Sharp HealthCare Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule

WASHINGTON, July 23 -- Sara Steinhoffer, vice president for government relations at Sharp HealthCare, San Diego, California, has 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 9, 2020, and posted on July 17, 2020:

* * *

On behalf of Sharp HealthCare (Sharp), San Diego's largest provider of care and largest private employer, we appreciate the opportunity to comment on the Centers for Medicare & Medicaid Services' (CMS) proposed rule outlining rate updates and policy changes to the Medicare inpatient prospective payment system (IPPS) for federal fiscal year (FFY) 2021.

In summary, Sharp:

* Continues to strongly oppose increasing the wage index of hospitals in low-wage states by decreasing the area wage index (AWI) of those in high-wage states. This policy is arbitrary and without merit, inappropriately redistributive and only serves to help one group of hospitals while endangering another.

* Opposes CMS' proposal to require that hospitals report the median payer-specific negotiated charge by Medicare Severity-Diagnosis Related Group (MS-DRG) for Medicare Advantage (MA) plans and all third-party payers on the Medicare cost report, and to use that data to revise the methodology for determining MS-DRG relative weights. This data is not germane to determination of weights, violates confidentiality and is the subject of current litigation.

* Supports the use of a single year of data from the audited federal fiscal year (FFY) 2017 Worksheet S-10 in distributing the Medicare disproportionate share hospital (DSH) uncompensated care (UCC) dollars in FFY 2021. However, we urge the agency not to finalize its proposal to carry forth the use of a single year of most recently audited data for FFY 2022 and beyond, and instead consider approaches to mitigate volatility in these payments by considering a blend as additional years of Worksheet S-10 data are audited. This would be extremely important given the impact COVID-19 will have on hospitals over a still unknown period of time.

* Urges CMS to consider more relevant data sources that take into account the impacts of COVID-19 on Medicare disproportionate share hospital uncompensated care.

* Opposes retroactive and burdensome Medicare Bad Debt determination and reporting that conflicts with hospital practices and financial standards.

In general, Sharp supports the comments made by the California Hospital Association (CHA) and this letter will focus on those aspects of the proposed regulation where we can augment those comments.

Area Wage Index

In the FFY 2021 IPPS proposed rule, CMS proposes to continue to apply the Low Wage Index Hospital Policy and concomitant budget neutrality adjustment to the standardized amount for all IPPS hospitals. Sharp opposed this policy in our comments on the FFY 2020 IPPS proposed rule and continues to strongly oppose decreasing payments to hospitals to offset an increase in the AWI for the hospitals in the lowest AWI quartile.

As we stated last year, this provision in the proposed rule is probably the best example of how Sharp can amplify CHA's comments. Sharp operates four acute-care hospitals and three specialty hospitals. Collectively, these hospitals represent the full spectrum of hospitals across the United States in that:

* the county's busiest emergency department (ED) at Sharp Grossmont serves San Diego's rural East County;

* Sharp Chula Vista serves the area along the world's busiest border crossing;

* Sharp Coronado is a smaller hospital with an ED vital to this rather isolated community and a large skilled nursing component; and

* Sharp Metropolitan Medical Campus includes a regional trauma center and emergency department, the state's largest private inpatient psychiatric facility (Sharp Mesa Vista); a regional facility for substance abuse and behavioral health (Sharp McDonald Center); and Sharp Mary Birch Hospital for Women & Newborns, the region's only women's hospital where more Californians enter the world every year.

Furthermore, as the region's largest Medicaid provider, Sharp is committed to providing high-quality patient care to everyone who walks through our doors. Our commitment to our community is greatly undermined by continuation of this political modification to the area wage index.

Because health care remains an industry reliant upon the human touch, labor is appropriately Sharp's largest expenditure. In short, providing health care in California simply costs more. The labor costs incurred by hospitals are largely a function of the market in their respective geographic areas. CMS has offered no data or other evidence to the contrary. In fact, if you look at the differences between the chart below, and the same information we provided last year which used May 2018 data, you will see that the Average Annual Nurse's Salary in California increased by $6,290 over the past year.

See table here (https://www.regulations.gov/contentStreamer?documentId=CMS-2020-0052-0801&attachmentNumber=1&contentType=pdf)

In the proposed rule, CMS continues to assert that the policy will "help mitigate wage index disparities", but has not provided any rationale or justification for continuation of a policy for which it lacks legal authority. While the Medicare Act requires CMS to adjust payments to reflect area difference in wages, Congress only authorized the Secretary under Section 1395ww(d)(3)(E) to consider survey data in updating the wage index, and therefore confines CMS to consideration of actual wage costs. The Low Wage Index Redistribution simply results in a shift of Medicare funds from high and middle wage hospitals to low-wage hospitals, completely untethered from labor costs incurred by hospitals.

The policy will harm Medicare beneficiary access

In addition to cuts to hospitals, including all of California's rural providers, cuts would also be made to providers whose payments are based on the "unadjusted" area wage index in the core-based statistical areas, such as home health, skilled-nursing facilities, inpatient rehabilitation facilities, and inpatient psychiatric hospitals and units. Thus, Sharp hospitals would incur additional negative effects due to the comprehensive array of services we offer our community, particularly those such as skilled nursing, behavioral health, nephrology, endocrine and respiratory services, which are vitally important yet are loss leaders. All San Diego hospitals, in fact, all California hospitals, would receive funding insufficient to their true wage costs. This would have a devastating impact statewide on patients' access to care as hospitals will be forced to ameliorate financial losses by cutting back services or closing them altogether.

This is a critically important issue, as the proposed changes to the area wage index would have a direct impact on our ability to meet our mission of care. As such, we urge you to rely on actual wage data and end this policy.

Market-Based MS-DRG Relative Weight Proposed Data Collection and Potential Change in Methodology for Calculating MS-DRG Relative Weights

CMS proposes to collect MA and third-party payer contracted rate data in the Medicare cost report and utilize it to calculate new relative MS-DRG weights beginning in FFY 2024. CMS says that its proposals are intended to achieve the agency's goals of reducing Medicare's reliance on the hospital chargemaster and support the development of a "relative market-based payment methodology under the IPPS."

Sharp strongly opposes CMS' proposal to require hospitals to report the median payer-specific negotiated rates by MS-DRG for MA plans and all of its third-party payers. Sharp also opposes the proposal to use this data to change the methodology for calculating the MS-DRG weights, which would revise the methodology for establishing MS-DRG weights from a methodology based on hospital costs to a methodology based on rates in contracts between hospitals and payers. We agree with CHA that these proposals are inextricably linked. As CMS has not provided a serious rationale for requiring hospitals to report the median negotiated charge data apart from potentially changing the manner in which MS-DRG weights are established -- a change in the methodology that is not supported by the Medicare Act -- CMS should not require the data to be reported.

The Medicare Act's provisions concerning the establishment of the MS-DRG weights require the weights be based on the relative resources used to treat patients in each MS-DRG. The contract rate data CMS proposes to use to establish the weights does not provide this information. Rates negotiated between hospitals and payers reflect myriad factors--if they did not, there would be no need for negotiation.

Sharp, like many hospital systems in California, provides care to a wide array of patients under capitated arrangements. This willingness to assume risk led us to become a Pioneer ACO and to participate in the NextGen ACO. However, mapping these rates to MS-DRGs becomes highly arbitrary and completely disconnected with the MS-DRG resource utilization. Rather, capitation rates represent negotiated amounts reflecting the forecasted average cost of treating the payer's members assigned to the hospital.

Leaving aside the questionable policy and market ramifications of private parties being forced to disclose confidentially negotiated prices, the practical effect of CMS relying upon this information to set reimbursement will create a self-reinforcing, financial death spiral for hospitals. Hospital contract rates in MA contracts are most frequently based on the current Medicare IPPS. As CMS recognizes in the proposed rule, MA plans frequently pay the amount that would have been paid under IPPS perhaps multiplied by a factor that may be slightly more or slightly less than 100%.

The data from MA contracts, therefore, will simply reflect what Medicare has been paying under IPPS; that is, this data will report the most recent IPPS rates based on the most recent IPPS MS-DRG weights. Any weights calculated based on this data will necessarily be the same, or almost the same, as the weights CMS most recently used under IPPS. These weights would therefore be based on old cost data, as the IPPS weights are based on older, not current, cost data. In fact, if MA plans continue to pay hospitals based on IPPS rates, using MA contracted rates to determine MS-DRG weights will act as a self-reinforcing death spiral on weights and therefore reimbursement. Thus, using rates from MA contracts will not reasonably reflect the current resource utilization, will be far less accurate than the current cost methodology, and will never allow hospitals to "catch up". Furthermore, many commercial, non-MA contacts with hospitals also use IPPS rates, compounding the problematic nature of the data and the financial ramifications for hospitals.

In sum, rates in contracts between hospitals and payers will yield arbitrary results that are much less accurate than the current cost-based methodology. The use of contracted rates -- whether MA rates or rates based on all payer contracts -- to determine MS-DRG rates would therefore be inconsistent with the governing statute and would be invalid.

Finally, we would be remiss if we did not underscore:

* the Hospital Price Transparency final rule, on which this proposal is based, is invalid for the reasons asserted by the plaintiffs in the pending litigation, notwithstanding the recent decision of the U. S. District Court for the District of Columbia;

* CMS lacks authority to require hospitals to report contracted rates;

* CMS' proposal is not mandated by nor reasonably related to the Executive Orders sighted in the proposed rule; and

* CMS has substantially under-estimated the amount of time it would take hospitals to comply with the proposed reporting requirement.

Medicare DSH

Sharp appreciates that CMS has acknowledged the essential role hospitals are playing in their communities during this unprecedented pandemic by limiting its rulemaking, focusing on essential policies and proposals that reduce provider burden, and waiving requirements that interfere with timely response to the emergency. Beyond the public health impact, however, there is a massive negative impact upon our economy, employment and the health insurance coverage that for most people in San Diego remains tied to employment. To better reflect this new reality in the Medicare disproportionate share hospital (DSH) uncompensated care (UCC) Uncompensated Care payments, Sharp urges CMS to identify more recent or alternative data sources that take into account the increasing percentage of uninsured individuals due to the impacts of COVID-19.

Medicare Bad Debt

Many of the changes CMS proposes to Medicare bad debt policies would be effective both retroactively and prospectively and apply for cost report periods before, on, or after October 1, 2020. CMS believes this is appropriate because the changes reflect longstanding policies included in the PRM.

Sharp opposes retroactive adoption of changes to the regulations. These changes are burdensome and would require the government to expend resources to review cost report submissions submitted by hospitals that believe retroactive application requires such action.

Determining Indigency

CMS proposes to codify requirements under Chapter 3, Section 312 of the PRM on how hospitals should determine the indigency of non-Medicaid patients for the purposes of claiming a beneficiary's unpaid deductible and/or coinsurance as Medicare bad debt. Again, CMS proposes to apply these changes retroactively.

Specifically, CMS proposes to require providers independently verify a patient's indigent status, meaning they will not be able to rely solely upon signed declarations by the patient, be required to take into account a patient's "total resources" in determining indigence, including assets, liabilities, income and expenses, and confirm that no source other than the beneficiary is legally responsible for the bill. In addition, CMS proposes to require the patient's file contain documentation of the method by which indigence was determined in addition to all information to substantiate the decision. These changes significantly increase the burden on providers to determine indigency and we oppose this proposal.

Accounting Standard Update (ASU) Topic 606 and Accounting for Medicare Bad Debt Sharp agrees with CMS that to implement Topic 606, regulations should be modified to add that, effective for cost reporting periods beginning on or after October 1, 2020, "bad debts, also known as 'implicit price concessions' are amounts considered to be uncollectible from accounts that were created or acquired in providing services" and "bad debts, also known as 'implicit price concessions,' charity, and courtesy allowances represent reductions in revenue."

However, CMS' proposal to require Medicare bad debts be charged to an expense account is administratively burdensome and would require hospitals to maintain their accounting records in a manner that is not consistent with their financial statements. The requirement does not impact the economic nature or substance of what constitutes a bad debt or contractual allowance, but rather directs hospitals to follow a specific and outdated accounting presentation for Medicare bad debts that is contrary to the current industry standard in accordance with ASU Topic 606. Sharp opposes this proposal.

Sharp appreciates the opportunity to comment on these proposals.

Sincerely,

Sara Steinhoffer

Vice President, Government Relations

* * *

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

TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact MYRON STRUCK, editor, [email protected], Springfield, Virginia; 703/304-1897; https://targetednews.com