On May 11, 2020, CMS issued its annual Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System Proposed Rule for FY 2021 (the Proposed Rule), which will affect discharges on or after October 1, 2020. This article provides an overview of the key proposed changes. The Proposed Rule is available here, and a CMS fact sheet is available here. The deadline for submitting comments is July 10, 2020.

Payment Rates Overview

CMS projects that total Medicare spending on inpatient hospital services, including capital, will increase by about $2.07 billion in FY 2021. This compares to a proposed increase of $4.7 billion in Medicare inpatient spending in FY 2020. CMS projects that IPPS operating payments will increase by approximately 2.5 percent. Proposed changes in uncompensated care payments, new technology add-on payments, and capital payments will decrease IPPS payments by approximately 0.4 percent. Therefore, CMS estimates a total increase in IPPS payments of approximately 1.6 percent.

CMS projects that overall LTCH payments will decrease by approximately 0.9 percent or $36 million for FY 2021. For discharges paid using the standard LTCH payment rate, CMS expects payments to increase by 2.1 percent after accounting for the proposed annual standard Federal rate update for FY 2021 of 2.5 percent and an estimated decrease in outlier payments and other factors. CMS expects LTCH payments for cases that complete the statutory transition to the lower payment rate under the new dual rate system to decrease by roughly 20 percent.

DSH Payment Adjustment and Additional Payment for Uncompensated Care (UCC)

CMS distributes a prospectively determined amount of UCC payments to Medicare DSH hospitals based on their relative share of UCC nationally. CMS determines UCC payments using a 3-factor calculation, with the third factor being hospital specific. In FY 2021, CMS is proposing to distribute approximately $7.8 billion in UCC payments, down roughly $0.5 billion from FY 2020.

Since FY 2014, hospitals receive 25 percent (as estimated by CMS) of the DSH payment they would have received under the payment methodology that existed prior to FY 2014. The remaining 75 percent (Factor 1) is reduced by the change in national uninsured rates (Factor 2) and divided among eligible hospitals based on their proportionate share of UCC (Factor 3). For each hospital, the product of these three factors represents its additional payment for UCC for the applicable fiscal year.

Factors 1 and 2

CMS did not propose any changes to the Factor 1 calculation methodology for FY 2021. As before, Factor 1 is a pool of funds estimated by CMS at 75 percent of what empirical DSH payments would have been, absent ACA changes. To calculate this estimate, CMS used the most recently available projections of Medicare DSH payments for the fiscal year, as calculated by CMS’ Office of the Actuary (OACT) using the most recently filed Medicare hospital cost reports with Medicare DSH payment information and the most recent Medicare DSH patient percentages and Medicare DSH payment adjustments provided in the IPPS Impact File. The OACT estimate for FY 2021 is approximately $14 billion. Therefore, Factor 1 for FY 2021, after 25 percent reduction is $11.52 billion.

Factor 2 is calculated as 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals who were uninsured in 2013 and the percent of individuals who were uninsured in the most recent period for which data are available. The OACT estimates that the uninsured rate for the historical, baseline year of 2013 was 14 percent and that the uninsured rate for both CYs 2020 and 2021 is 9.5 percent. Using this data, Factor 2 is calculated at 67.86 percent.

The Proposed FY 2021 UCC amount equals the product of Factors 1 and 2: $7.82 billion.

Factor 3

The third factor is a hospital-specific value equal to the percent, for each subsection (d) hospital, that represents the quotient of: (1) the amount of UCC for such hospital for a period selected by the Secretary; and (2) the aggregate amount of UCC for all subsection (d) hospitals that receive a payment under section 1886(r) of the Act for such period.

For FY 2020, CMS calculated Factor 3 using the FY 2015 Worksheet S-10 cost report data. For FY 2021, CMS is proposing to again use a single year of audited Worksheet S-10 data, this time from FY 2017 cost reports, in calculating Factor 3 for all eligible hospitals, except for Indian Health Service (IHS) and Tribal hospitals and Puerto Rico hospitals.

For all subsequent fiscal years, CMS is proposing to calculate Factor 3 for all eligible hospitals, except IHS and Tribal hospitals, using the most recent available single year of audited Worksheet S-10 data.

Graduate Medical Education Policy

CMS is proposing policy changes that would aid medical residents affected by the closure of teaching hospitals and residency programs. The proposal would expand the existing definition of “displaced resident,” which is currently limited to residents who are physically present at the hospital training on the day prior to, or the day of, the hospital or program closure. This change would enable residents to transfer while hospitals or programs are winding down and would allow funding to be transferred for residents who are not physically at the closing hospital or program.

Bad Debt Policies

CMS is proposing to amend its bad debt regulation at 42 C.F.R. § 413.89 to codify the bad debt policies contained in Chapter 3 of the Provider Reimbursement Manual, effective for cost reporting periods beginning on, before, and after October 1, 2020. The proposed change includes policies pertaining to traditional, charity, and crossover bad debts. Please see our article here for a more detailed account of the proposed changes.

Hospital-Acquired Condition (HAC) Reduction Program

The HAC Reduction Program is a pay-for-performance program that reduces payments to hospitals that rank in the bottom quartile of all subsection (d) hospitals on HAC quality measures. Under the program, the total HAC score is calculated based on data collected from during a 2-year “applicable period,” as specified by the Secretary. Beginning with the FY 2023 program year and all subsequent program years, CMS is proposing to automatically adopt 2-year “applicable periods,” and to make corresponding updates to that term’s regulatory definition.

CMS is also proposing several changes to the HAC Reduction Program’s data validation procedures to promote alignment with the Hospital Inpatient Quality Reporting Program measure validation process.

Hospital Readmissions Reduction Program

The Hospital Reduction Program (HRRP) reduces payments to hospitals with excess readmissions based on certain claims-based outcomes measures. Similar to the changes proposed with respect to the HAC Reduction Program, CMS is proposing to automatically adopt applicable periods beginning with the FY 2023 program year and all subsequent program years. Accordingly, the Proposed Rule updates the definition of “applicable period” at 42 C.F.R. § 412.152 to align with this automatic adoption proposal.

New MS-DRG for Chimeric Antigen Receptor (CAR) T-cell Therapy

CMS is proposing to create a new MS-DRG for cases involving CAR T-cell therapies, which would improve payment for such therapies in the inpatient setting. This is an important development because cases involving the two CAR T-cell therapies that currently have FDA approval (KYMRIA and YESCARTA) will no longer be eligible for new technology add-on payments in FY 2021. As proposed, cases reporting either of the two ICD-10-PCS procedure codes that have been established for CAR T-cell therapy (XW033C3 or XW043C3) would be assigned to new MS-DRG 018. Currently, those procedure codes are assigned to MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC or T-Cell Immunotherapy).

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR Program reduces payment to hospitals that fail to meet the program’s reporting requirements. The Proposed Rule would require hospitals to report two quarters of data for the CY 2021 reporting period/FY 2023 payment determination, three quarters of data for the CY 2022 reporting period/FY 2024 payment determination, and four quarters of data beginning with the CY 2023 reporting period/FY 2025 payment determination and for subsequent years. The Proposed Rule would also publicly display electronic clinical quality measure (eCQM) data on the “Hospital Compare” website and/or data.medicare.gov.

The Proposed Rule would also make changes to the Hospital IQR Program validation process, including:

• Requiring the use of electronic file submissions for chart abstracted measure validation;
• Reducing the number of hospitals selected for validation from up to 800 to up to 400 hospitals;
• Combining the validation processes for chart-abstracted measures and eCQMs; and
• Formalizing the process for conducting educational reviews for eCQM validation in alignment with current processes for providing feedback for chart-abstracted validation results.

Hospital Value-Based Purchasing (HVBP) Program

The HVBP Program adjusts payments to hospitals based on certain performance metrics. The Proposed Rule includes estimated and newly established standards for some of these metrics for the FY 2023 through the FY 2026 program years.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

The PCHQR Program collects and publishes data on certain quality measures. The Proposed Rule would refine the Catheter-Associated Urinary Tract Infection and Central Line-Associated Bloodstream Infection standards to incorporate an updated methodology. Under the Proposed Rule, updated versions of these two standards would be publicly reported starting in fall of the CY 2022.

Hospital Star Ratings

CMS previously announced that it would include a proposed update to the Overall Hospital Quality Star Rating Methodology in the FY 2021 IPPS Proposed Rule. However, in light of the impact of COVID-19, CMS limited annual rulemaking required by statute to essential policies and proposals that reduce provider burden and aim to help providers in the COVID-19 response. CMS states that it will propose updates to the Overall Hospital Quality Star Rating methodology in future rulemaking.

Medicare and Medicaid Promoting Interoperability Programs

Under the Proposed Rule, CMS proposes an electronic health record (EHR) reporting period of a minimum of any continuous 90-day period in CY 2022 for new and returning participants in the Medicare Promoting Interoperability Program attesting to CMS.

CMS also proposes renaming the Support Electronic Referral Loops by Receiving and Incorporating Health Information measure to the “Support Electronic Referral Loops by Receiving and Reconciling Health Information” measure.

CMS also seeks public comment on the following proposals:

• Progressively increasing the number of quarters hospitals are required to report eCQM data;
• Publicly reporting eCQM performance data; and
• Correcting inadvertent technical errors in the regulation text, specifying transition factors for the incentive payments to Puerto Rico eligible hospitals.