The FFY 2024 IPPS Proposed Rule (“Proposed Rule”) was released on April 10, 2023, and CMS published the associated tables on its website. The Proposed Rule is expected to be published in the Federal Register on May 1st. This year CMS is proposing to implement a change to its rural floor wage index policy that could drastically change payments for certain hospitals.
The release of the Proposed Rule and the accompanying tables also triggers the start to several deadlines for hospitals, including the unofficial start of the Medicare Geographic Classification Review Board (“MGCRB”) application process. Hospitals should conduct a preliminary review of the Proposed Rule tables to assess whether they qualify for MGCRB reclassification this year. In addition, hospitals should assess whether they should file an MGCRB withdrawal or termination based on the Proposed Rule data.
Background
The Medicare Hospital Inpatient Prospective Payment System (“IPPS”) is designed to pay hospitals for services provided to Medicare beneficiaries based on a national standardized amount adjusted for the patient’s condition and related treatment. Further, Social Security Act Section 1886(d)(3)(E) requires that the standardized amount be adjusted for differences in hospital wage levels, which CMS implemented through the wage index system. CMS also uses the hospital wage index for the Outpatient Prospective Payment System (“OPPS”).
In computing the wage index, CMS calculates an average hourly wage for each urban and rural area (total wage costs divided by total hours for all hospitals in the geographic area) and a national average hourly wage (total wage costs divided by total hours for all hospitals in the nation). A labor market area’s wage index value is the ratio of the area’s average hourly wage to the national average hourly wage.
CMS defines hospital labor market areas based on the definitions of Core-Based Statistical Areas (“CBSAs”) established by the Office of Management and Budget. A Metropolitan Statistical Area (“MSA”) is a CBSA associated with at least one (1) urbanized area that has a population of at least fifty thousand (50,000) that comprises the central county or counties containing the core, plus adjacent outlying counties that have a high degree of social and economic integration with the central county measured through commuting. Medicare payment programs classify hospitals into rural and urban status for a variety of purposes. An “urban area” is defined as an area within an MSA. A “rural area” is defined as any area outside an urban area.
The Medicare program also has an “in-between” status called “Lugar status.” Generally, these “Lugar counties” would otherwise be rural, but because of their proximity and commuting patterns to one or more MSAs, they are treated as urban for some purposes and rural for others. Finally, CMS provides an out-migration adjustment for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index.
Proposed Change to Rural Floor Wage Index Policy
For the Medicare Program, the wage index applicable for any hospital that is located in an urban area of a state may not be less than the wage index applicable to hospitals located in rural areas in that state. This is known as the “rural floor.” Since this would act to increase the payments for some hospitals, Congress also required that the rural floor be implemented in a budget-neutral manner.
CMS is proposing to change its policy for the rural floor to treat hospitals with rural reclassification (also known as §401 or §412.103 rural reclassification) the same as geographically rural hospitals for purposes of calculating the wage index. Specifically, CMS would include hospitals with §412.103 rural reclassification along with geographically rural hospitals in rural wage index calculations beginning with FY 2024. By doing this CMS has significantly increased the wage index factor for several states. Since the Social Security Act requires that the rural floor policy be budget neutral, this will not increase overall Medicare payments. CMS maintains budget neutrality of the rural floor through an adjustment known as the “Rural Floor Budget Neutrality Adjustment,” which is applied to the wage index of all hospitals.
Wage Index Reclassification
One of the ways hospitals can improve the wage index for their IPPS and OPPS payments is to apply for MGCRB wage index reclassification if it meets specified requirements. The MGCRB is an independent board organized under the Department of Health & Human Services that reviews applications submitted by hospitals seeking a higher wage index to a nearby MSA or a statewide rural area based on meeting certain published criteria. MGCRB applications may be submitted on an individual or group basis.
This year, MGCRB applications must be submitted by September 1, 2023 (the first business day in September) and are acted on by the MGCRB no later than the end of February 2024. If approved, reclassifications are effective for three (3) years beginning October 1, 2024 (thirteen (13) months after the submission deadline) for IPPS services. The new wage index is effective for OPPS services January 1, 2025, or three (3) months after the October effective date for IPPS. The regulations allow for withdrawals, terminations and reinstatements each year of the reclassification.
The Proposed Rule also triggers several important filing deadlines related to hospital wage indices:
- Lugar hospitals that also qualify for an out-migration adjustment can waive their Lugar status and accept the outmigration adjustment by notifying CMS within forty-five (45) days from the release of the public display copy of the Proposed Rule (i.e., until May 27, 2023);
- Similarly, a hospital that previously waived Lugar status has forty-five (45) days from the release of the public display copy of the Proposed Rule (i.e., until May 27, 2023) to notify CMS that they no longer wish to accept the out-migration adjustment and elect instead to return to Lugar (deemed urban) status;
- Hospitals have forty-five (45) days from the publication of the Proposed Rule in the Federal Register to request the withdrawal or terminations of an MGCRB reclassification. Since the Proposed Rule is expected to be published in the Federal Register on May 1st, the deadline for withdrawals and terminations will likely be June 15, 2023.
Hall Render and Hall Render Advisory Services provide geographic reclassification services to hundreds of hospitals each year using fixed-rate fee arrangements. Last year, we assisted over three hundred fifty (350) hospitals to assess their reclassification opportunities based on the IPPS Proposed and Final Rules and filed MGCRB applications on behalf of over one hundred (100) hospitals.
If your hospital needs assistance assessing geographic reclassification opportunities or has questions regarding the wage index and reclassification process, please contact one of the following professionals:
- Joseph Krause at (414) 721-0906 or jkrause@hallrender.com;
- David Snow at (303) 801-3536 or dsnow@hallrender.com;
- Lori Wink at (414) 721-0456 or lwink@hallrender.com;
- Benjamin Fee at (720) 282-2030 or bfee@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
