CMS Issues FY 2021 Inpatient Prospective Payment System (IPPS) Final Rule

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Highlights

  • The Centers for Medicaid & Medicaid Services (CMS) has released the Fiscal Year (FY) 2021 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule, which will affect discharges occurring on or after Oct. 1, 2020.
  • Notable provisions in the rule include the creation of a new Medicare Severity-Diagnosis Related Group (MS-DRG) for chimeric antigen receptor (CAR) T-cell therapy, the collection of market-based rate information beginning with cost reporting periods ending on or after Jan. 1, 2021, as well as changes to the new technology add-on payment (NTAP) pathway for certain antimicrobial products and other changes to new technology add-on payment policies.
  • This Holland & Knight alert provides a summary of some of the Final Rule's key components.

The Centers for Medicaid & Medicaid Services (CMS) has released the Fiscal Year (FY) 2021 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule. The rule will affect discharges occurring on or after Oct. 1, 2020.

CMS estimates that provisions in the Final Rule will result in a $3.5 billion increase in FY 2021 payments to IPPS hospitals. Increases will be driven primarily by the rise to IPPS rates, but also can be affected by other changes.

Additional notable provisions in the rule include the creation of a new Medicare Severity-Diagnosis Related Group (MS-DRG) for chimeric antigen receptor (CAR) T-cell therapy, the collection of market-based rate information beginning with cost reporting periods ending on or after Jan. 1, 2021, as well as changes to the new technology add-on payment (NTAP) pathway for certain antimicrobial products and other changes to new technology add-on payment policies.

A fact sheet on the Final Rule is available on the CMS website.

Below are highlights of a few of the rule's most noteworthy components:

Changes to Payment Rates Under IPPS

CMS expects a 2.9 percent increase in operating payments for hospitals that met their quality metrics. This update includes a market basket update of 2.4 percent, a zeroed-out productivity adjustment, and mandated documentation and coding adjustment of +0.5 percent.

Changes to Payment Rates under LTCH PPS

CMS expects that LTCH PPS payments will decrease by approximately 1.1 percent, or $40 million, in FY 2021. LTCH PPS cases paid the standard federal payment rate (i.e., cases that meet clinical criteria) are expected to increase by 2.2 percent, or approximately $74 million, while cases continuing to transition to the site-neutral payment rate (i.e., cases that do not meet clinical criteria) are expected to decrease by approximately 24 percent, or $114 million. This accounts for the LTCH site-neutral payment rate cases that will no longer be paid a blended payment rate with the end of the statutory transition period.

Medicare DSH Payments

Based on the Medicare statute, hospitals can receive Medicare Disproportionate Share Hospital (DSH) payments that are 25 percent of the amount they previously would have received under the law and an additional payment for the DSH proportion of uncompensated care (UC) determined as the product of three factors.

For FY 2021, CMS will distribute roughly $8.3 billion in uncompensated care payments for FY 2021, a decrease of approximately $60 million from FY 2020. This estimate of total uncompensated care payments reflects CMS Office of the Actuary (OACT) projections that incorporate the estimated impact of the COVID-19 pandemic.

UC Proposal to Use FY 2017 S-10 Data for DSH Payments

In the Final Rule, CMS updated its estimates of the three factors used to determine UC payments for FY 2021. CMS will continue to use uninsured estimates produced by OACT as part of the development of the National Health Expenditure Accounts (NHEA) in the calculation of Factor 2. However, given the unprecedented effects on health insurance enrollment as a result of the public health emergency for the COVID-19 pandemic, OACT has updated the NHEA-based projection of the FY 2021 rate of uninsurance using more recently available unemployment data.

Additionally, CMS will use a single year of data on uncompensated care costs from Worksheet S-10 of the FY 2017 cost reports to calculate Factor 3 in the FY2021 methodology for all eligible hospitals except for Indian Health Service (IHS) and Tribal hospitals and Puerto Rico hospitals. For IHS and Tribal hospitals and Puerto Rico hospitals, CMS will continue to use the low-income insured days proxy to calculate Factor 3 for these hospitals.

Additionally, CMS will calculate Factor 3 for FY 2022 using the most recent available single year of audited Worksheet S-10 data, except for IHS and Tribal hospitals and Puerto Rico hospitals.

Graduate Medical Education (GME)

CMS finalized policies to assist residents in closing teaching hospitals and closing residency programs attempting to find alternative hospitals in which to complete their training and to foster seamless Medicare indirect medical education (IME) and direct graduate medical education funding. For the purposes of transferring funded GME/IME residency slots, a "displaced resident" will now be an individual who is at the hospital on the day before there is a public announcement of the closure rather than the day before the actual closure.

Price Transparency

CMS finalized a controversial policy that hospitals will be required to report the median charge date from Medicare Advantage (MA) on their Medicare cost report for cost reporting periods ending on or after Jan. 1, 2021. This information would be used in the new methodology for calculating MS-DRG relative weights, which will then determine what a hospital will be reimbursed for providing inpatient hospital services.

CMS will require hospitals to report market-based payment rate information on their Medicare cost reports for cost reporting periods ending on or after Jan. 1, 2021. CMS will require hospitals to report on the Medicare cost report the median payer-specific negotiated charge by MS-DRG that the hospital has negotiated with all of its MA payers. Hospitals with a fiscal year that runs April 1 through March 31 will be the first to report this data, whereas hospitals with a fiscal year that runs Jan. 1 through Dec. 31 will be the last.

CMS did not finalize its proposal to require hospitals to report the median payer-specific negotiated charge by MS-DRG for all payers, not just MA. Given the similarity between MA rates and Medicare fee-for-service (FFS) rates, using MA data will provide a more modest impact on the new, market-based MS-DRG relative weight calculation process.

CMS will provide further instructions for reporting this market-based data in a forthcoming revision of a currently approved Information Collection Request, and may provide additional guidance as determined appropriate or necessary.

New MS-DRG for CAR T-Cell Therapy

CMS finalized a proposal to create a new standalone MS-DRG for CAR T-cell immunotherapy as these therapies will no longer be eligible for new technology add-on payments (NTAP) in FY 2021 as they have been in the previous few years. Correspondingly, the NTAP for both approved CAR T-cell therapies — Yescarta and Kymriah — will be discontinued.

The ICD-10 procedure codes XW033C3 and XW043C3 are assigned to the new DRG, MS-DRG 018 (CAR T-cell Immunotherapy). Also, CMS increased the payment per case for MS-DRG 018 by 0.18 percent and the estimated volume by 25 percent from the proposed to final rule. The FY2021 payment per case will be $239,928.79, with a total payment estimated at $34,789,674.24. The payment rate increase contributes to a 5.57 percent increase in payments for the oncology (medical) sub-service line.

CMS did note that it would distinguish between clinical trials and non-clinical trial therapies when calculating relative weights for the proposed DRG. Since the cost of the drug is not factored into a clinical trial, that would have an outsized impact in determining the cost of care calculations that are used to set reimbursement rates. (For example, based on prior years' claims data, CMS found that non-clinical trial CAR T-cell cases have an average cost of $274,952, while those in clinical trials were $44,853.)

Separately, CMS stated that it has begun to engage stakeholders regarding payment mechanisms for future solid tumor cell therapies, specifically Tumor-Infiltrating Lymphocyte (TIL) Therapy and Engineered T-Cell Receptor (TCR) Therapy.

Hospital Payment Updates for ESRD Treatments

CMS finalized its decision to create several new MS-DRGs for End-Stage Renal Disease (ESRD). These included 019 (Simultaneous Pancreas/Kidney Transplant with Hemodialysis), 650 (Kidney Transplant with Hemodialysis with MCC) and 651 (Kidney Transplant with Hemodialysis without MCC). CMS finalized its decision to exclude discharges classified to these newly proposed MS-DRGs from the existing policy that provides an additional payment to hospitals where inpatient dialysis services for ESRD beneficiaries constitute 10 percent or more of the hospital's total Medicare discharges.

Major Complication or Comorbidity (MCC) or Complication or Comorbidity (CC) Subgroups

CMS revised the criteria for creating a subgroup under a base MS-DRG to the non-complication or comorbidity (NonCC) subgroup. MS-DRGs contain base DRGs that are subdivided into one, two or three severity-of-illness levels. To determine if the creation of a new CC or MCC subgroup within a base MS-DRG is warranted, CMS evaluates the following criteria:

  • a reduction in the variance of costs of at least 3 percent
  • at least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup
  • at least 500 cases are in the CC or MCC subgroup
  • there is at least a 20 percent difference in average costs between subgroups
  • there is a $2,000 difference in average costs between subgroups

To warrant creation of a CC or MCC subgroup within a base MS-DRG, the subgroup must meet all five of the criteria above.

NTAP Application Criteria for Antibacterial and Antifungal Technologies

CMS finalized its proposal to expand the current alternative NTAP pathway, where approvals are based on cost criteria only, to include products approved under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD). CMS will also provide LPAD and qualified infection disease product (QIDP) technologies with conditional approval for NTAP, meaning the add-on payment would start the quarter after FDA approval. For products approved under the LPAD pathway, CMS also finalized its proposal to increase the maximum NTAP percentage to 75 percent.

NTAP Applications for FY 2021

CMS has finalized add-on payments for 24 new technologies. Of the 18 technologies that received NTAP in FY 2020, CMS finalized maintaining NTAP status for 10 technologies and discontinuing it for the remaining eight (the latter of which no longer qualify as "new").

For new applications, CMS finalized its decision to approve NTAP for 12 technologies, denied NTAP for five applicants, and seven applicants withdrew their applications. Of the approved technologies, seven devices applied through the traditional pathway and nine went through established alternative pathways (three devices with breakthrough status and six products designated as QIDP). Overall, Medicare spending on new technologies in FY 2021 will increase by 120 percent compared to FY 2020, for a total of $874 million.

Quality Reporting

CMS finalized minor updates to the quality reporting programs: Hospital Readmissions Reduction Program (HRRP), Value-Based Purchasing (VBP) Program and Hospital-Acquired Condition (HAC) Reduction Program. This includes changes to the Hospital Inpatient Quality Reporting (IQR) Program to progressively increase the number of quarters for which hospitals are required to report electronic clinical quality measure (eCQM) data, from one self-selected quarter of data to four quarters of data over three years, by requiring 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 the subsequent year. CMS also finalized its proposal to start publicly reporting eCQM data beginning with those reported by hospitals for the CY 2021 reporting period/FY 2023 payment determination.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

CMS finalized its proposal beginning in FY 2023 to refine two existing National Healthcare Safety Network (NHSN) measures, Catheter-Associated Urinary Tract Infection (CAUTI) and Central Line-Associated Bloodstream Infection (CLABSI) to incorporate an updated methodology developed by the Centers for Disease Control and Prevention (CDC) that uses updated healthcare-associated infections (HAI) baseline data that is risk-adjusted to stratify results by patient location. CMS also finalized its policy to begin to publicly report the updated versions of the CLABSI and CAUTI measures in fall CY 2022.

Promoting Interoperability Program

For CY 2022, CMS finalized its proposal to maintain the electronic health record reporting period for the new and returning hospital and CAH participants as a minimum of any continuous, 90-day period. Following changes implemented and finalized in the previous year's final IPPS rule, CMS finalized its proposal to maintain the Query of Prescription Drug Monitoring Program (PDMP) measure as an optional measure and eligible for five bonus points. To align with the Hospital IQR Program, CMS finalized its proposal to increase the required number of quarters for which hospitals must report eCQM data from one self-selected calendar quarter of data to four calendar quarters of data over three years. In CY 2021, hospitals will be required to report on four self-selected eCQMs. Beginning in CY 2022, hospitals will be required to report on the Safe Use of Opioids – Concurrent Prescribing eCQM. For the first time, CMS will make eCQM data publicly available on Hospital Compare, starting with data reported for the 2021 program year.

Low Wage Index Policy

For FY 2020, CMS implemented a policy that increased the wage index for hospitals with a wage index value below the 25th percentile. Impacted hospitals had their wage index value increased by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals. For FY 2021, CMS will maintain this policy. Hospitals with a wage index value below the 25th percentile will have their wage index value increased by half the difference between the final wage index for that hospital and the 25th percentile across all hospitals. Hospitals with wage index values below 0.8465 benefit in FY 2021.

Hospital Star Ratings

CMS did not include updates to the overall hospital quality star rating methodology in light of the COVID-19 pandemic. CMS stated that it will return to this topic in future rulemaking.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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