On Tuesday, CMS released the Inpatient Prospective Payment System (IPPS) proposed rule for fiscal year (FY) 2022.

This is the first inpatient payment update rule we've seen from the Biden administration and it signals that CMS is preparing to act on some of President Biden's top priorities: accounting for the Covid-19 pandemic response and bringing a health equity lens to federal policy and quality programs.

Stay tuned for our quantitative analysis of the IPPS winners and losers, and be sure to join us on Thursday, May 27 for an hour-long webinar breaking down everything you need to know about the proposed rule.In the meantime, here are our seven initial takeaways from the proposed rule.

Stay Up to Date: Join us on May 27 to learn how CMS wants to update Medicare inpatient payments.

1) CMS proposes a strong inpatient payment rate increase—but it's based on older utilization data

CMS' proposed rule would increase acute care hospital operating payments by about 2.8%, or $3.4 billion in total. However, after accounting for proposed methodology changes to Medicare Disproportionate Share Hospital payments and uncompensated care payments, CMS estimated Medicare payments to acute care hospitals will increase by $2.5 billion.

The proposed rate update is the product of a stronger market basket increase and fewer downward adjustments than in recent years. But CMS also noted one thing it did different this year: To calculate payment rate changes, CMS typically uses the most recently available inpatient hospital utilization data, which tends to have a 2- to 3-year lag. But instead of relying on FY 2020 data, CMS in this rule proposed using FY 2019 data in light of the pandemic. That's because the agency expects Covid-19 cases and hospitalizations to decline in FY 2022, suggesting the agency expects hospital utilization will look closer to pre-pandemic levels than FY 2020. Relatedly, CMS is proposing a one-year extension of New Technology Add-on Payments for 14 technologies that were set to expire.

CMS is inviting hospitals to weigh in on the proposed data utilization change—and floated an alternative option of using FY 2020 data.

2) CMS proposes extending New Covid-19 Treatments Add-on Payment

Last year, CMS established a New Covid-19 Treatments Add-on Payment (NCTAP) for IPPS to enable providers to bill for Covid-19 treatments available for emergency use or approved by FDA. The NCTAP was important for adequately reimbursing hospitals for inpatient Covid-19 care when the cost of treatment exceeded the payment rate of the assigned MS-DRG. The NCTAP was initially approved in November 2020 and would remain in place through the duration of the Public Health Emergency (PHE).

In this rule, CMS proposes to extend the use of the NCTAP beyond the end of the PHE. Hospitals will continue to see hospitalizations for Covid-19 well after the PHE officially ends, and care for these patients will continue to be costly. This added flexibility from CMS would be an important safety net for hospitals and health systems as they manage well past the height of the pandemic. CMS is proposing to extend the NCTAP through the end of the fiscal year in which the PHE concludes. This means if the PHE remains in place through the end of the year, as the Biden administration has signaled, the NCTAP would be available through September 30, 2022.

CMS cites two big considerations that drove this decision:

• The agency does not want to create any financial disincentives for providing new Covid-19 treatments; and
• Ending the NCTAP at the conclusion of the PHE could create unnecessary payment disruption for acute care institutions seeking financial recovery through the pandemic.

CMS does anticipate that additional add-on payments could become available for specific Covid-19 treatments in the future. Where applicable, those new add-on payments will replace the NCTAP.

3) CMS proposes eliminating a component of price transparency

As we highlighted last year, CMS in the FY 2021 IPPS final rule said beginning January 1, 2021, it would require hospitals to disclose median charges negotiated with Medicare Advantage (MA) organizations on their cost reports. The goal was to use the data to inform a new, market-based calculation methodology to set MS-DRG relative weights, which would then determine what a hospital would be reimbursed for providing inpatient hospital services. This is notable because it would have directly examined the interplay between reimbursement rates for traditional Medicare and MA—and was a key price transparency effort for Medicare spending.

However, CMS is now proposing to eliminate both the MA charge data reporting requirement and the new methodology for MS-DRG relative weights in light of public comment that raised questions about the data's usefulness. Instead, CMS said it would continue to use its existing cost-based methodology.

This change is a welcome reprieve for hospitals. CMS previously estimated the policy would cost hospitals $4.3 million and 63,780 hours to comply, which would be a considerable burden for many hospitals as they recover from the Covid-19 pandemic. 

4) CMS proposes applying an equity lens to quality programs, GME slots, and more

CMS also took action on Biden's executive order an advancing racial equity, including a request for information on "closing the gap in health equity." To start, CMS proposed adding 1,000 new Medicare-funded medical residency positions to train physicians, with up to 200 slots beginning in FY 2023—and the agency wants to prioritize applications from qualifying hospitals with underserved patient populations.

CMS also proposed new ways to account for disparities. In the past, CMS has largely focused on social risk, such as dual eligibility for Medicare and Medicaid. But the newly proposed rule's inclusion of risk factors related to race and ethnicity, as well as a push for hospitals to collect more detailed demographic data, signals a commitment to health equity we have not previously seen from an administration. CMS also is asking for comment on potentially developing a health equity score measure for hospitals based on the Health Equity Summary Score used for MA plans.

Your information blocking toolkit

Hospital leaders have a real opportunity here to weigh in and help shape CMS' approach to equity to make sure any potential score or additional data collection are useful to both CMS and providers. CMS' past actions have signaled they are listening to stakeholders' concerns, so we would encourage you to be part of these early conversations.

5) CMS proposes risk 'freeze' extension for MSSP ACOs

The proposed rule also includes good news for ACOs participating in the Medicare Shared Savings Program's BASIC track: CMS proposed giving ACOs in the BASIC track another year to avoid automatically taking on more risk. CMS noted that 74% of eligible BASIC track ACOs chose to remain at their current risk level for performance year (PY) 2021 after CMS finalized the risk "freeze" in the calendar year 2021 Physician Fee Schedule rule. However, it's worth noting that ACOs that opt for the freeze for PY 2022 would have to skip to the risk level they would have otherwise attained in 2023 without the freeze.

The agency said it decided to extend the option for PY 2022 in light of the uncertainties surrounding the pandemic, so it's unlikely this freeze should be viewed in the same vein as the delays we've seen among CMMI payment models. We'll be watching to see how CMS and CMMI approach risk and value-based payment model participation under the Biden administration.

6) CMS proposes quality payment measure 'suppression'

CMS also proposed a "measure suppression policy" for certain value-based purchasing programs. CMS noted that the Covid-19 pandemic may have impacted hospitals' performance in the Hospital Readmissions Reduction Program (HRRP), Hospital-Acquired Conditions (HAC) Reduction Program, and Hospital Value-Based Purchasing (VBP) Program. As such, CMS proposed suppressing any data the agency determines may have been affected, either positively or negatively, by the pandemic.

For example, CMS proposed suppressing most VBP program measures and giving hospitals neutral payment adjustments for FY 2022. For the HAC Reduction program, CMS proposed excluding 2020 performance data for FYs 2022 and 2023, and for HRRP, CMS proposed suppressing the pneumonia readmissions measure for FY 2023 altogether excluding Covid-19 diagnosed patients from the remaining five measures.

7) CMS proposes bolstering access to electronic health data

Another theme that stood out in this proposed rule is the importance of standardizing electronic exchange to make data more usable. CMS put a strong emphasis on the FHIR API standard across multiple initiatives, requesting feedback and proposing policies that rely on APIs to support health care quality and data access.

Given the importance of electronic data sharing—and the Covid-19 pandemic shining a light on the need for timely access to health data—we're not surprised to see several updates proposed for the hospital Promoting Interoperability (PI) program. CMS continues to turn up the dial on what it means for hospitals to be a "meaningful user" of certified electronic health record technology. For example:

• For 2022, the PI performance period is proposed to be 90 days, but would increase to 180 days in 2023.
• The proposed threshold for meeting PI requirements is 60 points in 2022. Hospitals have a total of 115 points available to earn across PI measures, including bonus points.
• The public health and clinical data exchange objective would require four measures in 2022 as proposed, twice the number of measures previously required. The proposed measures are Syndromic Surveillance, Immunization Registry, Electronic Case Reporting, and Electronic Reportable Laboratory Result Reporting.
• Hospitals can choose to report an optional, bi-directional exchange measure proposed for 2022, instead of the two existing Health Information Exchange measures. This proposal echoes what PI measures are available to providers in the Merit-based Incentive Payment system.

CMS also continues to align the hospital PI program's electronic Clinical Quality Measure (eCQM) reporting requirement with the Inpatient Quality Reporting program. The proposal did not change the measures available in 2022, but it would add two new eCQMs for 2023 and remove four eCQMs starting 2024.

More broadly, CMS continues their plans for moving toward digital quality measures. For example, the proposal seeks comment on using the FHIR standard for eCQMs, standardizing quality measure data collection via FHIR-based APIs, and developing a common portfolio of measures for alignment between programs. CMS is also looking for feedback on how best to measure patients' engagement with their electronic health information, and how the agency can further incentivize hospitals to make more clinical notes available to patients. We're eager to see where CMS will continue to push on unlocking access to electronic health data, both for the purposes of the hospital PI program and across other quality reporting programs.

This is still a proposed rule

As always, it's important to remember that this is still a proposed rule, and a wide range of outcomes can be expected when the final rule arrives later this summer. Advisory Board will provide additional commentary and analysis as we continue to dissect the 1,914-page proposed rule, and we invite you to join us for a deeper discussion during our webinar on May 27.

The comment period for the public to submit feedback on this proposed rule is open through June 28. To submit your comments directly to CMS, please visit www.regulations.gov.