What 2019 Medicare Fee Updates Mean for the Road Ahead

Silos are breaking down across the health continuum as consumers take the driver’s seat. At the same time, regulatory changes from CMS are speeding up the broader transformation of the U.S. healthcare system.  
Annual fee schedule updates offer clues as to how entities must transform if they want to compete. Health entities must pay close attention to these updates, as they point the way to how they can survive.

Here, we break down the latest CMS provider fee schedule changes and what they mean for the broader industry:

2019 Medicare Payment System Updates (per Medicare) % Change Projected $ Increase
Hospital Inpatient Prospective Payment System (IPPS) 1.80% 4.8 Billion
Uncompensated Care Payments to hospitals 18.10% 1.5 Billion
Skilled Nursing Facilities  2.40% 820 Million
Home Health Agencies 2.20% 420 Million
Long Term Acute Care Hospital Prospective Payment System 0.90% 39 Million
Ambulatory Surgery Centers 2.10% Not Stated
Hospital Outpatient Prospective Payment System (OPPS) 1.35% Not Stated
Physician Fee Schedule 0.10% Not Stated

The federal government, which controls about half of all U.S. healthcare spending (Medicare and Medicaid programs), has truly become the most innovative “payer” in its efforts to transform healthcare from a fee-for-service system to a value-based one.

Within each provider fee update, we’ve identified some common themes:

1. Patient-centricity

Transparency and Performance Updates
CMS will require hospitals to publish a public list of its standard charges, a first step aimed at providing greater pricing transparency to patients.

CMS has also updated its Nursing Home Compare program available to patients.

CMS has significantly increased data and information available to patients as well as cost and utilization information available to the public.

Prioritizing Patients over Paperwork
CMS announced numerous measures—across provider types—aimed at reducing costs associated with the administrative burdens its programs have adopted over the years. This is new and much needed.

Bolstered External Messaging
As part of its push to become more patient-centric, CMS has ramped up its public documentation and external messaging campaigns around how program changes are designed to benefit patients enrolled in federal benefits.

2. Using Technology to Innovate Patient Care

Expanded Telemedicine Reimbursement
CMS continues to expand its reimbursement of non-facilities-based care, in a nod to how technology is transforming healthcare. The agency announced greater compensation for technology-enabled “virtual check-ups” and other telehealth services.

BDO’s Quick Take: Although a good first step, requiring hospitals to post their pricing online will do little to improve consumer pricing transparency, as most patients are unfamiliar with the intricate language that is medical billing. True pricing transparency will likely be created through the outlet CMS is upping reimbursement in: technology.

Reading the Regulatory Signs Ahead
In 2019, significant updates are expected that we believe will have a lasting impact on the national dialogue related to health care costs including site neutrality, streamlining documentation and payment changes for physician visits, home care and uncompensated care audits.

Site Neutrality
Controversial in nature because of the historically hospital-centric way the U.S. health system has functioned, CMS is looking to neutralize payments across provider types. This is aimed to make payments fairer between hospitals and other provider types, including changes related to:

  • Physician Services: CMS will phase out its additional reimbursement of off-campus designated hospital outpatient centers over three years (70%/40%/0% in 2019-2021). In this manner, CMS will reimburse for these services the same as within the Physician Fee Schedule.
  • Ambulatory Surgery Centers vs Hospital Outpatient Surgery Departments: CMS is beginning to reduce the cost differentials between reimbursement of the two.
  • Payer Mixes: CMS’s emphasis on payment differentials between sites-of-service will open the door more broadly to other commercial payers and make it increasingly challenging for hospitals to maintain their historic pricing advantages for outpatient services across their payer mixes.

BDO’s Quick Take: Gone are the days when the hospital was the center of care. Growing financial, regulatory and legislative risks are closing in on hospitals from all sides—and technology will only quicken that. To survive, hospitals must transform their traditional assets to serve a model of care that’s centered more on patient convenience—and available at the patient’s fingertips.  

Streamlining Documentation & Payment Changes for Physician Visits
CMS has historically had five different reimbursement levels for “office visits,” depending on the complexity of the visit. The agency originally proposed to simplify both the rules and reduce the number of reimbursement levels to two.

After public opposition against the reduction in reimbursement levels, though, CMS announced that it would phase this change in over three years.

For most physicians, this is positive step. Coding accuracy for office visits is exceedingly complex in the current environment, and physician organizations spend an inordinate amount of time complying with existing rules. Physicians will have some additional time for either more direct face-to-face interaction with patients and/or they’ll spend less time completing the coding for patient encounters from the previous day.

Finally, these changes should have a positive reduction in the amount of annual expenses that organizations dedicate to regulatory compliance specific to coding of these services.

BDO’s Quick Take: Time will tell whether the payment changes into two reimbursement levels will lead to issues. Like all change, there tend to be winners and losers. While there is some concern that physicians treating the most complex patients will lose incentives to spend the proper amount of time with those patients, CMS is trying to counter-balance this impact through new modifiers.

Care at Home
The trend away from inpatient care is only going to quicken, and home care is going to explode.
CMS is recognizing new, innovative ways of patient care that don’t require leaving the home, whether that means providers come to them (e.g. home health care), or they use telehealth services to treat them or even technology-enabled tools like those that enable remote patient-monitoring. 

BDO’s Quick Take: This is just the start. Faced with a fast-growing aging population and pressure to curb healthcare spending, providers are moving away from the costly hospital setting and toward care models that are not only more cost effective, but also more rooted in empathy. Enter home health: According to our Candid Conversations on Elder Care, by 2020, healthcare organizations say they plan to invest most in home health to prepare for the growth of the aging population. As CMS reimbursement for home health models—and technologies that support them—expands, this trend will quicken.

Uncompensated Care Payments for Hospitals
In FY 2019, CMS will distribute about $1.5 billion more for uncompensated care payments, based on charity care and bad debt combined rather than the number of Medicaid, dual-eligible and disabled patients, as done before the Affordable Care Act’s Medicaid expansion.

To that end, CMS said it would audit the top 1 percent of hospitals with a high ratio of uncompensated care to total operating costs. And it will continue to calculate payments based on uncompensated care cost data from hospitals’ Worksheet S-10 from FY 2014 and FY 2015—largely before present ACA rollbacks took shape.

BDO’s Quick Take: The uncompensated care audits, and the accompanying required patient-level documentation upon audit, come at a time when hospitals already must manage heightened financial risk while maximizing quality outcomes in the process. Hospitals must pay close attention to completing their cost data as accurately as possible. Additionally, to successfully toe the line between allocating costs within Medicare rules to optimize reimbursement and revenue, and mitigating heightened false claims risk, ensuring bright lines on charity care policies and supporting patient-level documentation will be key.

Thriving Amid Disruption
Amid both public and private pressures to put the consumer at the center of care, to survive amid continued industry convergence, health companies must break down silos within and outside their organizations to drive value across their ecosystem. 

To accomplish this, most need to reach beyond their four walls to share data and other resources that can lead to more effective population health management strategies and better consumer outcomes.