents at urban hospitals training to serve in rural communities to match limits at all other GME programs
  • Implements no budget neutrality offset for FY 2017 for the Rural Community Hospital demonstration program, and plans the final analysis and budget neutrality offset (if necessary) of the demonstration’s total actual cost in a future fiscal year (likely FY 2020) when all of the finalized cost reports are available
  • Adopts a contingency plan to ensure the statutorily mandated budget neutrality of the FCHIP demonstration, such that CMS will make payment reductions to all CAHs nationwide (estimated to be no greater than 0.03% of CAHs’ total Medicare payments in a given year) over three years beginning CY 2020 if analysis of claims and cost reports during the demonstration period (CY 2016-2019) show increases in Medicare payments greater than expected savings
  • Implements the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, which requires hospitals and CAHs to provide written notification and oral explanation of such notification to individuals receiving observation services as outpatients for more than 24 hours, no later than 36 hours after observation services begin or, if sooner, upon release from the hospital or CAH, costing all hospitals approx. $23 million, or approx. $3,800 per hospital
  • Removes current regulations that prohibit hospitals from simultaneously receiving an urban-to-rural reclassification under §412.103 and a reclassification under the Medicare Geographic Classification Review Board (MGCRB) for a higher wage index, per Geisinger and Lawrence decisions
  • Revises regulation to allow all hospitals reclassified from urban to rural under §412.103 to use their reclassified rural status to apply for reclassification through the MGCRB, effective for reclassifications that begin FY 2018
  • Indicates that hospitals with an active MGCRB reclassification that seek and are approved for reclassification under §412.103 will not lose their MGCRB reclassification, allowing them to receive a reclassified urban wage index, effective April 18, 2016
  • Clarifies that for hospitals reclassified under §412.103 that seek and are approved for reclassification through the MGCRB, the MGCRB reclassification dictates wage index calculation and payment purposes
  • Updates the hospital IQR program to remove 15 measures, including 13 electronic clinical quality measures (eCQMs), and add four new claims-based measures, including three clinical episode-based payment measures, beginning with the FY 2019 payment determination, saving hospitals approx. $30 million compared to FY 2016
  • Admissions to non-PPS hospitals, including CAHs, will not trigger the beginning of an episode for the three new IQR clinical episode-based payment measures for aortic aneurysms, cholecystectomy and common duct explorations and spinal fusions
  • Aligns data reporting for 8 eCQMs to match the EHR Incentive Program for payment in FYs 2019 and 2020
  • Updates measures and procedures for the PPS-exempt cancer hospital quality reporting (PCHQR) program, including one new measure regarding unplanned inpatient admissions and ED visits among patients receiving outpatient chemotherapy and criteria for the removal and retaining of measures

These regulatory changes are effective October 1, 2016.

FY 2017 Long-Term Care Hospital Prospective Payment System (LTCH PPS) Update

On August 22, CMS published its final rule updating payment rates and rules for long-term care hospitals (LTCHs) for fiscal year (FY) 2017. CMS estimates total payments to LTCHs will decrease by 7.1%, or $363 million, compared to FY 2016. In this second year of the three-year transition to the dual-rate LTCH payment system required by statute, discharges qualifying for site-neutral payment (approx. 45% of cases) will see a decrease of 23%, or $388 million, while those qualifying for standard LTCH payment rates (approx. 55% of cases) will see an increase of 0.7%, or $24 million. In addition to payment changes, CMS updated the LTCH Quality Reporting Program (LTCH QRP) to include four new measures required by the IMPACT Act, and streamlined its rules under the 25% threshold policy, which adjusts payments when the number of cases an LTCH admits from a single hospital exceeds a specified threshold, generally 25%, though this limit is 50% for rural LTCHs given the relative scarcity of providers in rural communities. Finally, CMS also finalized its interim final rule establishing a temporary exception from the site-neutral payment rate for certain severe wound care discharges from certain rural LTCHs, which likely increases payment by $5 million for two providers. For more information, see the CMS fact sheet on this year’s rule.

In response to public comment, CMS finalized the following regulatory changes:

  • Reduces payments to LTCHs by 7.1%, or $363 million, compared to FY 2016, including a reduction of 23%, or $388 million, for site-neutral cases and an increase of 0.7%, or $24 million, for standard-rate cases
  • CMS finds that the change in aggregate LTCH PPS standard federal rate payments to rural LTCHs (0.2%) will be slightly less than that for urban LTCHs (0.3%) after accounting for all policy and payment changes, though only approximately 3% of all LTCH PPS standard federal payment rate cases are treated in rural LTCHs, which make up only approx. 5% of all LTCHs
  • Implements the second year of the three-year phase-in of the dual-rate LTCH PPS payment system, such that LTCH site-neutral cases will receive 50% site-neutral payment and 50% standard LTCH PPS payment
  • Establishes a single consolidated admissions threshold policy (i.e., “the 25-percent threshold policy”) for cost-reporting periods beginning on or after October 1, 2016 such that LTCH PPS payment for all LTCH discharges from a single referring subsection (d) hospital in excess of the LTCH’s applicable percentage threshold (usually 25%) would be paid the lesser of the applicable LTCH PPS payment amount or an IPPS equivalent amount
  • As opposed to the 25% threshold for urban providers, CMS sets a 50% threshold for rural LTCHs, recognizing the relative scarcity of acute care providers in rural areas, which may make it more difficult for LTCHs to admit fewer than 25% of their patients from any single hospital or CAH
  • Updates measures and procedures for LTCH QRP, including public reporting of four additional patient safety measures (i.e., MRSA bacteremia outcomes, CDI outcomes, influenza vaccination coverage), new procedures for LTCHs to preview LTCH QRP data before they are reported publicly, and the addition of four new IMPACT Act measures
    • (1) drug regimen review conducted with follow up for identified issues (for FY 2020)
    • (2) Medicare spending per beneficiary – PAC (MSPB-PAC LTCH) (for FY 2018)
    • (3) discharge to community (for FY 2018)
    • (4) potentially preventable 30-day post-discharge readmissions (for FY 2018)
  • CMS has proposed minimum case thresholds for several LTCH QRP measures: MSPB-PAC LTCH (20 episodes), potentially preventable 30-day post-discharge readmissions (25 eligible cases), and percent of residents or patients who were assessed and appropriately given the seasonal influenza vaccine (20 stays). Because rural LTCHs are more likely to serve fewer patients than urban LTCHs, they are more likely to be excluded from these measures, making it more difficult to judge the quality of care at rural LTCHs
  • Excludes patients treated for severe wounds at grandfathered LTCHs located in rural areas from site-neutral payment under the LTCH PPS for discharges before January 1, 2017, per §231 of the Consolidated Appropriations Act of 2016, thereby increasing payments by $5 million at two rural LTCHs.

These regulatory changes are effective October 1, 2016.