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Medicare agency finalizes $3.8B spending increase for hospitals

The Centers for Medicare and Medicaid Services projects that overall Medicare spending for inpatient hospitals will increase in fiscal year 2020 by $3.8 billion, or 3%, according to an Aug. 2 finalized rule.

The rule also finalizes regulatory changes that update the hospital wage index, speed up reimbursements for medical device coverage and increase uncompensated care payments. The changes will take effect Oct. 1 and impact about 3,300 inpatient hospital facilities.

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The payment rate increase is under the $4.7 billion increase that CMS proposed in April.

Hospital wage index

CMS finalized updates to the hospital wage index, which the agency says will increase Medicare payments for rural hospitals. The hospital wage index helps determine Medicare payment rates for inpatient hospitals and is adjusted according to the difference in wages at a hospital compared to the local labor market, according to CMS.

Because urban regions tend to have higher wages, urban hospitals can receive higher Medicare payments than rural hospitals for the same treatment.

Hospitals with a higher wage index are able to pay their staff more and continue to operate as a high-wage hospital, which then continues the higher Medicare payments, according to an April 23 statement from CMS.

The agency will increase payments for hospitals in the bottom 25% of the wage index for the next four years, beginning in fiscal year 2020. The increase will equal half the difference between hospitals' previous wage index and the 25th percentile index for all hospitals.

In order to keep the changes budget neutral, CMS proposed decreasing payments for hospitals in the top 25% of the wage index. However, the agency did away with this provision and will now make cuts across all inpatient facilities.

"The changes we're finalizing in today's rule are long overdue and improve the way Medicare pays hospitals, which will help many rural hospitals maintain their healthcare labor force, to ensure that patients have access to high-quality, affordable healthcare," CMS Administrator Seema Verma said in an Aug. 2 statement.

The American Hospital Association, a national hospital representative, disagreed with the agency's decision to require the changes to be budget neutral, saying the offsetting cuts hurt other hospitals.

"While we support improving the wage index values for many struggling rural hospitals, this should not be done by penalizing all hospitals, especially when Medicare already pays far less than the cost of providing care," Tom Nickels, AHA's executive vice president, said in an Aug. 2 statement.

Changes for medical device coverage

CMS will cover medical devices cleared through the U.S. Food and Drug Administration's breakthrough device designation more quickly. The breakthrough device designation is an expedited approval process for devices that treat life-threatening or irreversible diseases or conditions.

Devices and technologies will be moved to the "new technology add-on payment pathway" after they have received FDA market authorization and are part of the breakthrough device program, according to CMS.

The agency is also increasing new technology add-on payments for certain expensive treatments. Medicare will now cover 65% of certain costly treatments, up from the previous level of 50%, according to the rule. Medicare will now also cover 75% of certain antimicrobials.

Increases for long-term care hospitals, uncompensated care payments

CMS will increase Medicare payments for long-term care hospitals in fiscal year 2020 by $43 million, or about 1%. This is slightly higher than the increase of $37 million, or 0.9%, proposed in April. The changes will impact about 390 facilities, according to CMS.

Medicare spending for uncompensated care payments to disproportionate share hospitals will total $8.4 billion in fiscal year 2020, an increase of about $78 million from fiscal year 2019.

Disproportionate share hospitals are facilities that serve a high volume of uninsured or Medicare and Medicaid patients, which can lead to large amounts of uncompensated care. Medicare and Medicaid provide qualified hospitals with extra funding to make up for this lack of payments.