Blog Post

Inside CMS' 2,295-page final inpatient payment rule

By Heather BellShay PrattYe HoffmanRob Lazerow

August 3, 2021

    CMS on Monday released the Inpatient Prospective Payment System (IPPS) final rule for fiscal year (FY) 2022. Based on our initial analysis, CMS finalized most of the proposals, with a few a modifications.

    One noteworthy change is that instead of publishing one final rule, CMS split this year's final rule into two parts: the first focusing on payment rate updates and changes to inpatient quality and pay-for-performance programs, and a second forthcoming rule that will include public comments on proposals related to disproportionate share hospital payments, and new payments to hospitals for direct graduate medical education costs, and organ acquisition costs. CMS said it received more than 6,500 public comments on the FY 2022 proposals, and essentially, the agency needed more time to review the comments.

    Continue reading for our six initial takeaways from the final rule. But first, sign up for our webinar on Thursday, September 9 where we will break down everything you need to know about the final rule.

    Stay Up to Date: Join us Sept. 9 at 3 p.m. ET to get our take on the final rule 

    1. Hospitals get a 2.5% payment bump for inpatient care

    After accounting for newer forecasts that include Q2 2021 data, CMS finalized a slightly lower payment rate than initially proposed. For FY 2022, CMS will increase acute care hospital operating payments by about 2.5%, or $2.3 billion, for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users. CMS estimated that Medicare disproportionate share hospital payments and Medicare uncompensated costs will decrease by $1.4 billion compared with 2021.

    IPPS final rule

    Hospitals may be subject to additional payment adjustments depending on their participation and performance in various programs, including the Hospital Readmissions Reduction Program, the Hospital- Acquired Condition Reduction Program, and the Hospital Value-Based Purchasing Program.

    As proposed, CMS relied on FY 2019 data, instead of FY 2020 data, to calculate payment rate changes. CMS typically uses the most recently available inpatient hospital utilization data, but 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 FY 2019 levels than FY 2020.

    CMS also finalized a proposal to rebase and revise the IPPS operating market basket and IPPS capital market basket to reflect a 2018 base year, instead of a 2014 base year. The final rule also rebased and revised the national-labor related and nonlabor-related shares using the 2018-based market basket.

    2. CMS repeals new market-based MS-DRG relative weight methodology

    One of the biggest changes coming out of the proposed rule was CMS' decision to abandon a FY 2021 policy that required 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.

    CMS in the final rule officially repealed the requirement, saying it will continue to use the existing cost-based MS-DRG relative weight methodology to set future Medicare payment rates for inpatient stays. The move was welcomed by the American Hospital Association, which said the rates were not "an appropriate benchmark for fee-for-service Medicare payments."

    When CMS unveiled the proposal, many media outlets suggested the move could be a blow to price transparency efforts. But upon closer review, the decision appears to be less about price transparency and more about its decision not to overhaul the MS-DRG relative weight methodology at this time. In fact, CMS latest proposal in the hospital outpatient rule suggests the agency is doubling down on price transparency efforts by ramping up enforcement.

    3. CMS extends add-on payments for new technologies and Covid-19 treatments

    CMS also extended the New Covid-19 Treatments Add-on Payment (NCTAP) through the end of the fiscal year in which the public health emergency 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 established NCTAP for IPPS last year 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. This extension is an important safety net for hospitals and health systems, which will continue to see hospitalizations for Covid-19—and in some areas are seeing a resurgence in hospitalizations related to the Delta variant.

    Relatedly, because of the impact of the pandemic, CMS finalized a one-year extension of New Technology Add-on Payments (NTAP) for 13 technologies that were set to expire. The agency also approved 19 technologies that applied the NTAP status for FY 2022. This means a total of 42 technologies will receive NTAP status for FY 2022, which CMS estimates will result in a 77% increase in NTAP spending over FY 2021 levels.

    4. CMS adopts new Inpatient Quality-Reporting (IQR) Program measures

    CMS adopted four new IQR measures, including two that will impact the CY 2021 reporting period:

    • The Maternal Morbidity Structural Measure, which will assess whether hospitals participate in perinatal Quality Improvement initiatives and implement safety practices or bundles;
    • COVID-19 Vaccination Coverage Among Health Care Personnel measure, which will assess the percentage of health care workers who have been vaccinated against Covid-19.

    The fact that these two measures will be implemented immediately signals the Biden administration's commitment to addressing care disparities in maternal mortality and the encouraging more Americans to get vaccinated against Covid-19. The other two new measures will begin in CY 2023.

    In addition, CMS removed three measures it determined were either made redundant by new measures or had costs that outweighed the benefits. Beginning in CY 2023, hospitals also will be required to use certified EHR technology that has been updated consistent with the 2015 Edition Cures Update.

    5. CMS finalizes risk 'freeze' extension for MSSP ACOs

    The final rule also includes additional flexibility for ACOs participating in the Medicare Shared Savings Program's BASIC track: CMS is giving ACOs in the BASIC track another year to avoid automatically taking on more risk. However, it's worth noting that ACOs that opt for the freeze for PY 2022 will 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 we continue to view this freeze separately from the delays we've seen among CMMI payment models.

    6. CMS marches forward with interoperability and bi-directional exchange

    The final rule reflects CMS' commitment to strengthening the nation’s electronic health information exchange infrastructure, with a particular focus on public health reporting.

    CMS finalized a majority of their proposals for 2022, and it’s clear they are raising the bar for PI performance. Starting 2022, the minimum required scoring threshold will increase to 60 points. There are two updates that have the most significant and immediate impact on hospitals' PI reporting strategy in 2022:

    • Hospitals can choose to report a new, Health Information Exchange Bi-Directional Exchange measure, instead of the two existing Health Information Exchange measures;
    • Hospitals must report four measures, each playing a critical role in longer-term pandemic recovery and preparing for future public health threats: Syndromic Surveillance, Immunization Registry, Electronic Case Reporting, and Electronic Reportable Laboratory Result Reporting.

    The agency did not finalize a new data availability requirement under the Provide Patients Electronic Access to Their Health Information measure, which would have required hospitals to make all patient health information available indefinitely.

    The rule makes it clear that the coming changes to the hospital PI program will continue to refine what it means to be a meaningful user of certified EHR technology and prioritize quality reporting improvements. Stay tuned for more resources to come on the 2022 PI program requirements.

    Stay Up to Date: FY 2022 IPPS Final Rule

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

    Join us on September 9 to get our take on the final rule.

    Register now
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