As our response to the pandemic winds down and recovery drags on, a host of new developments and regulatory updates offer providers the chance to “return to normal.”  First, the Supreme Court’s June 2022 ruling provided some welcome relief to 340B hospitals. Additionally, CMS released several proposed rules impacting provider reimbursement rates and reporting requirements; they provide additional guidance regarding the implemention of the new Rural Emergency Hospital (REH) designation. A summary of regulatory updates released this Summer to take effect in CY 2023 follows below:

Supreme Court Rules against HHS’s 340B Reimbursement Rate Changes; Covered Entities Entitled to Additional Reimbursement

In 2018 and 2019, CMS established a separate reimbursement rate for 340B hospitals and cut reimbursement rates for 340B hospitals by almost 30%. The reimbursement rate cuts triggered litigation, led by the American Hospital Association, alleging that HHS’s reimbursement rate changes were unlawful, as HHS did not conduct a survey of hospital acquisition costs prior to making changes to the rates.

On June 15, 2022, the United States Supreme Court confirmed the AHA’s position and rules that HHS does not have the discretion to vary reimbursement rates for 340B hospitals. As a result of the Supreme Court’s decision, 340B hospitals may be entitled to additional reimbursement to compensate for underpayments received in 2018 and 2019.

Pursuant to the Supreme Court’s decision in American Hospital Association v. Becerra, CMS has indicated that payment rates implemented in the final CY 2023 Medicare OPPS and ASC rule will reflect the ASP+6% rate to abide by the Supreme Court’s decision. However, the current proposed rule does not include a mechanism to repay providers for lost reimbursement under the prior framework. CMS is still evaluating mechanisms to remedy underpayments to covered entities for CY 2018 and 2019. To avoid further litigation CMS may also consider remedies for payment cuts made in CY 2020 and 2021. Options include lump-sum payments to impacted providers and/or a reworked reimbursement structure to allow providers to recover these losses over an extended period of time.

Advis recommends that in anticipation of additional information from CMS, covered entities should analyze the financial impact on operations of the Medicare reimbursement reductions from 2018 and 2019 to calculate total underpayments.

CMS Released Proposed CY 2023 Medicare OPPS and ASC Rule

Including the 340B payment rule discussed above, CMS included a number of changes in its Calendar Year (CY) 2023 Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Proposed Rule.  Highlights from the proposed rule follow.

• OPPS and ASC Payment Rates

Under the proposed rule, outpatient hospital reimbursement will go up by 2.7%. The increase is based on a projected hospital market basket percentage increase of 3.1%, reduced by 0.4% for the productivity adjustment. In light of the ongoing PHE, CMS used the same data set used to set CY 2022 rates.

Additionally, CMS anticipates to apply a budget neutrality adjustment of 0.9596 to the OPPS conversion factor, for a revised conversion factor of $83.279 thus slightly reducing the proposed 2.7% payment increase.

• Rural Emergency Hospitals (REH)

REHs represent a new Medicare-certification status that will be available beginning January 2023. Only Critical Access Hospitals and certain rural hospitals with 49 or fewer beds will be eligible to convert to the new REH status. REH conversion will require:

• Cessation of all inpatient services;
• Average length of stay of less than 24 hours per patient on an annual basis;
• Transfer agreement in place with Level 1 or 2 trauma center; and
• Maintain a staffed emergency department, including staffing 24 hours a day, seven days a week by a physician, nurse practitioner, clinical nurse specialist or physician assistant.

CMS’s proposed Conditions of Participation for REHs closely mirror those for Critical Access Hospitals and hospital emergency services. CMS also confirmed the payment framework for the REH venue. REHs will be eligible for:

• OPPS+5% reimbursement for outpatient and emergency services; and
• A monthly subsidy of $268,294 (annually $3,219,524).

Under the proposed rule CMS also proposes reimbursing off-campus provider-based locations to an REH at the full OPPS+5% rate.

Under the proposed rule, all services that are paid under the OPPS when furnished in an OPPS hospital would be considered REH services, unless further rulemaking provides otherwise. CMS also indicated that for post-hospital extended care services provided by an REH, the hospital will receive payment through the Skilled Nursing Facility Prospective Payment System.

Important to note, the adoption of this designation is dependent upon whether state licensure rules allow for it. Currently, at least 3 states have passed licensure rules for REHs (Kansas, Nebraska, and South Dakota), and at least 2 states have proposed rules or established committees (Iowa and Texas). It is anticipated that additional states will consider the same now that federal rules have been proposed. Additionally, CMS will need to provide guidance on the standard the agency plans to adopt for determining an eligible facility’s bed count. Under the rule, only CAHs or rural hospitals with less than 50 beds are eligible to convert to REH. Thus, the ability for many hospitals to convert to REH status is dependent on the interpretation of this standard, as many rural hospitals staff fewer beds than are officially licensed and/or certified.

Advis has established a method to evaluate the financial feasibility of converting to REH status. Advis recommends determining whether conversion to an REH is a viable option for current providers.

• Rural Sole Community Hospital Exemption to Clinic Visit Payment Policy

CMS currently pays the PFS-equivalent payment rate, approximately 40% of the OPPS payment rate, for clinic visit services provided at excepted off-campus provider-based departments (billed with CPT G0463). CMS is proposing changing this situation by exempting Rural Sole Community Hospitals from the policy, allowing full OPPS reimbursement for these clinic visits.

• Changes to the Inpatient Only List (IPO) & ASC Covered Procedures List

CMS proposed removing 10 services from the IPO list after determining that these codes meet the current criteria for removal (CPTs 16036, 22632, 21141 21142, 21143, 21194, 21196, 21347, 21366, and 21422). CMS also proposed adding “a lymph node biopsy or excision procedure” to the ASC CPL.

• Behavioral Health Services Furnished Remotely by Hospital Staff to Beneficiaries in their Homes

CMS also proposes that certain behavioral health services furnished remotely by clinical staff of hospital outpatient departments, be considered as covered outpatient services for which payment is made under the OPPS. Under the proposed rule, to receive payment for services furnished at beneficiaries’ homes, the patient must receive an in-person service within 6 months prior to the first-time hospital clinical staff provides the behavioral health services remotely, and that there must be an in-person service, without the use of communications technology, within 12 months of each behavioral health service furnished remotely by hospital clinical staff. However, the rule does permit exceptions.

CMS Releases the FY 2023 Medicare IPPS and LTACH Proposed Rule Regulatory Updates

Finally, CMS released its Fiscal Year (FY) 2023 Medicare Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTACH) Prospective Payment System (PPS) proposed rule.  The proposed rule updates Medicare fee-for-service payment rates for inpatient hospitals and LTACHs for FY 2023.  CMS also proposed potential payment adjustments for domestically made surgical N95 respirators, a cap on decreases to a hospital’s wage index, and a new hospital designation for maternal care.

• Changes in Reimbursement

CMS proposed a 3.2% increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program, and that are meaningful electronic health record (EHR) users.  Hospitals may be subject to payment adjustments, however.

The proposed increase in operating and capital IPPS payments will generally increase hospital payments in FY 2023 by $1.6 billion.  CMS projects that disproportionate share hospital (DSH) payments and Medicare uncompensated care payments, combined, will decrease in FY 2023 by approximately $0.8 billion.

For FY 2023 rate setting, CMS proposes using the most recent available data with certain modifications to account for the anticipated decline in COVID-19 hospitalizations, including the FY 2021 MedPAR claims and the FY 2020 cost reports.

CMS estimated the aggregate LTACH PPS payments to increase by approximately $25 million. CMS is proposing to establish an LTACH PPS standard federal payment rate of $45,952.67.  For LTACHs that fail to submit data for the LTCH QRP, CMS is proposing to establish an LTCH PPS standard federal payment rate of $45,057.78.

CMS also proposed distribution of approximately $6.5 billion in uncompensated care payments for FY 2023, which represents a decrease of approximately $654 million from FY 2022.  These payments reflect CMS Office of the Actuary’s projections of the estimated impact of COVID-19.

CMS also proposed a 5% cap on any decrease to a hospital’s wage index from its wage index in the prior FY, regardless of the circumstances causing the decline.  This cap effectively means that a hospital’s wage index cannot be lower than 95% of its final wage index for FY 2022.  For subsequent years a hospital’s wage index would not be less than 95% of its final wage index for the prior FY.

By incorporating lessons learned from the pandemic, CMS aims to maintain domestic production of surgical N95s. Under the rule, CMS considered payment adjustments to hospitals for 2023 and subsequent years to recognize the additional resource costs incurred in acquiring approved surgical N95 respirators made in the United States.

• Changes in Reporting and Interoperability

Under the proposed rule, at the end of the COVID-19 PHE and continuing until April 30, 2024, a hospital or CAH must electronically report information about COVID-19 and Seasonal Influenza in a standardized format specified by HHS. CMS is also proposing to establish new reporting requirements for any future PHEs related to a specific infectious disease or pathogen.

CMS also proposed several changes to the Hospital IQR Program, including ten new measures that address hospital commitment to health equity, social drivers of health, cesarean births, electronic clinical quality measures, severe obstetric complications, opioid-related adverse events, global hospital-level patient-reported outcomes, Medicare spending per beneficiary, and hospital-level risk-standardized complication rates. CMS also proposed a number of changes to the Medicare Promoting Interoperability Program.

The rule also incorporated updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting Program, Hospital Value-Based Purchasing Program, Hospital-Acquired Condition Reduction Program, Long Term Care Hospital Quality Reporting Program, and the PPS-Exempt Cancer Hospital Reporting Program.  Due to the impact of COVID-19 upon measurable data in value-based purchasing programs, CMS also proposed suppressing several measures in the Hospital VBP Program and HAC Reduction Program.

• New Hospital Designation for Maternal Care

Finally, CMS proposed establishing a hospital quality designation that reflects a hospital’s commitment to quality and safety for maternity care.  The designation would be reported on a CMS website beginning Fall 2023 and would be awarded to hospitals based on their attestation of submission of the Maternal Morbidity Structural measure.  In future notice and rulemaking, CMS intends to propose a more robust set of criteria for awarding this designation.