CMS Proposed Rule Would Change Medicare Payments for Numerous PPS and CAH Hospitals

Recently, the Centers for Medicare and Medicaid Services (CMS) released its Proposed 2015 IPPS regulations, which would update payment rules for PPS hospitals as well as Critical Access Hospitals (CAH). The proposed regulations contain a provision on geographical classification that may have important implications for some PPS and CAHs.

On February 28, 2013, the Office of Management and Budget (OMB) issued Bulletin No. 13-01, which updated the metropolitan, micropolitan, and combined statistical areas. This update was based on the 2010 Census of Population and Housing data. CMS uses the OMB definitions to set urban and rural definitions for the Medicare program. As a result of the updated census data in the OMB data, some counties that were urban have become rural, some rural counties have become urban, and some shifts have occurred within the urban classifications. Per the Proposed 2015 Rule, 105 counties and 81 hospitals will change classification from rural to urban under the OMB delineations, 46 counties will move from one Core Based Statistical Area (CBSA) to another, and 37 urban counties would become rural.

CMS is proposing for those PPS hospitals in a county that is moving from urban to rural that the hospitals receive a three year transition to the new wage index. This means a hospital in one of these areas would get 33% of their new wage index in the first year and the remainder calculated as before, then 66% in year two, and finally 100% in year three. In addition, CMS is proposing that all hospitals experiencing a decrease in wage index due to the change in OMB area definitions for FY 2015 get a one-year blended wage index.

Per the CMS regulations, a CAH must be designated rural in order to qualify for the CAH program. This means that for those counties where rural counties are becoming urban counties, the CAHs would have two years to reclass under the rules of reclassing urban to rural in order to maintain their Conditions of Participation as a CAH if the proposed rule is adopted. CMS gives a hospital the opportunity to change geographic classification provided the hospital meets certain rules through a process known as geographic reclassification.

The final rule is expected in early August. We recommend that health systems (with PPS and/or CAH hospitals) and individual hospitals in affected counties stay tuned for the development of these rules to determine next steps. Should the rules be adopted as proposed, some PPS and CAHs may want to look at their options for reclassification. 

Click here to read a list of the counties that are impacted.