On May 11, 2020, CMS released the 2021 Inpatient Prospective Payment System (“IPPS”) Proposed Rule (“Proposed Rule”). Among other changes in the Proposed Rule, CMS is adopting updated labor market area delineations to take effect on October 1, 2020. Hospitals should review whether they are in a county that is affected by the updated delineations and what effect, if any, it will have on their Medicare reimbursement, especially if the provider is required to be located in a rural area.
Background
CMS defines hospital labor market areas based on the definitions of Core-Based Statistical Areas (“CBSAs”) established by the Office of Management and Budget (“OMB”). A Metropolitan Statistical Area (“MSA”) is a CBSA associated with at least one urbanized area that has a population of at least 50,000 that comprises the central county or counties containing the core plus adjacent outlying counties that have a high degree of social and economic integration with the central county measured through commuting.
Medicare payment programs classify hospitals into rural and urban status for a variety of purposes. An “urban area” is defined as an area within an MSA and a “rural area” is any county outside of an MSA. Except for all-urban states (Delaware, Rhode Island and New Jersey), CMS calculates a “rural area” wage index for each state based on the wage data of the state’s rural hospitals that are outside of an MSA, regardless of their location with respect to each other. In other words, the “rural area” of a state is not necessarily one contiguous area. The Medicare program also has an in-between status called “Lugar status.” Generally, these “Lugar counties” would otherwise be rural, but because of their proximity and commuting patterns to one or more MSAs, they receive the wage index of a nearby urban area but are treated as rural for most other Medicare purposes.
CBSAs and Lugar status are typically adjusted and redefined every 10 years, based on the national census, which may cause some hospitals to change from urban to rural or rural to urban for IPPS purposes based on the county in which they are located. OMB occasionally issues updates and revisions to areas in the years between the census through the issuance of OMB Bulletins as well.
In the Proposed Rule, CMS is doing just that – updating labor market area delineations based on OMB Bulletin No. 18-03 to take effect on October 1, 2020. Typically, the changes between censuses are minor, but OMB Bulletin No. 18-03 contains material changes to labor market delineations, including the following:
- 34 counties will convert from urban to rural;
- 47 counties will convert from rural to urban;
- 37 new counties to qualify for Lugar designation;
- 19 counties would move to a new or modified urban area; and
- 31 CBSAs will change names.
Impact on Hospital Medicare Payments
The most common impact of updating labor market area delineations will include changes to hospitals’ wage indices. Because hospitals will be entering and leaving various labor markets, this will cause an increase or decrease in the area wage index depending on the specifics of the situation. To protect hospitals against the negative impacts of these changes, CMS proposed a 5 percent cap on any decrease in a hospital’s wage index from its final wage index for FFY 2020. In other words, a hospital’s final wage index for FFY 2021 would not be less than 95 percent of its final wage index for FFY 2020, which allows the effects to be phased in over two years. Note that CMS adopted a similar policy in relation to the new wage index adjustment for low wage hospitals for FFY 2020.
Another important issue that may be affected by the new labor market area delineations is the special statuses under the Medicare program that require a hospital to be located in a rural area. For example, sole community hospital (“SCH”); rural referral center (“RRC”); Medicare-dependent, small rural hospital (“MDH”); and critical access hospital (“CAH” and, collectively, “Special Rural Status”) status each may require the hospital to be located in a rural area.
Per existing Medicare regulations, CMS allows CAHs that are in counties that will change from rural to urban up to two years to reclassify as rural in order to retain CAH status. However, SCHs, RRCs or MDHs in counties that would change from rural to urban or rural to Lugar could lose their Special Rural Status unless they act before October 1, 2020. Hospitals with Special Rural Status should review whether they are in a county that will be affected.
In many instances, these hospitals may be able to reclassify from urban to rural to maintain their Special Rural Status, but they should make sure that doing so will result in the best possible reimbursement scenario. It is possible that changing from a rural to urban area and losing Special Rural Status could be more advantageous depending on the specific circumstances.
Finally, there are some hospitals in counties that changed from urban to rural and now may be eligible for Special Rural Status and/or geographic (MGCRB) reclassification to an urban area for wage index purposes.
Practical Takeaways
- Hospitals should determine whether they are in a county that would be impacted by the new labor market delineations.
- If a hospital with Special Rural Status is located in a county that will change from rural to urban or rural to Lugar, it should analyze what, if anything, should be done to maintain its Special Rural Status.
- CAHs have up to two years to reclassify from urban to rural to maintain their Special Rural Status, but SCHs, MDHs and RRCs only have until October 1, 2020.
- Hospitals in counties that will change from urban to rural should determine whether they are eligible for Special Rural Status.
- Hospitals in affected counties should assess whether new geographic (MGCRB) reclassification opportunities are available.
The Proposed Rule is available here. The list of counties that will change from urban to rural begins on page 682, the list of counties that will change from rural to urban begins on page 684 and the updated list of Lugar counties begins on page 744.
If you have questions or would like additional information about this topic, please contact:
- Joseph Krause at (414) 721-0906 or jkrause@wp.hallrender.com;
- David Snow at (303) 801-3536 or dsnow@wp.hallrender.com;
- Lori Wink at (414) 721-0456 or lwink@wp.hallrender.com;
- Benjamin Fee at (720) 282-2030 or bfee@wp.hallrender.com; or
- Your regular Hall Render attorney.
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