CMS’s FY 2021 Medicare IPPS and LTACH Proposed Rule: Key Takeaways

CMS recently released the proposed rule for the FY 2021 Medicare Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTACH).  The proposed rule signals some good news for providers including an increase to hospital payment rates and technology add-on payments.

Recognizing the current public health emergency and strain caused by COVID-19, CMS is attempting to limit the focus of the proposed rule to essential policies aimed at supporting providers in pandemic response efforts.

CMS is accepting comments on the proposed rule until July 10, 2020.  If finalized, the proposed changes would affect discharges occurring on or after October 1, 2020.  A high-level summary of key takeaways is provided below.

 1.  Changes to Hospital Payment Rates under IPPS

Overall, for FY 2021, CMS projects a spending increase of $2.07 billion for inpatient hospital services, including capital. CMS proposes to increase operating payment rates by approximately 3.1% for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program (IQR) and are meaningful electronic health record (EHR) users.  Together with other proposed changes to IPPS payment policies (e.g., changes in uncompensated care payments, new technology add-on payments, and capital payments), the rate increase will result in an overall increase in IPPS payments of approximately 1.6%.

Hospitals may be subject to payment adjustments for excessive readmissions relative to similarly situated hospitals with dual eligible beneficiaries, and for being in the worst-performing quartile under the Hospital-Acquired Condition Reduction Program.  Hospitals may also be subject to upward or downward adjustments under the Hospital Valued-Based Purchasing Program.

2. Changes to Payment Rates under LTACH PPS

CMS has proposed an overall increase of 2.1% for discharges in FY 2021 under the LTACH standard reimbursement structure. A rebasing of the LTACH market basket from a 2013 base year to a 2017 base year has been proposed.  This change utilizes LTACH-only data based on the most comprehensive data available for use.  The rebasing will also be utilized in the proposed update to the Labor Related share which will increase from 66.3% (using the 2013 base year) to 68.0% (using the 2017 base year).  CMS has not proposed any changes to the LTACH Quality Reporting Program for FY 2021.

3. Medicare Uncompensated Payments

In FY 2021, CMS has proposed to distribute approximately $7.8 billion in uncompensated care payments.  This is a decrease of approximately $0.5 billion from FY 2020.  Except for Indian Health Service and Tribal Hospitals, CMS has proposed using a single year of data on uncompensated care costs from Worksheet S-10 of the FY 2017 cost report to distribute the funds for FY 2021.  For subsequent years (except for Indian Health Service and Tribal Hospitals), CMS has proposed using the most recent available single year of audited Worksheet S-10 data to distribute uncompensated care payments.

4. Potential Utilization of Market-Based Data to Calculate Medicare-Severity Diagnosis-Related Group (MS-DRG) Relative Weight Methodology

To reduce reliance on the hospital chargemaster, CMS proposes that hospitals be required to report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after January 1, 2021.  This data would be used in a potential change to the methodology for calculating the IPPS MS-DRG relative weights to reflect relative market-based pricing.

Specifically, CMS has proposed that hospitals report the following on their Medicare cost report:

    • The median payer-specific negotiated charge the hospital has negotiated with all of its Medicare Advantage (MA) organizations payers, by MS-DRG; and
    • The median payer-specific negotiated charge the hospital has negotiated with all of its third-party payers, which would include MA organizations, by MS-DRG.

Note: For third-party payers that do not use the MS-DRG patient classification system, the payer-specific negotiated charges they negotiate with hospitals would be based on the system used by that third-party payer, such as per diem rates or APR-DRGs.

According to CMS, the payer-specific negotiated charges used by hospitals to calculate these medians would be the payer-specific negotiated charges for service packages that hospitals are required to make public under the requirements finalized in the Hospital Price Transparency Final Rule (84 FR 65524) that can be cross-walked to an MS-DRG.  If the market-based data collection is finalized, hospitals would use the payer-specific negotiated charge data that they would be required to make public, then calculate the median payer-specific negotiated charges to report on the Medicare cost report.

CMS is seeking comment on the potential change to the methodology for calculating the IPPS MS-DRG relative weights to incorporate this market-based rate information, beginning in FY 2024.

5. New Technology Add-On Payment (NTAP) Pathway for Certain Antimicrobial Products and Transformative Devices

The NTAP policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies, while preserving some incentives inherent to an average-based prospective payment system.  Antimicrobial resistance continues to be a concern and, as a result, CMS has proposed some changes for new technology add-on payments for certain antimicrobials for FY 2021.

Specifically, CMS has proposed to expand the new alternate technology add-on payment pathway for Qualified Infectious Disease Products (QIDPs) to include products approved through the FDA’s Limited Population pathway for Antibacterial and Antifungal Drugs (LPAD pathway).  Applications received for new technology add-on payments for FY 2022 and subsequent fiscal years, if an antimicrobial product is approved through the FDA’s LPAD pathway, will be considered new and not substantially similar to an existing technology for purposes of the new technology add-on payment under the IPPS. It will not need to meet the requirement that it represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.

CMS further proposes to provide for conditional NTAP approval for products designated as QIDPs that do not receive FDA marketing authorization by July 1, as well as products that do not receive approval through the FDA’s LPAD pathway by July 1 but otherwise meet the applicable add-on payment criteria.  Cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization, provided that the technology received FDA marketing authorization by July 1 of the particular fiscal year for which the applicant applied for new technology add-on payments.

6. Hospital Inpatient Quality Reporting (IQR) Program

CMS has proposed changes to the Hospital IQR Program, a pay-for-reporting quality program that reduces payment to hospitals which fail to meet program requirements.  CMS has proposed reporting, submission, and public display requirements for electronic clinical quality measure (eCQM) data.  Proposals include:

    • Progressive increase of the number of quarters of eCQM data reported, from one self-selected quarter to four quarters of data over a three-year period. The breakdown:
    • Two quarters of data for the CY 2021 reporting period / FY 2023 payment determinations;
    • Three quarters of data for the CY 2022 reporting period / FY 2024 payment determination; and
    • Four quarters of data for the CY 2023 reporting period / FY 2025 payment determination, and for subsequent years.
    • Begin public display of eCQM data beginning with data reported by hospitals for the CY 2021 reporting period and for subsequent years.

CMS also proposed additional changes to streamline the validation process under the Hospital IQR Program.  These include:

    • Requirement to use electronic file submissions via a CMS-approved secure file transmission process rather than paper submission of medical records or copies on CD, DVD, or flash drive.
    • Combine the validation processes for chart-abstracted measures and eCQMs (align data submission quarters, combine hospital selection, remove previous exclusion criteria, and combine scoring processes by providing one combined validation score for the validation of chart-abstracted measures and eCQMs with the eCQM portion of the combined score weighted at zero).
    • Formalize the process for conducting educational reviews for eCQM validation in alignment with current processes for providing feedback or chart-abstracted validation results.

7. Promoting Interoperability Program

CMS has proposed several changes to the Medicare Promoting Interoperability Program (formerly known as the Medicare and Medicaid EHR Incentive Programs), including, but not limited to:

    • EHR reporting period of a minimum of any continuous 90-day period in CY 2022 for new and returning participants (eligible hospitals and CAHs).
    • To maintain the Electronic Prescribing Objective’s Query of PDMP measure as optional and worth 5 bonus points in CY 2021.
    • To modify the name of the Support Electronic Referral Loops by Receiving and Incorporating Health Information measure.

CMS is also seeking comment on proposals related to reporting of eCQM data, which proposals align with those related to the Hospital IQR Program.

 8. Hospital Star Rating – Update Delayed

 The long awaited update to the Hospital Quality Star Rating methodology was again delayed as a result of the COVID-19 public health emergency.  CMS has indicated an intention to revisit the rating system at a later date.

Despite CMS’s efforts to focus on essential policies in the current public health emergency, there are still many proposals worthy of attention from providers.  For any questions regarding the FY 2021 Proposed Rule, or for any organizational assistance with any other health care regulatory or operational matters, please contact Advis, or call 708.478.7030.

Published: May 20, 2020