Guest Column | August 21, 2017

New CMS Payment Rates for 2018; Same Challenges for Medtech

By Edward Black, founder and principal, Reimbursement Strategies


On Aug. 2, 2017, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates Medicare payment and polices when patients are discharged from hospitals from Oct. 1, 2017, to Sept. 30, 2018. According to CMS, “The final rule relieves regulatory burdens for providers; supports the patient-doctor relationship in healthcare; and promotes transparency, flexibility, and innovation in the delivery of care.” 

Most hospitals, physicians, and medtech companies are much less enthusiastic.

CMS pays acute care hospitals (with a few exceptions, specified in the law) for inpatient stays under the Inpatient Prospective Payment System, commonly referred to as DRGs. Under this payment system, CMS sets base payment rates prospectively for inpatient stays based on the patient’s characteristics, including diagnosis and severity of illness.

CMS is required by law to update payment rates for hospitals annually, and to account for changes in the costs of goods and services used by these hospitals in treating Medicare patients, including the cost of hospital labor in the hospital’s geographic area.  Because CMS has a fiscal year end of Sept. 30, the changes affecting the nation’s 3,300 acute care hospitals take effect on Oct. 1, 2017.

The increase in operating payment rates for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users is approximately 1.2 percent. Changes in uncompensated care (mostly for the uninsured) will increase payments by an additional 0.7 percent.

The new Medicare budget will include continued penalties for excess hospital readmissions, a continued 1-percent penalty for hospitals in the worst-performing quartile under the Hospital Acquired Condition Reduction Program, and continued upward and downward adjustments under the Hospital Value-Based Purchasing Program. Total Medicare spending on inpatient hospital services is projected to increase by about $2.4 billion in FY 2018. 

CMS distributes an amount to Medicare disproportionate share hospitals (DSH) based on their relative share of uncompensated care.  Under this rule, CMS is distributing roughly $6.8 billion in uncompensated care payments in FY 2018, an increase of approximately $800 million from the current year amount. This change reflects national estimates of the percent change in the rate of uninsured patients.

The rate of uninsured Americans is not only a hot political issue, it has significant ramifications for the delivery system.  Earlier this month, Tom Nickels, Executive VP of the American Hospital Association, commented:

“CMS finalized a rule that could impact hospitals’ ability to provide services for patients who rely on them for their care. Specifically, we continue to have concerns over the accuracy and consistency of the … data that CMS will use to determine the cost of treating uninsured patients. We had urged the agency to delay its use in calculating Disproportionate Share Hospital payments by one year to further educate hospitals about how to accurately and consistently complete the [reporting], and also implement a stop-loss policy and audit process. We are disappointed CMS chose to implement its use for FY 2018 and without these additional protections for hospitals.”

As hospital and physician payment goes, so does the new medical technology adoption rate. It is for this reason that CMS payment changes, which represent roughly 22 percent of all acute care spending in the U.S., should be a significant driver of medtech innovation. The following programs all fall under new Hospital Value-Based Purchasing (VBP) programs being promulgated by CMS and quickly adopted by many commercial insurers:

The CMS Hospital Inpatient Quality Reporting (IQR) Program is refining two previously adopted measures:

  1. Replacing the pain management questions in the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey to focus on the hospital’s communications with patients about the patients’ pain during their hospital stay.  This opens the door for technology companies to develop alternative means of treating acute and chronic pain in light of the opioid crises in the U.S. 
  2. Updating the risk adjustment methodology used in the Stroke 30-Day Mortality measure to include the use of stroke severity codes (based on the NIH Stroke Scale). Stroke continues to be an under-reported and undertreated area of medicine still looking for better solutions.

The Hospital VBP Program adjusts payments to hospitals for inpatient services based on their performance on an announced set of measures. CMS will implement updates to the Hospital VBP Program, including:

  1. Adjusting Patient Safety Indicators to better measure Patient Safety and Adverse Events; and
  2. Adopting a payment measure associated with 30-day episodes of care for pneumonia patients.

Under the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, CMS is finalizing its proposals to adopt new measures that assess end-of-life care:

  1. Proportion of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life;
  2. Proportion of Patients Who Died from Cancer Admitted to the ICU in the Last 30 Days of Life;
  3. Proportion of Patients Who Died from Cancer Not Admitted to Hospice; and
  4. Proportion of Patients Who Died from Cancer Admitted to Hospice for Less than Three Days.

Under the Long Term Care Hospital Quality Reporting Program (LTCH QRP), CMS is finalizing the replacement of the current pressure ulcer measure with an updated version of that measure, and adding ventilator weaning;

  1. Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury
  2. Compliance with Spontaneous Breathing Trial (SBT) by Day 2 of the stay; and
  3. Ventilator Liberation Rates.


All of these changes must ultimately be supported by better public reporting to incent hospitals to improve care while lowering costs.

Medical technology continues to push forward to create new treatment solutions for acute and chronic health problems while the providers of care struggle with its funding mechanisms.  This will be a continuing challenge for hospitals, physicians, technology companies, and payers — particularly in a country like the U.S., which spends twice as much per capita on healthcare as any other country in the world.