Summary: CMS 2018 IPPS Proposed Rule



CMS released its 2018 Medicare Inpatient Prospective Payment System proposed rule on April 14.  Although not the intention, at 1,837 pages, the most recent rule will cure your insomnia.

In a bit of good news, this proposed rule is set to increase payments to acute care hospitals next year.  Likewise, there are no significant detrimental rules for CAHs.  The rule was published in the Federal Register April 28, and comments will be accepted through June 13.

PPS Specific

  • Base Operating Rate:  The proposed base operating rate is increased by approximately 1.6% for hospitals that successfully participate in the Inpatient Quality Reporting Program (IQR) and are meaningful users of electronic health records (EHRs).
  • DSH: The proposed rule makes two significant changes to “uncompensated care” (UC) Disproportionate Share (DSH) payments.

First, CMS changes the source of “factor 2” – used to calculate the percentage change in the uninsured since before the Affordable Care Act coverage expansion began (2013). CMS proposes using estimates of all uninsured produced by the Census Bureau instead of estimates of the uninsured for those under 65 produced by the Congressional Budget Office. This change is projected to increase DSH payments by approximately $1.3B or a 1.2% of total projected operating payments. The shift in the data source will only be a one-time impact on UC DSH dollars available for distribution.

Second, CMS proposes incorporating uncompensated care data (defined as charity care and bad debt) from cost report worksheet S-10 into the calculation of “Factor 3” in the UC DSH formula. Factor 3 is the percentage of uncompensated care a DSH eligible hospital provides relative to all other DSH eligible hospitals, and is used to allocate UC DSH dollars to individual hospitals. Currently, factor 3 is calculated as a three-year average of Medicaid and Supplemental Security Income (SSI) days. The rule proposes using one year of data from the S-10 and two years of data Medicaid and SSI days. Once S-10 data is fully incorporated the impact will likely be redistributive. Previous analysis suggests large hospitals (>300 beds) will see UC DSH funds redistributed to medium and small hospitals. For-profit and not-for-profit facilities unaffiliated with a religious order will lose UC DSH funds to governmental hospitals.


  • Reversal of Two-Midnight Related Payment Increase: CMS decreased FY18 operating payments by .6% to remove the cumulative increase in payments related to its .2% payment cut for FYs 2014 – 2017 related to the two-midnight policy.
  • Hospital Readmissions Reduction Penalty (HRRP): Hospitals with higher than expected readmissions rates will continue to be subject to a penalty, which for FY2018 is proposed at a maximum 3% penalty. This proposed rule estimates that in FY18 2,591 hospitals will be subject to the HRRP, resulting in $564M in savings to Medicare.
  • HAC (Hospital-acquired Conditions): Approximately 771 hospitals will be penalized 1% of their IPPS payments resulting from the hospital-acquired condition (HAC) penalty. The proposed rule solicits feedback on questions related to future measures and socio-economic risk adjustment of the HAC measures.
  • Value Based Purchasing (VBP) Program: The proposed FY18 IPPS rule will redistribute approximately $1.9B in operating payments through the VBP program. All hospitals will be subject to a 2% reduction in base operating diagnosis-related group payments. The rule proposes the following changes to the VBP measures:
  1. Remove the current 8 indicator PSI-90 measure from the safety domain in 2019, and replace it with the modified 10 indicator PSI-10 measure in 2023.
  2. Incorporate the 30-day pneumonia episode cost measure into the efficiency and cost reduction domain beginning in FY22.
  3. Beginning in 2021, the Medicare Spend Per Beneficiary (MSPB) measure will account for 50% of the Efficiency and Cost Reduction domain, and the other condition-specific payment measures, weighed equally, will comprise the remaining 50% of a hospital’s domain score.

CAH Specific

  • 96-Hour Certification Requirement:  For inpatient CAH services to be payable under Medicare Part A, the statute requires that a physician certify that the individual may reasonably be expected to be discharged or transferred to a hospital within 96 hours after admission to the CAH. Based on feedback from stakeholders, CMS has reviewed the CAH 96-hour certification requirement to determine if there are ways to reduce its burden on providers. In this proposed rule, CMS is providing notice that it will direct Quality Improvement Organizations (QIOs), Medicare Administrative Contractors (MACs), the Supplemental Medical Review Contractor (SMRC), and Recovery Audit Contractors (RACs) to make the CAH 96-hour certification requirement a low priority for medical record reviews conducted on or after October 1, 2017. This means that absent concerns of probable fraud, waste or abuse of the coverage requirement, these contractors will not conduct medical record reviews.
  • EHR Incentive Program: In this proposed rule, CMS is proposing two modifications to the finalized electronic clinical quality measures (eCQM) reporting policies for the CY 2017 reporting period/FY 2019 payment determination and the CY 2018 reporting period/FY 2020 payment determination. Specifically, they are proposing to:  (1) decrease the number of eCQMs for which hospitals must submit data; and (2) decrease the number of calendar quarters for which hospitals are required to submit data.  These proposals are made in conjunction with the proposals to align requirements for the Hospital IQR Program and the Medicare and Medicaid EHR Incentive Programs for hospitals and CAHs.


  • Electronic Signatures on the Medicare Cost report: In lieu of requiring the provider to sign the certification statement with an original signature on a hard copy of the Medicare cost report’s Certification and Settlement Summary page, Medicare is proposing to revise the regulation to allow providers to use an electronic signature.  This signature would be placed on the signature line of the certification statement and may be : 1) any format of the original signature that contains the first and last name of the provider’s administrator or chief financial officer (for example, photocopy or stamp) or 2) an electronic signature that must be the first and last name of the provider’s administrator or chief financial officer entered it the provider’s electronic program.  CMS believes that allowing providers to utilize an electronic signature would afford providers greater flexibility in signing the certification (WE AGREE!!).  This rule has a proposed implementation date for cost reporting periods beginning on or after October 1, 2017.
  • Sale or scrapping of assets on/after December 1, 1997: In this section of this proposed rule, CMS is proposing revisions to the Medicare provider reimbursement regulations to clarify their  longstanding policy pertaining to allowable costs and the limits on the valuation of a depreciable asset that may be recognized in establishing an appropriate allowance for depreciation for assets disposed of on or after December 1, 1997. Questions have arisen with regard to whether this limitation on the valuation of depreciable assets depends on the manner in which a provider disposes of an asset. In this proposed rule, CMS is clarifying that the elimination of the gain or loss for depreciable assets applies to assets a provider disposes of by sale or scrapping on or after December 1, 1997, regardless of whether the asset is scrapped, sold as an individual asset of a Medicare participating provider, or sold incident to a provider’s change of ownership.





Kirk Delperdang is a Healthcare Director at Lutz with over 28 years of experience. He provides healthcare enrollment services to clients with a focus on Medicare providers and reimbursement analyses. In addition, he is responsible for leading Lutz's cost report service line.

  • Healthcare Financial Management Association - Nebraska Chapter, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • BA in Accounting, University of Northern Iowa, Cedar Falls, IA
  • St. Vincent de Paul, Knights of Columbus, Member
  • Active in various youth sports leagues: Aldrich Elementary, Millard Athletic Association, Millard North Schools, Omaha FC, Skutt Catholic High School and YMCA


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