Blog Post

The winners (and losers) in Medicare's 2022 inpatient proposed rule

By Heather BellLauren Robinson

May 25, 2021

    CMS recently released the Inpatient Prospective Payment System (IPPS) Proposed Rule for fiscal year (FY) 2022—and Advisory Board's experts combed through the proposal to identify the service line "winners" and "losers."

    Our 7 takeaways from Medicare's first big payment rule under Biden

    Read on to learn which service lines would see the biggest reimbursement changes based on the proposed IPPS rule. But first, download Advisory Board's detailed service line analysis to identify how the proposed rule affects reimbursement across service lines and sub-service lines.

    Download the analysis

    Strong payment rate update across service lines

    Each year, we analyze how proposed changes affect service line reimbursement. The changes take into consideration rate updates and potential case shifts that could stem from procedural and diagnosis code reassignment.

    Our volume-weighted analysis of the proposed payment rate changes indicates inpatient payments would see a modest 2.79% increase in FY 2022. The estimated payment across service lines is slightly higher, at a 2.88% increase in estimated payments from FY 2021 to FY 2022, if provisions are finalized as proposed.

    Data spotlight: Plus 2.79 percent weighted average payment increase and plus 2.88 percent weighted average payment increase across service lines

    Note: Weighted average change includes: Market basket update (+2.5%, -0.2% multifactor productivity adjustment, +0.5% MACRA-mandated adjustment). Assumes all hospitals receive full market basket update without reductions for failing to meet meaningful use requirements or quality reporting. Assumes a wage index of 1. Excludes impact of other facility-specific operating payment adjustments such as geographic adjustments, DSH, etc.

    General medicine receives strongest payment rate update

    General medicine (3.29%), orthopedics (2.92%), neurology (3.08%), and vascular (3.08%) are the clear winners as they received higher payment updates than service lines with comparable volumes and case mixes. Thoracic surgery (3.08%), ENT (2.99%), and gynecology (2.95%) also experienced above average rate hikes, but these service lines combined account for less than 2% of total discharges.

    Payment change for select service lines

    General medicine's overall payment rate update was driven by strong updates across sub-service lines, with the three highest volume sub-service lines—pulmonology, infectious disease, and gastroenterology—each seeing payment updates of +3% or higher.

    Similarly, neurology saw above average payment rate increases across sub-service lines, with its largest sub-service line, stroke and transient ischemic attack, seeing a 3.09% increase.

    Orthopedics' strong payment rate update was driven in part by above average rate increases to joint replacements (2.94%), general medicine orthopedics (3.48%), and other surgical orthopedics (3.03%). The only orthopedic sub-service lines that experienced below average increases were hand (.88%) and sports medicine (1.24%)—two lower volume sub service lines—and medical trauma orthopedics, which came in just below average at 2.86%.

    The payment bump for vascular services is a result of above average payment rate increases across most sub-service lines. Body injuries was the only sub-service line to see a below average rate increase of 2.18%.

    Advisory Board's analysis also shows that the weighted average payment increase for medical DRGs is 3.17%, while surgical DRGs trail behind at 2.58%.

    The 'losers' were few and far between—but included a few high-volume service lines

    There were no service line payment updates that were below zero, and most received updates that were just short of the overall payment rate increase of 2.88%: cardiac services (2.6%), spine (2.87%), oncology/hematology (2.59%), and general surgery, which has the lowest payment rate increase among service lines at 2.3%.

    While these service lines saw below average increases, combined they account for 31% of total discharges. Cardiac and general surgery account for 18% and 7% of total discharges, respectively. Even among sub-service lines, just two came out with losses: skin (-3.34%) and upper GI (-2.92%), both of which account for less than 1% of discharges.

    Notable changes to cardiac codes

    The largest volume shift observed is for DRGs 292 and 293 (Heart failure and shock), which saw a decrease in volumes of 65.87% and 73.54%, respectively, as a result of cases shifting to the higher reimbursed DRG 291. This spells good news for cardiovascular programs as it means more than 72,000 heart failure cases are expected to shift to the higher reimbursed DRG in FY 2022. 

    We observed another notable shift for DRG 215 (Other Heart assist system implant), which saw a 43% decrease in volumes. This shift is in part due to CMS' proposal to reassign three ICD-10-PCS codes (02HA0RJ, 02HA3RJ, and 02HA4RJ) from DRG 215 to DRGs 216-221, with most cases mapping to in DRG 218. CMS estimates the proposed shift would lead to a more than $6,000 increase in the average cost of cases remaining in DRG 215.

    One thing worth noting: CMS proposed to delay changes finalized in last year's rule that would expand its process for evaluating requests to create new subgroups to the Non-CC subgroup. CMS determined that applying this change to existing three-tier MS-DRGs would result in 96 DRG deletions and the creation of 58 new DRGs. Among those impacted, would be cardiac DRGs 216-218 and 288-290. Given the impact and the ongoing pandemic, CMS is now proposing to delay those changes until FY 2023.

    Most new procedure codes receive OR designation

    CMS also established 127 new procedure codes—a majority of which were assigned OR status. The most common MDCs assigned to the OR designed procedure codes were MDC 21 Injuries, poisonings and toxic effects of drugs—these accounted for 30% of all new OR designated procedure codes—and MDC 24 Multiple significant trauma—these accounted for 26% of all new OR designated procedure codes.

    Proposed rates subject to change

    Of course, it's important to remember that this analysis is based on CMS' proposed rule. These payment rates updates can change before the final rule comes out this summer as CMS gets newer data. We'll do a final analysis when CMS releases its final IPPS rule, which is expected to be released by August 1.

    Stay Up to Date:  FY 2022 IPPS proposed rule

    calendarCMS recently unveiled the FY 2022 Inpatient Prospective Payment System proposed rule. In this edition of Stay Up to Date, we'll take a deep dive into CMS' proposals to update inpatient payments and quality requirements in FY 2020.

    Join us on May 27 to get our take on the proposed rule, plus an update on the biggest health care news of the day.

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