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CMS Final Rule Ends the “25% Rule”

The Centers for Medicare and Medicaid Services (“CMS”) recently released a final rule that is meant to empower patients and reduce administrative burdens by advancing the MyHealthData and the CMS Patients Over Paperwork initiatives.  Payment policies and reimbursement rates are updated under the “Medicare Hospital Inpatient Prospective Payment System (“IPPS”) and Long-Term Acute Care Hospital (“LTCH”) Prospective Payment System Final Rule,” which will modernize Medicare by aiding in the shift from a fee-for-service to value-based payment system.  The final rule also creates greater transparency surrounding hospital prices, increases accessibility to Electronic Health Records (“EHR”), and allows providers to spend less time on paperwork and more time with patients.

The final rule reveals that CMS has finally decided to put an end to a special payment adjustment policy, known as the 25% rule.  The 25% rule was introduced in 2004, but its implementation had been postponed for years due to concerns about reimbursement.  The 25% rule would have reduced LTCH Medicare reimbursement if more than a quarter of the LTCH hospital had patients from a single acute-care hospital. The National Association of Long-Term Hospitals estimated that the reduced rate would have caused LTCHs to receive 50% to 60% less in reimbursement.

The rule was originally crafted by CMS because LTCHs often failed to follow payment criteria that defined qualifications for prospective payment system rates. This issue was addressed in the Bipartisan Budget Act of 2013 with the site-neutral payment policy. AHA Executive Vice President, Thomas Nickels said in a letter to CMS, “given the scale of LTCH cuts under site-neutral payment, implementing the 25% rule… would unjustifiably exacerbate the instability and strain on the field, which would threaten access for the high-acuity, long-stay patients that require LTCH-level care.” Furthermore, alternative payment models are now in place, which incentivize hospitals to follow the payment criteria.

In addition to eliminating the 25% rule, CMS’s final rule included other measures that will increase transparency between patients and hospitals. Hospitals will be required to publish their standard charges online by January 1, 2019. The information must be updated at least annually. A Request for Information (“RFI”) was released for public comments on how hospitals can be more transparent with their prices, and while some of the suggestions were implemented, CMS will still consider those that were not implemented for future initiatives.

The rule also solidifies a change in the way CMS reimburses uncompensated care. Namely, reimbursement will be based on Schedule S-10 forms.  This method is claimed to be more effective than the previous method for calculating uncompensated care, where reimbursement was based on how many Medicare patients were served by the hospital, because S-10 forms more clearly outline uncompensated care spending. Though some hospitals are concerned that S-10 forms may lead to underpayments CMS has indicated that it will conduct audits of the S-10 form to assure there is no underpayment occurring.

Another important part of the rule is the finalized “Promoting Interoperability” program, previously known as the EHR incentives program. The restructuring of the EHR incentives program has been in the works since a 2017 report by the OIG was released, which made recommendations to fix the program.  The Promoting Interoperability program will facilitate the exchange of information between patients and providers and create greater transparency by improving EHRs and increasing patient’s accessibility to EHRs.  Specifically, patients will be able to easily access their medical records and can share their records with multiple providers.  The idea is that more transparent record keeping will facilitate collaboration and coordination between providers.

The 25% rule would have caused unnecessary strain on LTCHs, as the site-neutral payment policy has proven to solve the issue the 25% rule sought to address, so the elimination of the rule is a success for LTCHs. Furthermore, all of the other measures set forth will create a shift in the way hospitals and providers operate, and CMS hopes that the shift will lead to better value-based care overall. Wachler & Associates will continue to stay up to date with changes to Medicare and other current healthcare topics.  If you or your healthcare entity has any questions pertaining to healthcare compliance, please contact an experienced healthcare attorney at (248) 544-0888, or via email at You may also subscribe to our health law blog by adding your email at the top right of this page

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