Speaker 1:
From Carr, Riggs & Ingram, this is It Figures, the CRI podcast, an accounting, advisory and industry focused podcast for business and organization leaders, entrepreneurs, and anyone who is looking to go beyond the status quo.
David Williams:
Good afternoon. I’d like to welcome you to an opportunity to share some healthcare organization updates, looking at some key insights and actions that you can use in your organization going forward from 2026 and beyond. Joining me today is Derrick Mason. He is a senior manager in our healthcare practice and consulting practice here in Ridgeland with me. Some of the topics that we will cover today include a recent trip to DC that I had the opportunity to meet with some Mississippi and Tennessee legislators, as well as the chief healthcare policy officer with Vice President Vance’s office regarding various healthcare policies. We’ll also look at some of the inpatient rule for fiscal year 2026, as well as the recently released outpatient payment system rule for 2026. Important changes that are there that you may need to take a couple of notes about.
And the third thing as far as the final rules go is the Medicare physician fee schedule, which was released, I don’t know if it was by their behest or whether they wanted to make a trick or treat, but it was released on October 31st. So it will show a few ways that it’s going to impact your physicians that are part of your organization. Derrick will cover some teaching program items that may need attention going forward or some things for you to think about as you move your program and the direction for the future. And then finally, we’ll finish up with some key impacts of the Tax Cuts for Families Act of 2025 as it applies to healthcare organizations.
And let’s start with my meeting in DC. This happened back in November, right in the midst of the shutdown. And you can imagine that there was skeletal crews around, but we were able to meet with some key players as it relates to healthcare policy. One of the possible things that we maybe had some play in was to help get the government back open, and we take credit for that by the fact that we were offering two suggestions as far as to maybe mitigate the impact of the elimination of the healthcare exchange subsidies. One being a three-year extension on the subsidies with a phase down approach to it that you’ve probably heard some information about, as well as a new item, which is a health spending account, which would be directed towards health insurance that would move that information away from the traditional healthcare exchange that’s out there and towards a private insurance, which would free up some dollars in a different way.
One of the first topics that we covered with the various legislators was the average wage index. This is something that we stressed was budget neutral because if you eliminate the low quartile, what happens is those areas that are below a wage index of one have a difficult time competing with organizations that have a wage index above. And this was all based off of a Bridgeport case that said that CMS didn’t have the authority to use the quartile to try to mitigate those disparities. Well, we spoke with some of the legislators there, and there’s actually a bill that’s pending right now that would reinstitute that quartile payment through legislation. What that means is that if you’re an organization that has a wage index less than one and you were able to benefit from the quartile percentage, the amount of the wage index that you received, then that would go forward through legislative process in 2027 and forward.
There’s also some opportunities for the CMS to look at maybe expanding the geographic reclassification designation from 35 to 50 miles, just based on the migration and patterns that people travel nowadays compared to when this geographic reclassification provision was actually instituted. We also discuss the possibility of removing the CBSA closest to an RRC and allow the RRC to move to the area that most likely reflects the wages that they’re paying in their area. The final thing we talked about was to remove the rate reduction. In other words, there’s a rate reduction where an organization is reclassed from a current CBSA to another. They have to take the lower, which is an averaged amount rather than the actual CBSA wage index. And we discuss the fact that that was harming some of the organizations and that to make it truly equitable, just eliminate that and wherever they’re reclassified to, just accept that wages in that area.
The next thing that we see here is the rule emergency hospital designation that we had a chance to talk about. We asked the legislators if they thought about the process of when this organization was created in the rural emergency hospital, that it is a hospital and it’s been designated as such. So why would this particular entity not be allowed to participate in the 340B drug program? It is similar to a critical access hospital. And so as we talked about that, we came up with some options maybe for it. First was to resolve the payment inconsistencies that Medicaid has, use the hospital APC or similar whatever is used in each state versus the physician fee schedule, as many have been using that, saying it’s not deemed a true hospital. And then finally, using a rule designation or definition adopted by the rural health policy rather than CBSA standards. So that would allow us to truly say that they are a hospital and thus there should be some designation given so they could participate in the 340B program similar to the critical access hospitals.
Speaking of 340B program protections, to preserve the sustainability of the rule and the safety net hospitals, we believe and we ask the legislators to discontinue the current 10 drug pilot program, which is scheduled to begin in January. Rebates have to be obtained after paying the full price. And we know the undue burden that that would place on the providers as well as the potential cash flow that would be impacted by doing that and the potential for denials in that case.
And the last thing we discussed about 340B was to redefine the DSH criteria for 340B participation. We all know that with the phase down of COVID and the expansion waivers that have been reduced over time, that current percentage is difficult to meet for many of the providers that rely on the 340B program to help them be a sustainable program in their communities. And we suggested that maybe they propose an automatic qualification for sole community or rural referral centers similar to what they have for the critical access hospitals. We truly believe that that would take care of a lion’s share of those organizations that are having difficulty meeting the 11.75. In addition, one final option that we provided to them to consider was to lower the threshold to reflect that reduction in the four mentioned factors from 11.75 down to 10%. We truly believe that that would aid in a lot of facilities that maybe were on the bubble would be able to retain the 11.75 percentage and thus the 340B savings that are part of that.
After that visit, of course, we had an opportunity to dig in to the IPPS 2026 and see what had started in October as far as going forward. The first thing we saw was that there was a 3.3% market basket adjustment, but it was reduced by a productivity adjustment at .7. So it ended up being 2.6%. Compare that to recent cost of living or just an inflation, a general inflation at 2.9%, you’re still behind the eight-ball there. So we see it as being a difficult thing going forward, maybe something to address in the future with looking at how the system is based as far as looking at the cost of outcomes that are being served by patients.
One thing to consider, as you think about that 2.6% increase is the diagnosis severity was recalibrated. So it may impact you differently than other organizations. One of the examples of that is the DRG783 C-section. That was one that was increased, almost double. I’m not sure about you, but I don’t know that there’s many organizations that’s going to have a huge volume of C-sections for the Medicare population. In addition, they increase the hip and femur DRG-499 as well. And keep in mind, as we talk about a little bit later, a lot of the inpatient only procedures are being moved or eliminated going forward. So to me, it seems like they might’ve looked at some things that were not going to be an intense or a severity increase for organizations.
On the flip side of it, if you look at the decreases, one of the major decreases was DRG779, which dealt with abortion. Again, going back to the Medicare population, I’m not sure that there would be a lot of volume that would be around that, but an important item to note is in the area of DRG010, which is for a pancreas. And those with transplant organizations, you may want to take a look at that and how that has decreased and how that may impact your cash flow in that area.
The next item we’ll talk about real briefly is the budget neutrality payment rates at 2%. That was the standard amount that overall that has achieved when you have budget neutrality at looking at an IPPS index or increase for next year. It’s interesting to note with the elimination of the quartile, you can see that those wage indexes that were greater than one had a decrease of .5%. While on the other hand, those that were less than 1.0 increased by 1.9% or basically to that 2%. And this by and large is due to the fact of elimination of the quartile has caused a bigger differential between those wages and so they’re having to try to pair it that down some way, and they’re looking at the wages in that regard. Again, hopefully we’ll get some traction on the elimination of the quartile being reversed, and maybe we’ll go back to a closer updates between the two different wage indexes at that time.
Outlier threshold is set for 40,397, but the most important thing to think about outliers is going forward from 10-1 of ’24 is that you have the two triggers, which is $500,000 in outliers that are paid, but increasing from 10% to 20%, any change in the payment to cost ratio. Remember that all first-year hospitals automatically have a reconciliation in that first year. One thing to keep in mind, if you’re looking at that final rule, there’s a listing of hospitals that have reconciliations from fiscal year ’20. If you happen to be one of those organizations, not only is it increases, but also it has the decreases, but in those increases, you may want to try to pursue that if you do have money that’s owed back to you. Teams are the bundle program for surgeries or high volume surgeries was tweaked just a little bit going forward for ’26.
They did put in a valve where if you have 31 procedures or less, then it eliminates any risks that you would have with that. Keep in mind, this covers five high volume surgeries. It’s for Medicare fee for service only. And the great thing about it, it scheduled a sunset in fiscal 2030, but depending on the success of the program, we may see it having a life like a cat with nine lives that may extend and go forward after that. One important part that was missing from the inpatient 2026 program was the Medicare dependent hospital and low volume adjustments, which expired in September. There is pending legislation to extend that. And in fact, the MACs are actually sending out requests for people to get prepared and with the pending legislation to come into play where that could be reinstated. This impacted around 600 low volume hospitals and about 160 Medicare dependent hospitals to the tune of about $500 million in loss of funding. So you could see what kind of increase in the losses that you may have in these safety net hospitals out there because of that funding loss.
The quality policies were extended from ’25, but now instead of having a focus on the social determinants of health, they’ve shifted over to the Medicare or what we’re thinking of in terms of Medicare looking at the Make America Healthy Again program. So Medicare is tagging on with what Secretary Kennedy is looking for and some of the things that are being put into place by CMS with Mehmet Oz is to look at outcomes based on a healthy America versus on the social determinants. So it’s a little bit of a tweak when you look at those quality outcomes. A note for those who are considering or looking at doing an urban to reverse rural reverse reclass, keep in mind that Capitol Hill is investigating this right now because they’ve had some concerns where they’ve seen hospitals that are in Los Angeles and New York City and Chicago that are in the center of metropolitan areas being reclassified from urban to rural. And they are trying to evaluate what kind of impact that’s having on the rural hospitals, not necessarily what’s happening to the urbans, but what’s happening to the rurals as a result of that.
One final thing that I’ll mention on the inpatient 2026 is the UCP or uncompensated care pool for factor two with a 75% amount is increased by a little over $2 billion. So that is a favorable item in lieu of the fact that we may have some decreases as a result of people dropping off the exchange. Of course, that tends to follow a couple of years trailing information, but there is maybe some mitigation benefit from that.
Next, we’ll look at the outpatient payment system final rule for 2026. One of the most important parts that you’ll need to note there is it did eliminate 285 procedures for this year. And by 2028, they’re proposing to eliminate all those items that are on the inpatient only list. Another factor that you want to consider is the major site neutral expansion, where they’re basically taking drug administration for those provider-based campuses that are off the campus site. In other words, they don’t make a 250 rule or grandfathered, they’re reducing the drug administration charge for them, as well as looking at the 340B and how that plays into the outpatient payment system because what they’re doing is they’re looking at reducing it by almost 2% this past year in the proposed rule, but they backed away and said, we’re going to go back to the original .5% for fiscal ’26 only, but going forward, you could expect that 2% reduction. So where we went from a .06% increase and proposed, it went up to about a 1.9% and 9.6% in the final. Another item to keep a close eye on are the recent rules that require the Medicare Advantage plans to scrutinize short stays. Be sure they apply correctly the intent of those rules and make sure you appeal it if you don’t agree with it, because in many instances, you can find that they’re overzealous in trying to apply that two-day stay.
Moving on to the Medicare fee schedule, a couple of things that I’ll mention. The biggest hit was in the radiology and anesthesiology department. So you may hear something out of that group when you’re working with those in your organization. The work RBUs were tweaked somewhat, which there was a 2.4% increase in the standard, but it may not work out again by looking at how those work RBUs are implemented. I’d like to take just a few moments and ask Derrick, if you wouldn’t mind, to cover some of the teaching program changes that you may want to look at, as well as some other important items to consider going forward.
Derrick Mason:
Thank you, David, and good afternoon, everybody. I’m going to touch on what we’re seeing in the world of medical education. For those of you that were around for the 96 CAP setting, some of this stuff is old hat for you, but for many providers who are jumping into the world of starting residency programs, there was some changes that come about at what distinguishes a program from CMS through the CAA in 2021, in that it now has to be considered a new new program, is what they refer to it as, meaning that your residents must be new, your program director must be new, your teaching staff must be new. So basically, everybody within the program has to be new in order for those to keep counted in your FTE slot. So there’s been some scrutiny around that, and they even have proposed that 90% of your individual resident trainees had to be brand new, meaning that no more than 10% of your residents in these new programs could come transferring in from a new hospital. I know in other words, they couldn’t have started in family medicine and decided to be in emergency medicine and you start a new emergency medicine program, you couldn’t bring them in if you put you over your 10% limit. That was what is being proposed, but fortunately they put that on the shelf with a 25 IPPS final rule, and they’ve asked for RFI seeking input on feedback.
So I would encourage those of you who are considering a new program or have affiliate hospitals that you may want to consider starting a program to think about putting some comments out there on what constitutes a new program, because that can definitely handicap you as you move forward trying to develop these residency programs. And then that’s the biggest takeaway right now as far as building a program. Of course, there’s a lot of other nuances. And then some other items that if you have a residency program that we’re seeing that a lot of providers are having some things that are impacting them that may not seem as part of your medical education program, but has a dollar impact is when we’re counting your beds on your IME calculation. That is something that we see providers have difficulty determining what is accountable bed and how are they utilizing that. And as you see your census fluctuate up and down throughout the year, determining what beds are really available, how am I staffing those? And is there some that we can put out a service that may benefit us on our IME reimbursement? So that is one of the big things we see a lot here recently, especially with new hospitals who have delved off into the residency world and are just not familiar with how all the calculations work. That’s just something that you’ll want to consider moving forward.
And then also just on the GM piece, one item of notice, a hospital gets reimbursed for both Medicare and Medicare Advantage. Your Medicare Advantage reimbursement on your [inaudible 00:21:39] side is paid by Medicare, but you also have to have a certain code added to your bill that triggers a shadow bill claim to go out. So one thing that we would recommend is to always make sure that whatever claims are showing up on your PS&Rs for shadow billing, that you run some internal records because we’ve identified many times where providers have all these different Medicare Advantage plans where they should be getting reimbursed somehow either within the system or something’s not going out with that specific teaching code. And so you’re missing out on those shadow claims going out, which is costing you dollars on the [inaudible 00:22:17] side. And then also one thing to consider, as you look with all the shortage that we have, not just on the physician side, but we’re also seeing a lot of providers starting to consider starting allied health programs. So those are some things that you might look at as opportunities in the future if you’re having difficulties retaining nursing and having shortage of staffs, whether it’s a tech program, some therapies, you have some opportunities out there to develop programs within.
And I realize there’s a cost piece to that, so you’re going to have to weigh the pros and cons of that and it is cost reimbursement. So if you’re a facility that has a high usage of Medicare where you’re going to get a higher percentage of that cost back, those are some opportunities as far as trying to fill some gaps outside of when we’ve seen all those high spikes during COVID with all these outside agencies charging the … Running up wages with all these nurses and other allied health groups. So those are just some of the key things I think right now that’s on the forefront that we see on a daily basis with current providers that are either starting a program or have a program that we would encourage you to look at in the future. And David, I’ll turn that back over to you.
David Williams:
You. Okay. Thanks, Derrick. And again, just keep in mind when we were talking a few minutes ago about the moving from urban to rural reverse reclass, that a lot of it had to do with some of the IME advantages that were part of that ARFA and some of the slots that were opened up as part of that. So it is important to monitor and make sure that you’re really maximizing what you’re doing with your teaching program to make sure you had the best outcomes with it.
Derrick Mason:
And David, I will add to that another item of topic that we’re seeing a lot of with closures in hospital systems where you’re seeing hospitals and residency programs that are being closed. And so that is also an opportunity if you know of a facility that is closing or closed or going to have a program closing, if you take in those residents, you do get some cap relief. But when a hospital closes, those FTEs go into a 5506 redistribution pool. And if you take those residents in on the front end, you have a higher likelihood of getting some of those cap add-ons when they distribute those through a 5506. So that’s another thing to keep an eye on as we are unfortunately seeing hospitals close that if you do run across that, there is an opportunity to add to your cap through a closing hospital.
David Williams:
That’s a great point. I appreciate you bringing that out because there is opportunities for you even though you may be at that cap. So we do appreciate that. Looking at the final part of our presentation today, we’re going to look at some key impacts of the cuts related to healthcare from the Tax Cuts for Families Act. How many of you probably heard of that? Not a lot. But while we were in DC, we also learned that OBBBA is not the preferred name for the bill, the big beautiful bill that was passed, but now it’s being referred to as the Tax Cuts for Families Act, which I can see where that has more appeal based on the way it sounds. There are two areas that impact Medicaid, primarily as far as reductions. We did talk about the eliminations of the subsidies just a few minutes ago, but I’d like to look at some of the provisions as it relates to Medicaid. One being the provider’s assessment.
We were able to work with some providers and have their input provided to the legislators when they were developing the bill to have some provisions that were different from those that expanded and those that did not expand. As a result of that, the reduction of 6% of the provider assessment does not apply to the non-expansion states, but the expansion states are being reduced down to 3.5%. And what that means is the drawdown amount that can be received through those Medicaid federal funds are what we refer to as an FMAP or the federal matching is reduced. And one of the things that a lot of states are looking at is maybe looking outside of that, looking at IGTs as a way to increase or supplement what they’re doing. Just be aware that there’s some legislation that’s being considered or maybe some instructions by CMS that will provide some guidance on that regarding the proper use of those IGTs.
The second thing we’ll talk about is the average commercial rate. There’s been a lot of discussion about how that states maybe have used this as a major way to receive a large amount of funds. And of course, we have seen in various states that the amount above the Medicare rate is quite substantial. And as a result of that, for non-expansion states, they’re reducing the amount of the ACR to where it cannot exceed but 110% of Medicare. And for the expansion states, it drops down to 100% of Medicare. Just to give you an example of this, Mississippi is currently at 186% of its ACR, and it will be reduced over a timeframe, possibly under two different scenarios based on the vague and the way the ambiguity of the rule in which it was written. The two methods that their potential drawbacks on how they would implement this are the gross method, which would reduce the amount down to that percentage over five years, which is basically through 2033, or the net method, which would reduce it over a longer period of time through 2036. You can see, even though it looks like it’s not that much of a difference in the years-wise, if you look at the amount that impacts on those front years, it does make a bigger difference as far as reductions in early years.
I would encourage you, if your hospital has not done a model impact, to look at some of the considerations on your cashflow. For instance, if you’re doing a major EMR conversion, if you’re looking at a capital expansion or renovation, consider that and what kind of cashflow impact and how you may have to look at other avenues for capital that you have available for you, but look at some grant funds, maybe look at some of the funding that’s out there through rural transformation. There’s limits around that. So you have to pay close attention to what’s available through that, but there are some avenues as well as looking at the market for additional long-term financing.
Mississippi’s impact is about $878 million. And you can see pretty much, that’s a big hit that if you look over that timeframe through 2036, you can see it’s a pretty good hit as it moves forward in each of those years. So definitely do take a time to look at that. And if you haven’t modeled it, you may want to take a look at it and see how it may impact you for your supplemental payments that you receive through Medicaid. And that pretty much covers what we wanted to discuss with you today. And again, appreciate the time that you’ve shared with us.
Speaker 1:
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