The CMS is proposing to adjust penalties in its Hospital Readmissions Reduction Program according to a hospital’s proportion of dual eligible patients, garnering praise from industry stakeholders even though they say the move is an incremental change.

The proposed rule, released Friday, would take effect in fiscal year 2019. In it, the CMS laid out several approaches and alternatives for determining hospital groupings, a hospital’s proportion of dually eligible patients, and other key metrics.

“It’s a good way to start,” said Francois de Brantes, vice president and director of Altarum Institute’s Center for Payment Innovation. But Medicare has been urged for a long time to examine ways to adjust for social and demographic factors, he added. “The proposed rulemaking still hasn’t fully resolved that question.”

The change stems from the 21st Century Cures Act, which was enacted in December 2016. The law required Medicare to take patient background into account when calculating payment reductions to hospitals under the Hospital Readmission Reduction Program, and to adjust those penalties based on the proportion of patients who were dual eligible for Medicare and Medicaid.

Such patients are disproportionately expensive for hospitals . According to a June report by the Medicare Payment Advisory Commission, they constituted 18% of beneficiaries yet accounted for nearly one third of total Medicare fee-for-service spending in 2012.

Rather than seek comment on a single method, the CMS proposal presented different options for implementing various aspects of this risk-adjustment strategy, such as the data period used to determine dual eligibility and the method used to calculate and adjust payments.

For example, it proposed basing the ratio of the dual eligibles on the total number of Medicare fee-for-service and Medicare Advantage beneficiaries. Using both would be more accurate, the CMS said, particularly in states that have high rates of Medicare managed care. But it also included an alternative approach: calculating dual eligibles using only Medicare fee-for-service stays.

Regardless of how the rules are calculated, Medicare-Medicaid beneficiaries are seen as a relatively consistent group and a clear outlier in terms of costs, said de Brantes.

“These are really, really complex patients,” de Brantes said. “This particular category of individuals has a bunch of things going on that is just very different from the general Medicare population, and so accounting for those differences makes a certain amount of sense.”

Hospitals and industry groups praised the proposal as a good first step, even as some of them called for more-complex risk adjustment.

The CMS’s proposed changes would help level the playing field for hospitals serving low-income patients, Dr. Bruce Siegel, CEO of America’s Essential Hospitals, an industry group for safety-net hospitals, said in a statement.

“But the rule is only the first step toward true risk adjustment for our patients’ social and economic challenges,” he added. “We must go beyond adjusting only payments to adjusting measures so quality comparisons are fair.” He said that AEH hoped the CMS would “extend this approach to other quality programs, when the evidence for risk adjustment is compelling.”

New York City Health & Hospitals Corporation, the city’s public hospital system, said that reviewing the changes would take some time. Still, “the principle of grouping hospitals who care for similar patients is an important step in the right direction, especially for safety-net providers like us,” Robert de Luna, a spokesperson for NYC H&H, said in a statement.

The CMS is also seeking comments on how several of its other quality programs, including the Hospital Value-Based Purchasing Program and the Hospital-Acquired Condition Reduction Program, and the Inpatient Quality Reporting Program, should account for social risk factors. It is accepting comments until June 13, 2017.

“You’ll have a lot of people criticizing the approach,” de Brantes said. “Those are fine criticisms, but the point is, if you don’t start somewhere, you never get any place. At least it puts the issue on the table.”