Way back in 2015, when Congress passed MACRA to end the loathsome Sustainable Growth Rate formula, payments to post-acute providers were adjusted for FY 2018 as a way to offset the cost of changing the physicians’ payment system.
To generate about $15.4 billion in savings, MACA created an over-ride of the major factors affecting annual reimbursement updates. Consistent with the legislative intent, we have interpreted the statute to create a 1 percent update in lieu of the annual market basket update, the downward multifactor productivity adjustment and ACA-mandated reductions, as applicable. We do not believe the MACRA payment override precludes other adjustments for things like case-mix creep and budget neutrality factors.
In short order – about April 15th – the FY 2018 Medicare payment updates will be upon us. In case you forgot all about 2015 – which for health care policy analysts like seems like another century – below is a recap of PAMA’s effect on Medicare payments to the various post-acute sectors with most recent market basket and multi-factor productivity adjustment forecasts.
(Note: charts contain the breakdown of factors affecting base payments before adjustment for case-mix and other facility or patient specific factors. As a result, the change in the base payment rate may not match the overall increase or decrease in Medicare payments to a subsector in a given year.)
Skilled Nursing Facilities –
PAMA overrides the market basket adjustment and the annual multifactor productivity adjustment and establishes the FY 2018 payment update at 1 percent.
CMS can continue to make two additional adjustments:
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Forecast error adjustment – current law permits CMS to retrospectively correct errors in forecasting the market basket adjustment. The SNF PPS is the only post-acute payment silo that contains provisions for a forecast error adjustment. Although we only have historical market basket data through Q2 2016, it appears to be tracking close to the FY 2016 estimate of 2.3 percent. For that reason, we do not anticipate the FY 2018 reimbursement update will include a forecast error adjustment.
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Adjustment for case-mix creep - CMS may adjust Federal per diem rates for subsequent fiscal years so as to eliminate the effect of such coding or classification changes that are not a result of a change in patient characteristics. The last time CMS made any changes to reimbursement due to case-mix indices was FY 2012 when it conducted a limited recalibration. Case-mix related adjustments are certainly within the realm of possibility for FY 2018 and may result in a negative payment update for SNFs.
Using current forecasts for market basket and the multifactor productivity adjustment, estimates for FY 2018 to FY 2020 are listed in Table 1. Actual payment updates for FY 2016 and FY 2017 are included for context.
Table 1: Estimated and Actual Annual Reimbursement Updates for Skilled Nursing Facilities, FY 2016 to FY 2020
Source: CMS
Medicare spends approximately $29 billion a year on Skilled Nursing Facility services.
Inpatient Rehabilitation Facilities
PAMA overrides the FY 2018 market basket, multi-factor productivity adjustments and the ACA mandated 0.75 percent reduction with a 1 percent payment increase in FY 2018.
CMS will still have the authority to make certain other changes in all years including 2018:
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Adjustment for case-mix creep – As in the case of SNF coding or case-mix creep, CMS shall adjust the payment rate for subsequent years so as to eliminate the effect of coding or classification changes that are not a result of real changes in patient characteristics.
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Wage Index Budget Neutrality Factor – CMS may adjust payments to ensure budget neutrality and limit the impact of fluctuations in the hospital wage index.
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Outlier Payments – CMS, subject to a 5 percent cap, can continue to make outlier payments for unusually high cost patients.
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General Authority – Congress has granted CMS broad authority to consider other factors they determine are necessary to properly reflect variations in necessary costs of treatment among rehabilitation facilities.
Using current forecasts for the market basket update and the multifactor productivity adjustment, estimates for FY 2018 to FY 2020 are listed in Table 2. Actual payment updates for FY 2016 and FY 2017 are included for context.
Table 2: Estimated and Actual Annual Reimbursement Updates for Inpatient Rehabilitation Facilities, FY 2016 to FY 2020
Source: CMS
Medicare spends approximately $7 billion for IRF services
Home Health Agencies. As in the case of other post-acute payment silos, PAMA will replace the 2018 home health market basket and productivity adjustments with a 1 percent increase in FY 2018.
CMS will retain authority to make certain other changes in 2018 and all other years. These other changes include:
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Adjustments for case-mix creep-CMS may adjust the standard prospective payment amount to eliminate the effect of coding or classification changes not attributable to changes characteristics.
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Wage Index Budget Neutrality Factor – CMS may adjust payments to ensure budget neutrality and limit the impact of fluctuations in the hospital wage index.
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Outlier Adjustment- CMS shall reduce the amounts going to providers by up to 5 percent to accommodate payments for outlier patients.
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General Authority – CMS can make other adjustments to reimbursement to reflect variations in costs for treating home health patients.
Since 2014, Home Health Agencies have been subject to a four year phased-in rebasing adjustment of $80.95 per year. After CY 2017, that adjustment will be fully implemented.
CMS has been floating trial balloons on changes to the home health payment system that will eliminate therapy visits as a payment factor and rely instead on 128 variables that assess patient condition. We discussed the contemplated Home Health Grouper Model in a June 27, 2016 note. We anticipate that CMS will make an official proposal as early as the CY 2018 payment rule for implementation in CY 2019.
Using current forecasts for the market basket update and the multi-factor productivity adjustment, estimates for CY 2018 to 2020 are listed in Table 3. CY 2016 and CY 2017 are provided for context.
Table 3: Annual Reimbursement Updates for Home Health Agencies, FY 2016 to FY 2020
Source: CMS
Medicare spends about $18 billion a year on home health services
Hospice: PAMA replaced the market basket and productivity adjustments with a 1 percent increase in 2018. CMS retains its authority to make certain other adjustments:
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Service Intensity Adjustment Budget Neutrality Factor – CMS must adjust per diem payment rates to account for increased SIA payment in the last seven days of beneficiaries' life.
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Wage Index Budget Neutrality Factor – CMS may adjust payments to ensure budget neutrality and limit the impact of fluctuations in the hospital wage index.
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Hospice Cap – Hospice providers are subject to an annual per patient cap of about $28,500. This cap is calculated in the aggregate per hospice agency.
Using current forecasts for the market basket update and the multifactor productivity adjustment, estimates for FY 2018 to FY 2020 are listed in Table 4. Actual payment updates for FY 2016 and FY 2017 are included for context.
Table 4: Annual Reimbursement Updates for Hospice Agencies
Source: CMS
Medicare spends about $15 billion a year on hospice services
Long Term Care Hospitals:
Long Term Care Hospitals - As with the case of other post-acute sectors, PAMA overrides the market basket increase, the mulit-factor productivity adjustment and the ACA mandated reduction.
- Wage Index Budget Neutrality Factor – CMS may adjust payments to ensure budget neutrality and limit the impact of fluctuations in the hospital wage index.
- Outlier Adjustment- CMS shall reduce the amounts going to providers to accommodate payments for outlier patients.
Using current forecasts for the market basket update and the multifactor productivity adjustment, estimates for FY 2018 to FY 2020 are listed in Table 5. Actual payment updates for FY 2016 and FY 2017 are included for context.
Table 5 Annual Reimbursement Updates for Long Term Care Hospitals
Source: CMS
Medicare spends about $5.4 billion on long term care hospital services
All told, the 1 percent payment update for post-acute services creates about $15. 4 billion in the 10 year budget window as scored by the CBO in 2015:
Source: Congressional Budget Office
For post-acute providers, FY and CY 2018 payment updates should have payment excitement limited to those things over which CMS has discretionary authority.
Call with questions. We are always here. With Congress back in session, we are sleeping with one eye open.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
