The Office of Management and Budget (“OMB”) is requesting comments on the recommendations it has received from the Metropolitan and Micropolitan Statistical Area Standards Review Committee for changes to OMB’s 2010 metropolitan and micropolitan statistical area standards. Among other changes, one proposal would change nearly 150 areas from urban to rural for purposes of the Medicare Hospital Inpatient Prospective Payment System (“IPPS”). This change could cause large swings in Medicare payments for hospitals and other types of providers unless CMS revises its regulations.
Background
The Medicare IPPS is designed to pay hospitals for services provided to Medicare beneficiaries based on a national standardized amount adjusted that is adjusted for differences in hospital wage levels, which CMS implemented through the wage index system. CMS also uses the hospital wage index for the Outpatient Prospective Payment System and prospective payment systems for inpatient rehabilitation facilities, inpatient psychiatric facilities, long-term care hospitals, home health agencies, hospices, ESRD facilities, ambulatory surgical centers and skilled nursing facilities.
CMS defines hospital labor market areas based on the definitions of Core-Based Statistical Areas established by the 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. 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, regardless of their location with respect to each other. In other words, the “rural area” of a state is not necessarily one contiguous area.
Importantly, in the OMB’s request for comment, the committee’s recommendation would increase the threshold for Metropolitan Statistical areas from 50,000 to 100,000. This threshold has been the same since 1950, and if the change is adopted, it would cause 144 currently urban areas in the country to be considered rural for Medicare IPPS purposes. A list of these areas can be found here (page 6 of Committee Report download). This change would be incorporated into the Medicare Program with other changes caused by the 2020 census, likely starting in FFY 2025.
For hospitals in the 144 areas that would be impacted, instead of getting an urban wage index they would be grouped with the rural wage index hospitals, which typically (but not always) are paid at a lower rate. In addition to the wage index changes, the MSA/urban status of an area also impacts the following:
- Capital disproportionate share hospital (“DSH”) payments;
- Certain rural hospitals are subject to a 12% cap on operating DSH payments;
- Teaching payments – hospitals in rural areas qualify for a 30% increase in FTE cap amounts and can build FTE cap for new programs;
- Special hospital status – sole community, Medicare-dependent hospital, rural referral and critical access hospital all depend on urban/rural status; and
- Wage index does not just affect hospital PPS payment. As mentioned above, it also impacts payments for other provider types.
The OMB states that it “does not take into account or attempt to anticipate any public or private sector nonstatistical uses that may be made of the delineations.” However, this does not change the fact that many other federal and state programs, including the Medicare Program, use the MSA designations.
Practical Takeaways
- The OMB recommendation would change approximately 150 areas from urban to rural.
- The Medicare Program and many other federal and state agencies rely on these designations.
- These revised definitions could cause large changes to payments for hospitals and other types of providers, likely starting in FFY 2025.
- In certain situations, hospitals can reduce or eliminate the impact of these recommended changes through wage index reclassification, but other provider types do not have that option.
Interested parties have until March 19, 2021 to submit their comments.
If you have any questions about these proposals or how they may affect your facility, please contact:
- Joseph Krause at (414) 721-0906 or jkrause@wp.hallrender.com;
- David Snow at (414) 721-0447 or dsnow@wp.hallrender.com;
- Lori Wink at (414) 721-0456 or lwink@wp.hallrender.com;
- Ben Fee at (720) 282-2030 or bfee@wp.hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
