At the Margins

Our 6 takeaways from the 1,602-page Inpatient Proposed Rule

by Emily Connelly, Lauren Robinson, Stu Clark, and Ye Hoffman

On Monday, CMS released the Inpatient Prospective Payment System Proposed Rule for Fiscal Year (FY) 2021. As we've seen with other recent policy updates, CMS largely did not include any major overhauls or provisions as providers and the agency focus efforts and resources on Covid-19 response.

Cheat sheet: What you need to know about IPPS

That said, there are several key items that health system and hospital leaders should watch. Of particular note, CMS indicated in the proposed rule that it will waive the 60-day delay in the effective date of the final rule, and instead expects to issue the rule 30 days prior to its effective date, which means hospitals may have less time to review the final rule.

Below we break down our five initial takeaways from the Proposed Rule.

1. CMS proposed a modest inpatient payment rate increase for FY 2021

CMS' proposed rule would increase acute care hospital operating payments by about 2.5%. However, after accounting for changes to add-on payments for new technologies, capital payments, and uncompensated care payments, overall IPPS payments would increase by 1.6%.  

The proposed update is the product of a strong market basket increase and fewer downward adjustments than in recent years, as detailed in the table below.

Translated into real dollars, the proposal is estimated to increase payments to hospitals for Acute Care Medicare by $2.07 billion in FY 2021 if finalized as proposed.

2. CMS hunkers down on price transparency—but delays hospital star ratings updates

Perhaps the most interesting—and controversial—inclusion in this year's rule is CMS' proposal to collect a summary of data that hospitals are required to report under the Trump administration's 2019 price transparency rule, including median payer-specific negotiated charges. They're also seeking feedback on using the data to inform Medicare reimbursement rates for hospital procedures.

This is likely to be met with resistance by hospitals, which are challenging the price transparency rule in court, where just last week, a U.S. federal district court in Washington, D.C., heard opening arguments in American Hospital Association et al. v. Azar.

CMS' decision to include this proposal in a rule that the agency limited "to essential policies" should signal to hospitals and health systems that CMS is not backing down and intends to push forward with price transparency as a high priority despite legal challenges and the impact of Covid-19.

However, CMS did not include a much anticipated update to the hospital star rating methodology in this year's proposed rule. CMS acknowledged that stakeholders have raised concerns about the current methodology and that the agency has promised to re-examine the program. However, CMS said it would include updates in future rulemaking as the industry focuses on responding to Covid-19.

3. CMS proposed notable shifts in orthopedics reimbursement

Advisory Board's preliminary service line analysis indicates that CMS created 12 MS-DRGs, deleted six MS-DRGs, and reassigned procedure codes for four MS-DRGs. The most notable volume shift observed is for new MS-DRGs 521 and 522 (hip replacement with fracture) that collectively make up 65,161 cases—which could have significant financial impact for providers.

Our modeling shows that the proposed payment per case for MS-DRG 469 would decrease by 1.09% when reassigned to MS-DRG 521. However, the proposed payment per case for MS-DRG 470 would increase by 14.86% when reassigned to MS-DRG 522. This may have tangible effects on orthopedics reimbursement. We will be releasing a more thorough analysis of the reimbursement implications across service lines.

(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 5/11/2020. Our calculations were completed even though CMS MedPAR volumes have a delta discrepancy of 187 cases.

4. CMS proposes significant coding changes for CAR T-cell therapy and antimicrobial products

In a move that is sure to please Oncology programs and patients alike, CMS is proposing to create a new MS-DRG (MS-DRG 18) specifically for cases involving Chimeric Antigen Receptor (CAR) T-Cell Therapy therapies (ICD-10-PCS procedure codes XW033C3 or XW043C3 would be assigned to this MS-DRG). Previously, providers were reimbursed through the MS-DRG for bone marrow transplants (MS-DRG 16), in addition to a new technology add-on payment (NTAP) and other outlier case payments, to help off-set the extraordinarily high-cost of acquisition for the two FDA-approved CAR-T therapies (KYMRIAH and YESCARTA).

That said, reimbursement still comes up short against the full price of treatment and administration of these innovative therapies, and with the NTAP set to expire in 2021, those losses are only set to widen. And while the proposed MS-DRG would provide a significant boost to providers, based on our early analysis, it will still lag well behind the full cost of treatment.

One interesting side-bar: CMS did note that they 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).

In a nod to the growing number of Medicare patients diagnosed with drug-resistant infections and related deaths, CMS also proposed expanding its NTAP pathway for certain antimicrobial products. Providers could begin receiving NTAPs for those products for discharges that occur the quarter after the products receive a marketing authorization from FDA, as long as FDA issues the marketing authorization before July 1 of the year in which the product's NTAP application was submitted. The changes would apply to antimicrobial products that apply for NTAPs for FY 2022 and beyond.

5. CMS ramps up timeframe for eCQM data 

For participants in the hospital Promoting Interoperability (PI) program, the proposed rule contains no changes to the PI objectives or the continuous 90-day reporting period. This is good news, as many hospitals are still working to optimize their PI workflows especially for the challenging health information exchange measures.

However, there are significant changes proposed for the electronic clinical quality measure (eCQM) reporting requirements under both PI and the Inpatient Quality Reporting (IQR) program. The two biggest changes proposed would increase the timeframe and visibility of eCQM data:

  • Hospitals must report two self-selected calendar quarters in 2021, compared to one quarter in 2020. In future years, CMS plans to quickly expand the requirement to three quarters in 2022 and all four quarters in 2023.
  • For the first time, CMS will make eCQM data publicly available on Hospital Compare—starting with data reported for the 2021 program year.

If finalized as proposed, hospitals would have just a few months before these policy updates take effect, and they should act now to assess their readiness. Make sure to submit public comment if more time is needed to improve eCQM accuracy and performance before that data becomes public on Hospital Compare.

At the same time, hospitals should evaluate whether they have the capacity to report two calendar quarters of eCQM data in 2021 and progressively more quarters in the future. Many hospitals we've spoken to are concerned about the feasibility of the proposed timeline especially given constraints on their resources due to the Covid-19 pandemic.

6. This is still a proposed rule

As always, this is still a proposed rule, and a wide range of outcomes can be expected when the final rule arrives sometimes later this summer. The Advisory Board will continue to provide additional commentary and analysis as we read through the 1,600 page proposed rule, and as events warrant.

The comment period for providers to submit feedback on this proposed rule is set to close at 5 p.m. EDT on July 10, 2020. To submit your comments directly to CMS, please visit www.regulations.gov.

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