Missouri Hospital Association Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule

WASHINGTON, July 18 -- Daniel Landon, senior vice president of governmental relations, and Andrew Wheeler, vice president of federal finance, at the Missouri Hospital Association, Jefferson City, have issued a public comment on the Centers for Medicare and Medicaid Services' proposed rule entitled "Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2021 Rates; Quality Reporting and Medicare and Medicaid Promoting Interoperability Programs Requirements for Eligible Hospitals and Critical Access Hospitals". The comment was written on July 7, 2020, and posted on July 14, 2020:

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On behalf of its 140 member hospitals, the Missouri Hospital Association offers the following comments in response to the Centers for Medicare & Medicaid Services' proposed payment and policy updates for the fiscal year 2021 Medicare inpatient and long-term care hospital prospective payment systems.

COLLECTION OF NEGOTIATED PAYMENT RATE DATA AND ITS USE IN SETTING MS-DRG RELATIVE WEIGHTS

CMS is proposing to compel hospitals to "report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after January 1, 2021, to be used in a potential change to the methodology for calculating the IPPS MS-DRG relative weights to reflect relative market-based pricing." Hospitals would be required to report the median payer-specific negotiated charge, by DRG, for all of their third-party payers, including Medicare Advantage plans. CMS states that "we believe that because hospitals already are required to publicly report payer-specific negotiated charges, in accordance with the Hospital Price Transparency Final Rule, that the additional calculation and reporting of the median payer-specific negotiated charge will be less burdensome for hospitals." Others have questioned CMS' statutory authority to collect data on negotiated payment rates.

There is pending litigation on the matter. We will not reiterate those issues here but note that we concur with the concerns raised about the final rule and the extrapolation of the claimed authority to new requirements in this proposed rulemaking.

CMS continues to grossly underestimate the time, resources, cost and complications of requiring hospitals to submit negotiated payment data as directed by the agency. Hospitals are struggling to meet the finalized negotiated payment rate disclosure requirements slated to take effect January 1, 2021. Figuring out how to comply with the seemingly ill-conceived and unworkable expectations created by the final rule is challenging enough. Doing it in the midst of a declared pandemic emergency with no evidence that CMS has any idea how to untie the Gordian knot it has created compounds the difficulty. Until CMS can demonstrate it understands and can convey the specifics of how those it regulates can comply with its final rule, it should forgo any attempt to build upon this fanciful foundation.

CMS previously estimated that "the total annual burden for hospitals to review and post their standard charges to be 12 hours per hospital at $1,017.24 per hospital for a total burden of 72,024 hours (12 hours X 6,002 hospitals) and total cost of $6,105,474 ($1,017.24 X 6,002 hospitals)." In the absence of detailed guidance from CMS on the specifics of compliance, this estimate is implausible. Hospitals cannot complete the task themselves within this time frame.

Moreover, our members have not been able to find vendors capable of accomplishing the task at all, regardless of the time involved. Pounding the square peg of negotiated rates into the round hole of the Medicare DRG system is an exercise in futility. Similarly, the pending proposed rule estimates compliance with this expanded negotiated payment disclosure requirement will only require 15 hours per hospital. Expanding upon unworkable requirements compounds the problem.

More clarity is needed as to how the new proposed rate information will be used in the Medicare MS-DRG payment methodologies. The burden of compiling the data is significant. CMS should demonstrate that the benefits of assembling the data outweigh the new administrative burdens. Otherwise, the regulation would augment rather than reduce paperwork, at the expense of patients. This is not "patients over paperwork."

In developing this end-use information for a future rulemaking, MHA encourages CMS to organize a steering committee or technical advisory group to provide hospital feedback about possible market-based weighting. The group should reflect the perspectives of hospitals of various sizes, structures and locations.

MHA previously commented about the amount of time and resources needed to comply with the regulatory requirement to publish hospital "standard charges" by January 1, 2021. In making those comments, we had, and still have, no idea how much of 2020 would be consumed by the demands of a national and global COVID-19 pandemic. Hospitals accordingly focused their resources and attention. This disruption of normal business practices is recognized by CMS, which among other actions has extended the release of and comment periods for proposed rules.

Given the magnitude and ongoing nature of this disruption, MHA urges CMS to postpone the January 1 effective date for the negotiated payment rate disclosure requirements of its final rule.

MEDICARE BAD DEBT REPORTING

CMS is proposing "to specify that, effective for cost reporting periods beginning on or after October 1, 2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts (bad debt or implicit price concession)." This proposal can create significant challenges for hospitals because it can conflict with FASB Topic 606 guidance to differentiate among types of price concessions and GAAP guidance on bad debt reporting.

As a specific example, the proposed reporting of Medicare/Medicaid crossover allowable bad debts conflicts with FASB Topic 606. BKD, LLP provided background as to the details of the accounting guidelines that must be met to satisfy FASB and GAAP. BKD wrote:

"The implementation of FASB's Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), introduced the concept of "implicit price concessions" into the health industry's financial terminology. FASB Topic 606 was effective for public entities reporting under U.S. GAAP for annual and interim periods beginning after December 15, 2017, and for annual periods beginning after December 15, 2018, for nonpublic entities. Under FASB Topic 606, health care providers must differentiate between an explicit price concession, an implicit price concession and a bad debt under U.S. GAAP. An explicit price concession occurs when a provider accepts a discount or concession to standard pricing that's explicitly stated, e.g., a contractually negotiated rate or self-pay policy discount. An implicit price concession occurs when the provider makes a determination that it will or is likely to accept a discount or concession to standard pricing for an individual patient or portfolio of patients before a credit risk assessment can be made, e.g., collection write-off. Bad debts under the new standard result when patients or payers who have been determined to have the financial capacity to pay for health care services (through a formal credit assessment prior to services being rendered) are later unwilling or unable to settle the claim. Under this new guidance, most previous bad debts will be classified as implicit price concessions in a traditional health care environment.

When reporting transactions into the financial statements under FASB Topic 606, patient service revenue is reduced by both the implicit and explicit price concessions. Under FASB Topic 606, bad debts only will be recorded if the health care provider assesses the patient's or payer's intent and ability to pay. When Medicaid is a secondary payer to Medicare, Medicaid usually does not pay more than Medicare and forces hospitals to "write off" the balance less patient responsibility as an explicit price concession. This transaction does not always post against a bad debt. Since Medicare/Medicaid crossovers do not meet the definition of bad debts under 606, hospitals will be unable to satisfy both FASB Topic 606 and the proposed Medicare requirement that claimed reimbursable bad debts cannot be written off as a contractual allowance, or explicit price concession. Before finalizing the proposal, CMS should assemble a group of hospital finance executives to vet the proposal, provide recommendations and ensure that the CMS requirements align with generally accepted accounting principles.

MEDICARE DSH UNCOMPENSATED CARE POOL

CMS also is proposing to continue utilizing a single year of audited cost report data to determine each hospital's share of the uncompensated care payments. For FFY 2021, CMS is proposing to use the FY 2017 data. Using a single year to determine the uncompensated payment rate can create large changes in individual hospital payments. Hospitals have been calling for stability and predictability for some time in order to stabilize remuneration. To reduce annual fluctuation in payments caused by using a single year of S-10 data, MHA encourages CMS to consider utilizing a blend of historical S-10 worksheets. This blending would smooth variation in Medicare DSH payments.

WAGE INDEX REVISIONS

CMS has proposed to continue the policy of increasing the wage index for hospitals with wage indices in the bottom quartile, which is calculated to be at or below 0.8420. Wage indices in the bottom quartile would be increased to be halfway between the initial wage index value and the 25th percentile. Funding to support this increased payment rate is generated by applying a uniform multiplicative budget neutrality factor of .998241.

The proposed rulemaking continues to limit the annual reductions so that the FY 2021 wage index is at least 95% of the FY 2020 wage index. If a wage index reduction exceeds five percent, the excess is redistributed to other lower-wage index hospitals. While MHA supports the intent and application of the wage index redistribution, we prefer that CMS would be more creative in how the rule is funded. As proposed, those hospitals that fall between the 22nd and the 25th percentile are receiving a reduction to the standardized rate because the amount of benefit received is less than the cost to fund the benefit. MHA recommends those hospitals who fall under the 25th percentile be held harmless. This can be done several different ways. One option could be slightly reducing the labor share of those hospitals who have a wage index greater than one. Another might be a graduated reduction to the standardized rate based on wage index percentile. In the absence of an alternative approach, hospitals who are intended to benefit under the low wage index adjustment will continue to be penalized due to the standardized rate reductions for everyone.

NATIONWIDE RURAL FLOOR BUDGET NEUTRALITY ADJUSTMENT

MHA continues to oppose the application of a nationwide rural floor budget neutrality adjustment. CMS and HHS have long recognized the problems and inequities raised by this nationwide rural floor budget neutrality factor.

Within the FY 2020 proposed rule, CMS continues to cite problems with the national application of the rural floor. The OIG reported that "significant vulnerabilities exist in the hospital wage index system for Medicare payment." One of these vulnerabilities is using wage data from an urban hospital that reclassifies to rural status to set the rural floor. The OIG stated that the "legislative intent of the rural floor was to correct the 'anomaly' of 'some urban hospitals being paid less than the average rural hospital in their states.'" MHA agrees with CMS' assertion that "urban to rural reclassifications have stretched the rural floor provision beyond a policy designed to address such 'anomalies.'" MHA also agrees that this vulnerability does nothing more than exacerbate the 'downward spiral' for low-wage-index hospitals.

To address this vulnerability, CMS finalized within the FY 2020 rule a revision to soften the adverse effect of the current policy by excluding wage index data from a hospital reclassified from an urban setting to a rural setting. CMS is proposing to extend the policy to FY 2021. While this does not eliminate the national application of the rural floor, it will narrow a loophole used by some to artificially increase the rural floor. As such, we support CMS' proposal and encourage the agency to include it in the final order of rulemaking.

MHA continues to urge CMS to find ways to use regulations to curtail the adverse effects of Section 3141 of the Affordable Care Act and restore integrity to the hospital wage index system. MHA also notes that CMS did not include in its proposed FY 2021 rule an assessment of effects of the national application of the rural floor. It encourages CMS to publish the state-specific effects in the final rule. Also, MHA continues to encourage CMS to publish the effect on all applicable prospective payment systems that are affected by the rural floor.

Thank you for the opportunity to comment and for your consideration of these issues.

Sincerely,

Daniel Landon, Senior Vice President of Governmental Relations

Andrew Wheeler, Vice President of Federal Finance

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The proposed rule can be viewed at: https://www.regulations.gov/document?D=CMS-2020-0052-0002

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