At the Margins

The winners (and losers) in Medicare's 2021 inpatient proposed rule

by Lauren Robinson, Robert Ryan, Sebastian Beckmann, Ashley Riley, and Emily Heuser

CMS recently released the Inpatient Prospective Payment System Proposed Rule (IPPS) for fiscal year (FY) 2021—and Advisory Board's experts combed through the proposal to identify the "winners" and "losers" in the proposed rule. 

Access Advisory Board's service line analysis to identify how CMS' 2021 Proposed IPPS Rule affects reimbursement across service lines.

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Strong payment rate update across service lines

Every year, we analyze how proposed changes affect service line reimbursement. The changes take into consideration rate updates and speculative case shifts given the reassignment of various codes. Our volume-weighted analysis of the proposed payment rate changes indicates inpatient payments should see a +2.93% update in FY 2021, which is a 0.17 percentage point increase from the FY 2020 final rule. The estimated payment across service lines is also substantial, at nearly a +3.01% increase in estimated payments from FY 2020 to FY 2021, if provisions are finalized as proposed.

Note: Weighted average change includes: Market basket update (+3.0%, -0.4% multifactor productivity adjustment, +0.5% documentation and coding add-back). 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.

Payment rate updates resulted in mostly 'winners' across service lines

General medicine, orthopedics, neurology, and oncology are the clear winners as they received higher payment updates than service lines with comparable volumes and case mixes. Other trauma, urology, and ENT experienced an average rate hike of 5.31%, but these service lines account for just 3.39% of total discharges.

(1) Estimated volumes computed from FY 2019 MedPAR volumes grouped to CMS proposed v38.0 grouper for FY 2021.

Note: Advisory Board calculations were computed with Tables, 1A-1E, 5, and 7A and 7B as of 5/19/2020. Our calculations were completed even though CMS MedPAR volumes have a delta discrepancy of 187 cases.

General medicine's overall payment rate update was driven by strong updates to gastroenterology (3.58%), infectious Disease (3.24%), and pulmonology (2.87%).

Similarly, neurology's largest sub-service line, "Stroke and Transient Ischemic Attack," saw a 3.80% increase. That increase is partly attributable to the high payment increase of 5.60% for MS-DRG 064, which makes up 28% of the sub-service line discharges.

Oncology's payment bump is a result of a 5.27% increase for the "Oncology (Medical)" sub-service line. The new DRG (MS-DRG 18) for Chimeric Antigen Receptor (CAR) T-Cell Therapy will be a payment boost for providers. Currently, reimbursement for CAR T-cell therapies is tied to MS-DRG 016 (autologous bone marrow transplant with CC/MCC) and supplemented with technology add-on payments. Our analysis indicates that the proposed DRG 18 contributes to less than 0.0015% of oncology (medical) volumes but makes up 0.032% of estimated payments.

The 'losers' were few and far between

There were no service line payment updates that were below zero, and even among sub-service lines, the losses are small. Only a few service lines saw updates that were short of the overall payment rate update of +2.93%: neurosurgery (+2.81%), cardiac services (+2.6%), general surgery (+2.05%), and thoracic surgery (+0.37%). Although thoracic surgery ranked well below the average payment rate update, the +0.37% increase is notable considering that last year it faced a payment rate cut of over 5%.

Notable changes to orthopedics reimbursement will accelerate outpatient shifts

The most notable volume shift observed is for DRGs 469 and 470 that saw a 67.22% decrease in volumes as a result of the new MS-DRGs 521 and 522 (hip replacement with fracture) that collectively make up 65,161 cases. The new DRGs for joint replacement with hip fractures will likely increase average Medicare margins for DRGs 469 and 470, as the more expensive cases historically included in these DRGs will shift to the new DRGs. This margin boost will be especially high for programs that see a disproportionately large number of hip fracture cases.

The creation of new DRGs will likely advance the outpatient shift of DRGs 469 and 470 that began when CMS removed hip replacement from the inpatient-only list in the 2020 Hospital Outpatient Prospective Payment System rule. Hip fracture cases have higher average lengths of stay than DRGs 469 and 470 without hip fracture, meaning a higher share of remaining 469/470 volumes will be clinically eligible for same-day discharge. Our analysis of 2018 MedPAR data shows that 21% of Medicare total hip arthroplasty (THA) cases are eligible for outpatient care—this figure is likely to increase as the more complex hip fracture cases are assigned to the new DRGs.

Assess your risk of outpatient shift for Medicare knee and hip replacements with the Outpatient Total Joint Replacement (TJR) Shift Calculator.

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Medical DRG payment rate update continues to surge past surgical

Advisory Board's analysis shows that the weighted average payment increase for medical DRGs increased to 3.35%, while surgical DRGs trail behind at 2.67%. Three MS-DRGs (014 – allogeneic bone marrow transplant; 016 – autologous bone marrow transplant with CC/MCC; and 017 – autologous bone marrow transplant without CC/MCC) were reclassified from surgical to medical.

The eight procedure codes assigned to DRGs 014, 016, and 017 that had OR status were also reclassified as non-OR procedures. Advisory Board's service line experts reclassified the DRG's service lines from general surgery to oncology/hematology (medical) based on CMS' proposed changes. MS-DRGs 014, 016, and 017 contain 0.04% of total oncology/hematology discharges and total hematology volumes. However, they contribute to 0.21% of oncology/hematology estimated payments and 0.22% of hematology estimated payments.

New surgical procedure codes concentrated in thoracic surgery, cardiac services, and general surgery

CMS also established 222 new procedure codes that are split nearly evenly between medical and surgical designations. The new surgical procedure codes are designated for MDC 04 (diseases & disorders of the respiratory system) and MDC 05 (diseases & disorders of the circulatory system). MDC 04 contains MS-DRGs 166-168 and MDC 05 contains 250-254 and 987-989.

Cheat sheets: Medicare payment 101

Feeling overwhelmed by all of the new proposed rules CMS has released? Get back to basics by viewing our cheat sheets which provide an overview of different payment programs, who they affect, when they're updated and what goes into payment calculations.

Download our one-page cheat sheets for a quick overview of each rule's scope:

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