On August 2, 2019, the Centers for Medicare & Medicaid Services (CMS) published its Fiscal Year (FY) 2020 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System (PPS) final rule (CMS-1716-F). The final rule is scheduled to be published in the Federal Register on August 16, 2019. CMS also published a fact sheet describing the proposed rule, which may be found here. This final rule is effective October 1, 2019.

CMS states that the final rule “reflects the agency’s efforts to transform the healthcare delivery system through competition and innovation to provide patients with better value and results.”

Medicare payments for inpatient hospital services are anticipated to increase by 3.0%, or $3.8 billion in FY 2020. CMS projects a market basket update of “3.0 percent reduced by a 0.4 percentage point productivity adjustment. This also reflects a +0.5 percentage point adjustment required by legislation.”

Medicare payments for LTCHs are estimated to increase by 1.0%, or $43 million, in FY 2020.

Below we address some of the policies CMS finalized for FY 2020.

Increase in payments to rural hospitals

CMS finalized a policy that is intended to reduce the disparity between high and low wage index hospitals, and is expected to increase payments to certain rural hospitals. In the proposed rule, CMS proposed to increase payments to certain rural hospitals by making a corresponding reduction to hospitals in urban settings. CMS still aims to reduce the disparity, but in response to comments received, CMS intends to achieve this policy goal by implementing an across-the-board reduction through a budget neutrality adjustment to hospitals nationwide.

The final rule increases the wage index for hospitals with a wage index value below the 25th percentile by half the difference between the otherwise applicable final wage index value for that hospital and the 25th percentage wage index value across all hospitals. By modifying the area wage index, the disparity between rural areas and other areas should be reduced. The policy “will be effective for at least 4 years” and CMS will phase in the changes. In FY 2020, reductions tied to an area wage index will be no greater than 5 percent. In FY 2021, CMS will implement the full reductions. Stated otherwise, “a hospital’s final wage index for FY 2020 will not be less than 95 percent of its final wage index for FY 2019.” CMS expressed its hope that hospitals “will be able to increase what they pay their workers, and this will help ensure that patients, including those living in rural areas, continue to have access to high-quality, affordable healthcare.”

CMS also finalized a policy to remove urban to rural reclassifications from the calculation of the rural floor beginning in FY 2020. The fact sheet accompanying the final rule stated that: “[t]o address the unanticipated effects of rural reclassifications on the rural floor and the resulting wage index disparities created by urban to rural hospital reclassifications, CMS will remove urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020.”

Medicare DSH Payments

Congress in the Affordable Care Act added section 1886(r) to the Social Security Act, which modified the calculation of Medicare disproportionate share hospital (“DSH”) payments. DSHs receive 25 percent of the amount they previously received under the statutory formula. The remaining 75 percent is paid as additional payments, based on the share of uncompensated care they provide for a specific time period, compared to the uncompensated care reported by all hospitals receiving Medicare DSH payments for that period.

The agency estimates it will make a total of $12.5 billion in DSH payments in FY 2020, which would be an increase of $140 million from FY 2019. CMS estimates that $8.35 billion in DSH payments will relate to uncompensated care-based payments, an increase of $78 million from FY 2019.

The final rule also provides the methodology for calculating DSH payments for FY 2020. CMS will exclusively use information from the FY 2015 cost report to determine how DSH payments will be distributed. In FY 2020, only one year of uncompensated care cost data from a DSH FY 2015 Worksheet S-10 will be used to determine a hospital’s share of uncompensated care payments. This is a change from FY 2019, when CMS is using two years of data from Worksheet S-10 and a single year of low-income insured days data.


CMS does not consider a service or technology to be new “if it is substantially similar to one or more existing technologies.” The final rule permits a medical device that is part of the FDA Breakthrough Devices Program and that has received marketing authorization (Premarket Approval; 510(k) clearance; or the granting of a De Novo classification request) by the FDA to be considered new and not substantially similar to an existing technology.

Congress in the 21st Century Cures Act (Pub. L. 144-255) established the Breakthrough Devices Program, which is “a voluntary program for medical devices and device-led combination products that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions.” In turn, the product will not be subject to the substantial clinical improvement criterion and will be eligible to receive an add-on payment.

CMS distinguished drugs and devices and reiterated their position taken in the proposed rule that “it is appropriate to distinguish between drugs and devices in our consideration of a policy change for transformative new technologies while we continue to work on these initiatives for drug affordability.”

In one of the most anticipated changes, CMS finalized an increase in the marginal rate of new technology add-on payments, which will increase payments for new technologies from 50 percent to 65 percent of estimated costs, and 75 percent in the case of certain antimicrobials. CMS stated that this is a 30 percent increase from the current rate. Notably, this will apply to hospitals that provide CAR T-cell therapy (CAR-T), a cancer immunotherapy that uses a patient’s own genetically-modified immune cells to fight disease.

UPDATE: On August 7, CMS announced that it will expand payment for CAR-T in a National Coverage Determination for Chimeric Antigen Receptor (CAR) T-cell Therapy for Cancers. Specifically, CMS announced that:

Medicare will cover CAR T-cell therapies when they are provided in healthcare facilities enrolled in the FDA risk evaluation and mitigation strategies (REMS) for FDA-approved indications (according to the FDA-approved label). In addition, Medicare will cover FDA-approved CAR T-cell therapies for off-label uses that are recommended by CMS-approved compendia.

Promoting Interoperability

The final rule provides for an EHR reporting period that consists of a minimum of any continuous 90-day period in CY 2021 for new and returning participants. CMS also finalized the continuation of the Query of Prescription Drug Monitoring measure as optional and available for bonus points, instead of being a required measure. The change was made as a response to implementation difficulties and provider burden. In addition, beginning with the CY 2019 reporting period, this measure will be converted to a yes/no attestation.

CMS will also remove the Verify Opioid Treatment Agreement measure from the Promoting Interoperability Program.

Long-Term Care Hospitals

CMS estimates an increases of $43 million for FY 2020 in payments to LTCHs. The estimate takes into account a $91 million increase for standard-rate cases and a $49 million decrease for site-neutral cases. CMS believes that LTCH PPS payments for cases transitioning to the site neutral payments will decrease by 5.9 percent.

The final rule cuts payments for LTCHs with fewer than 50 percent of cases that qualify for the standard rate. Beginning in FY 2020, LTCH site neutral payment rate cases will be paid using the site neutral payment rate, instead of the transitional blended rate used in FY 2019. This will apply to LTCH discharges that occur in cost reporting period that begin in FY 2020.

Indirect and Direct Graduate Medical Education Costs

CMS finalized the Indirect Graduate Medical Education (IME) adjustment formula multiplier of 1.35 percent for FY 2020, which will result in an increase in IPPS payment of 5.5 percent for every approximately 10 percent increase in the hospital’s resident-to-bed ratio.

Presently, a critical access hospital (CAH) is not considered a “non-provider setting”. In the proposed rule CMS acknowledged concerns about the barriers this has placed towards training residents in rural areas. CMS finalized a new interpretation of the statute that a hospital may include FTE residents training at a CAH in its FTE count as long as it meets the non-provider setting requirements at 42 CFR §§ 412.105(f)(1)(ii)(E) and 413.78(g).

CMS stated that “the lack of both an explicit statutory definition of ‘non-provider’ and a definitive determination as to whether a CAH is considered a hospital along with the fact that a CAH is a facility primarily engaged in patient care…provides flexibility within the current statutory language to consider a CAH as a ‘non-provider’ setting for Direct Graduate Medical Education (DGME) and IME payment purposes.”

This change will become effective with cost reporting periods beginning October 1, 2019.

The IPPS final rule also provides notice of the closure of Providence Hospital in Washington D.C. in order to begin the application process for redistribution of IME and direct GME FTE resident slots. CMS will redistribute 50.50 IME slots and 52.12 DGME slots. Hospitals that desire to apply for and receive slots from the FTE resident caps of Providence Hospital will need to submit an application to the CMS Central Office within 90 days of the final rule being displayed at the Office of the Federal Register, which would be November 14, 2019 (90 days from August 16, 2019).

Norton Rose Fulbright professionals are available to answer your questions about any of the policies finalized in the CMS FY 2020 IPPS and LTCH PPS final rule.