The 2020 Hospital Inpatient Prospective Payment System (IPPS) Final Rule has been issued and changes are on the way that can affect your organization’s Medicare reimbursement. As part of our commitment to help protect and enhance your Medicare revenue, we’ve developed this expert analysis of the FY 2020 IPPS Final Rule to quickly give you insight into the most important changes.

1. 2020 IPPS Final Rule
Key Points

2. The 2020 Hospital Inpatient Prospective Payment System (IPPS) Final
Rule has been issued and changes are on the way that can affect your
organization’s Medicare reimbursement.
As part of our commitment to help protect and enhance your Medicare
revenue, we’ve developed this expert analysis of the FY 2020 IPPS
Final Rule to quickly give you insight into the most important changes.
BESLER remains your trusted advisor and we look forward to helping
you identify areas of revenue opportunity for your facility.
Jonathan Besler
President & CEO

3. The Medicare Hospital Inpatient Prospective Payment System (IPPS) rates are required by law
to be updated annually.
The original goal of IPPS was to incentivize hospitals to operate efficiently, while compensating
hospitals for the cost of providing high quality health care to Medicare beneficiaries.
This report contains key changes to the FY2020 IPPS Final Rule.

4. • Rates and Spending
• FY2019 FR Tables
• DSH Payments
• DSH Data
• Wage Index
• Low Wage Index Hospitals
• Rural Floor Calculation Methodology
• Transition Cap on Wage Index Adjustment Factor
• New Technology Add-On Payments
• Hospital Acquired Conditions Reduction Program
Contents

5. Rates and Spending
Under the final rule, acute care hospitals that report
quality data and are meaningful users of Electronic
Health Records (EHR) will receive a 3.1 percent
increase in Medicare operating rates.
This includes a projected hospital market basket update
of 3.0%, reduced by 0.4% productivity adjustment, a
0.5% add back from legislation.

6. Rates and Spending
CMS is projecting an increase in Medicare
spending on inpatient hospital services in FY 2020
of approximately $3.4 billion, including an increase
in new technology add-ons of $0.2 billion.
Overall Medicare estimates the spending on
inpatient hospital services will increase by a total of
$3.8 billion, which equates to roughly a 3%
increase over FY 2019.

7. TABLE 1A. NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS; LABOR/NONLABOR
(68.3 PERCENT LABOR SHARE/31.7 PERCENT NONLABOR SHARE IF WAGE INDEX GREATER THAN 1)
Hospital Submitted Quality Data and
is a Meaningful EHR User (Update =
2.6 Percent)
Hospital Submitted Quality Data and
is NOT a Meaningful EHR User
(Update = -0.35 Percent)
Hospital Did NOT Submit Quality Data
and is a Meaningful EHR User (Update =
1.85 Percent)
Hospital Did NOT Submit Quality Data
and is NOT a Meaningful EHR User
(Update = - .4 Percent)
Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related
$3,962.17 $1,838.96 $3,875.28 $1,798.63 $3,933.21 $1,825.52 $3,846.32 $1,785.19
FY2020 FR Tables

8. TABLE 1B. NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR
(62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX LESS THAN OR EQUAL TO 1)
Hospital Submitted Quality Data and
is a Meaningful EHR User
(Update = 2.6 Percent)
Hospital Submitted Quality Data and
is NOT a Meaningful EHR User
(Update = -0.35 Percent)
Hospital Did NOT Submit Quality Data
and is a Meaningful EHR User
(Update = 1.85 Percent)
Hospital Did NOT Submit Quality Data
and is NOT a Meaningful EHR User
(Update = -1.55 Percent)
Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related
$3,596.70 $2,204.43 $3,517.82 $2,156.09 $3,570.41 $2,188.32 $3,491.54 $2,139.97
FY2020 FR Tables

9. TABLE 1C. ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR HOSPITALS IN PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 PERCENT LABOR
SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR EQUAL TO 1)
Rates if Wage Index Greater Than 1 Rates if Wage Index Less Than or Equal to 1
Labor Nonlabor Labor Nonlabor
National1 Not Applicable Not Applicable $3,596.70 $2,204.43
1For FY 2020, there are no CBSAs in Puerto Rico with a national wage index greater than 1.
TABLE 1D. - CAPITAL STANDARD
FEDERAL PAYMENT RATE
Rate
National $462.61
TABLE 1E- LTCH PPS STANDARD FEDERAL RATE
Full Update
(2.5 Percent)
Reduced Update*
(.5 Percent)
Standard Federal Rate* $42,677.64 $41,844.90
* For LTCHs that fail to submit quality reporting data for FY 2020 in accordance with the LTCH Quality
Reporting Program (LTCH QRP), the annual update is reduced by 2.0 percentage points as required by
section 1886(m)(5) of the Act.
FY2020 FR Tables

10. DSH Payments
Medicare disproportionate share hospital payments are
now based on 25% DSH Empirical formula (Medicaid
Eligible Days) and 75% based on the distribution of
Uncompensated Care (UCC) funds.
Medicare DSH Supplemental payments increased from
$8.27 billion to $8.4 billion in FY 2020.

11. DSH Data
This presents a problem because less than 20% of the facilities reporting S-10 were audited for FY 2015.
The data that is used will have a disparity between the audited facilities and the un-audited facilities.
CMS is directing the MACs to audit 2017, and we will need to watch the audit volume and see if CMS
elects to skip 2016 in favor of 2017 “Audited S-10” for the 2021 IPPS Final Rule. In addition there was
little community feedback from the audit process about items that should be done differently based on
the audit findings.
In FY 2020 CMS will use S-10 data from the FY 2015 cost reports to determine the distribution of
uncompensated care payments.
Due to public comments emphasizing the importance of ensuring accuracy and consistency, CMS is
conducting audits of FYE 2017 S-10 information to begin in the fall of 2019.

12. CMS has moved forward with three wage index
adjustments that were first proposed this year in
an attempt to re-align the wage index adjustment
factors for IPPS payments.
These changes adjust the disparity of low wage
index hospitals, rural floor calculation
methodology, and the one year transition cap on
the wage index factor adjustments.
Wage Index

13. The goal of this change is to increase
the wage index of the lowest 25th
percentile hospitals, so that they have
the ability and funding to increase their
employee compensation in line with
the industry.
• Low wage index hospitals will receive an
additional wage index bump of 50% of the
difference between the individual hospitals’
wage index and the wage index across all
hospitals.
• This adjustment is currently set for four years.
CMS is using budget neutrality to ensure that
this program will not increase total
Medicare spending.
Low Wage Index Hospitals

14. Rural Floor Calculation Methodology
CMS is removing hospitals that reclassed from urban to rural from
the calculation of the rural floor wage index value.
In some cases, the reclassification of one large urban hospital to
rural status caused the rural floor to increase for ALL facilities in a
respective state. Given this impact, CMS’ change is not surprising.
There will still be substantial advantages for urban providers to
perform the rural designation reclass. Each provider will need to
assess their needs and monitor their wage rates to ensure that
they are appropriate so they can determine if the urban/rural
geographic reclass is right for them.

15. CMS has made an attempt to soften the impact
of these changes on the facilities that are
negatively impacted.
We expect this type of language to continue in
future IPPS rules for two to three years .
CMS is imposing a 5% cap on any decrease to
the wage index adjustment factor for any
hospital that sees a negative impact on their
wage index from 2019 to 2020.
CMS received significant responses to their
wage index changes. Most of the comments
centered around the negative impact to facilities
resulting from the changes.
Transition Cap on Wage Index
Adjustment Factor

16. New Technology Add-On Payment
Pathway for Devices
CMS finalized an alternative new
technology add-on payment pathway
for medical devices that receive FDA
marketing authorization and are part
of the Breakthrough Devices Program.
New technology devices will receive
additional payments in FY 2021 for
devices with applications received for
new technology add on payments in
FFY 2020.

17. Hospital Acquired Conditions
Reduction Program
• Specify the dates to collect data used to calculate
hospital performance for the FY 2022 HAC Reduction
Program;
• Adopt eight removal factors CMS would use when
deciding whether a measure should be removed from
the HAC Reduction Program; and
• Clarify administrative processes for validating National
Healthcare Safety Network (NHSN) Healthcare-
associated Infection (HAI) data submitted by hospitals to
the Centers for Disease Control and Prevention (CDC).
CMS made three changes to existing Hospital Acquired Conditions Reduction Program

18. BESLER combines best-in-class healthcare finance expertise with
proprietary technology to help hospitals recover more revenue.
Our reimbursement and recovery solutions have delivered more
than $4 billion of additional revenue to hundreds of hospitals
across the United States.
We serve as advocates for hospitals, so that they, in turn, can
better advance the health and well-being of their patients.
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