Rural Hospitals Get Low-Volume, Medicare-Dependent Funds Extended

April 26, 2018 - While the recent 2019 Medicare Inpatient Prospective Payment System (IPPS) rule brought major changes to healthcare price transparency and meaningful use, the rule also extended two key payment programs for small and rural hospitals. Those programs provide supplemental payments to low-volume and Medicare-dependent hospitals.

The rule implemented the Bipartisan Budget Act of 2018’s one-year extension of the Low-Volume Hospital program and a five-year extension of the Medicare Dependent Hospital program. The definition of a low-volume hospital will also change, according to the new rule.

CMS started providing supplemental payments to low-volume hospitals in 2005. Hospitals qualified if they had less than 200 total discharges (Medicare and non-Medicare) during the fiscal year and were located more than 25 road miles from another acute care hospital paid under the IPPS.

If hospitals met the volume and distance criteria, CMS increased their Medicare inpatient revenue by 20 percent.

However, the low-volume definition limited the positive payment adjustments to just five hospitals during the program’s first year.

Policymakers recognized the program’s limited scope and temporarily expanded the low-volume hospital definition under the Affordable Care Act. Under the temporary definition, a hospital qualified for the payment increase if the organization had fewer than 1,600 Medicare Part A discharges during the fiscal year and was located more than 15 road miles from another IPPS hospital.

The Affordable Care Act also temporarily modified the payment structure. Instead of an automatic 25 percent increase, low-volume hospitals were to receive payment adjustments based on a linear sliding scale ranging from 25 percent for qualifying hospitals with 200 or fewer Part A discharge to zero percent for qualifying hospitals with over 1,600 Part A discharge.

The temporary definition boosted participation in the program to slightly over 500 hospitals during the 2012 fiscal year.

The temporary changes were set to expire by the 2017 fiscal year, but the Bipartisan Budget Act of 2018 extended the definition and sliding scale payment methodology for another year. The 2019 IPPS final rule from CMS will implement the extensions.

CMS estimates that 600 hospitals will now qualify as low-volume hospitals in the 2018 fiscal year and these hospitals will face approximately $349 million in payments.

Medicare-Dependent Hospital Program extension

The Medicare-Dependent Hospital (MDH) program expired on Sept. 20, 2017, but the new IPPS rule will implement an extension of the program until 2022 as detailed in the Bipartisan Budget Act of 2018.

An MDH is a hospital that has at least 60 percent of its inpatient days or discharges attributable to Medicare beneficiaries. The hospital must also be located in a rural area, have 100 or fewer beds, and not be classified as a sole community hospital.

Since the hospitals heavily rely on Medicare reimbursement, which is below the actual costs of care, and the organizations cannot offset the financial losses with private payer revenue, CMS reimburses MDHs a hospital-specific payment rate if it is greater than the IPPS rate. If the hospital-specific rate is greater, CMS pays the federal rate plus 75 percent of the difference between the federal standardized amount and the hospital-specific rate.

Like the Low-Volume Hospital program, the MDH program must be extended every year by Congress. But recent Congressional delays resulted in the MDH program not getting renewed in time for the 2018 fiscal year.

But policymakers included a five-year extension of the program in the Bipartisan Budget Act of 2018. The program will now apply to all discharges from an MDH occurring on or after Oct. 1, 2017, through Sept. 30, 2022.

Additionally, the 2019 IPPS rule will allow some hospitals in urban areas to qualify for the supplemental Medicare reimbursement under the MDH program. The rule will implement a Bipartisan Budget Act of 2018 amendment that will allow hospitals in all-urban states to earn MDH status as long as the hospitals meet the program’s requirements and satisfy one of the criteria for rural reclassification.

Hospitals that previously qualified for the program will automatically earn back their MDH status and CMS will apply the designation retroactively to Oct. 1, 2017.

However, hospitals that reclassified as a sole community hospital or canceled its rural status in anticipation of the MDH program expiration will have to reapply to the program and the status will not be applied retroactively.

CMS projects that the MDH program extension will pay hospitals about $119 million in 2018.