Fact Sheets

Fiscal Year (FY) 2020 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Proposed Rule and Request for Information

Fiscal Year (FY) 2020 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Proposed Rule and Request for Information

On April 23, 2019, the Centers for Medicare & Medicaid Services (CMS) proposed a rule that focuses the agency’s efforts on a singular objective: transforming the healthcare delivery system through competition and innovation to provide patients with better value and results. The proposed rule would update Medicare payment policies for hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for fiscal year 2020. 

The proposed policies in the IPPS and LTCH PPS proposed rule would represent historic changes to the way rural hospitals are paid. These policies would support the agency’s priority of “Rethinking Rural Health” and help guarantee people living in rural America have access to high quality, affordable healthcare. The proposals would also help ensure that America continues to have access to a world-class healthcare system with access to potentially life-saving diagnostics and therapies by unleashing innovation in medical technology and removing barriers to competition.

This fact sheet discusses major provisions of the proposed rule. The deadline for submitting comments on the proposed rule is June 24, 2019. The proposed rule (CMS‑1716‑P) can be downloaded from the Federal Register at:

Background on the IPPS and LTCH PPS

CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays based on the patient’s diagnosis and severity of illness. Subject to certain adjustments, a hospital receives a single payment for the case based on the payment classification assigned at discharge. The classification systems are:

  • IPPS: Medicare Severity Diagnosis-Related Groups (MS-DRGs)
  • LTCH PPS: Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).

The law requires CMS to update payment rates for IPPS hospitals annually, and to account for changes in the prices of goods and services used by these hospitals in treating Medicare patients, as well as for other factors. This is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. Payment rates to LTCHs are typically updated annually according to a separate market basket based on LTCH-specific goods and services.

The proposed changes, which would apply to approximately 3,300 acute care hospitals and approximately 390 LTCHs, would affect discharges occurring on or after October 1, 2019.


Proposed New Technology Add-On Payment Pathway for Devices
Existing Food and Drug Administration (FDA) programs can help expedite the development and review of transformative new drugs and devices that meet expedited program criteria (e.g. are intended to treat serious or life-threatening diseases or conditions for which there are unmet medical needs). CMS believes it is appropriate to similarly facilitate access to these transformative technologies for Medicare beneficiaries. Marketing authorization (e.g., approval or clearance) of a medical device subject to one of FDA’s expedited programs could lead to situations where the evidence base for demonstrating substantial clinical improvement in accordance with CMS’s current new technology add-on payment policy has not fully developed at the time of FDA market authorization. To address this, CMS is proposing an alternative new technology add-on payment pathway for a medical device that receives FDA marketing authorization and is part of an FDA expedited program for medical devices, which is currently the Breakthrough Devices Program.

We are proposing that if a medical device subject to one of the FDA’s expedited programs has received marketing authorization from the FDA, CMS would consider that product new and not substantially similar to an existing technology for purposes of the IPPS new technology add‑on payment. Under this proposal, the medical device would only need to meet the cost criterion to receive the add-on payment. This change would begin with applications received for new technology add‑on payments for FY 2021.

Proposed Calculation of the Add-On Payment
Under the current new technology add-on payment calculation, Medicare pays a marginal cost factor of 50 percent of the estimated costs of the case in excess of the full DRG payment, up to a maximum of 50 percent of the costs of the technology. CMS believes that setting the maximum add-on payment percentage at 50 percent for certain transformative technologies may not result in an adequate add-on payment. To address this issue, CMS proposes increasing the add-on payment beginning in FY 2020 from 50 percent to 65 percent.

Potential Revisions to the New Technology Add-On Payment Substantial Clinical Improvement Criterion
In the proposed rule, CMS discusses potential revisions to the substantial clinical improvement criterion currently used to evaluate applications for the new technology add-on payment under the IPPS and the transitional pass-through payment for additional costs of innovative devices under the outpatient prospective payment system (OPPS). Recent stakeholder feedback has indicated that it would be helpful for CMS to provide more guidance on what constitutes “substantial clinical improvement.” We understand that clarity about this criterion would help the public, including innovators, better understand how CMS evaluates new technology applications for add-on payments and provide greater predictability about which applications will meet it.

We are considering potential revisions to the substantial clinical improvement criterion under the IPPS new technology add-on payment policy and the OPPS transitional pass-through payment policy for devices policy, and are seeking public comments on the type of additional detail and guidance the public and applicants for new technology add-on payments would find useful. The comments we receive in response to those general questions will inform future rulemaking after the FY 2020 IPPS/LTCH PPS final rule.

In addition, in order to respond to stakeholder feedback requesting greater understanding of CMS’ approach to evaluating substantial clinical improvement, we are soliciting public comments on specific changes or clarifications to the IPPS and OPPS substantial clinical improvement criterion that CMS might consider making in the FY 2020 IPPS/LTCH PPS final rule to provide greater clarity and predictability

Applications for New Technology Add-on Payments for FY 2020
Each year in the proposed rule, CMS addresses the applications for new technology add-on payments under the IPPS by presenting its evaluation and analysis of the applications. CMS does not make proposals in the rule, but rather describes any concerns it may have about whether a technology meets the criteria for payment as a new technology and seeks additional information as needed for use in making a decision on the applications in the final rule. In this proposed rule, CMS presents 17 new applications for new technology add-on payment for FY 2020, and proposes to continue the new technology add-on payments for 10 of the 13 technologies currently receiving the add-on payment (the remaining 3 technologies will no longer be within their newness period in FY 2020). Two of the technologies CMS is proposing to continue payments for are types of chimeric antigen receptor (CAR) T‑cell therapy.

In addition to proposing to continue the IPPS new technology add-on payments for CAR T-cell therapy for FY 2020, under our proposal to increase the maximum new technology add-on payment from 50 percent of the estimated costs of the case to 65 percent, the maximum add-on would increase from $186,500 to $242,450. We are inviting public comments on other payment alternatives for FY 2020 for CAR T-cell therapy. 

Rethinking Rural Health

Addressing Wage Index Disparities
In last year’s proposed rule, we invited comments on, and suggestions, and recommendations for changes to the Medicare wage index. Many responses reflected a common concern that the current wage index system perpetuates and exacerbates the disparities between high and low wage index hospitals. To help address these wage index disparities, we are proposing changes to the wage index calculation, including a methodology to increase the wage index for certain low wage index hospitals and to change how the statutory rural floor wage index values are calculated. In addition, CMS is proposing to provide a transition for hospitals that experience significant decreases in their wage index values as a result of these proposed changes.

To address the disparities between high and low wage index hospitals, CMS is proposing to increase the wage index for hospitals with a wage index value below the 25th percentile. These hospitals’ wage indexes would be increased by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals. This proposed policy would be effective for at least 4 years, beginning in FY 2020, in order to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation.  CMS is proposing to decrease the wage index for hospitals above the 75th percentile so that Medicare spending does not increase as a result of this proposal.

CMS is also proposing changes to the wage index “rural floor” calculation. Under the law, the IPPS wage index value for an urban hospital cannot be less than the wage index value applicable to hospitals located in rural areas in the state. This is known as the “rural floor” provision. It appears that hospitals in a limited number of states have used urban to rural hospital reclassifications to inappropriately influence the rural floor wage index value. To address this, CMS proposes removing urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020. 

In addition, to mitigate payment decreases due to these proposals, CMS proposes a 5-percent cap on any decrease in a hospital’s wage index from its final wage index for FY 2019. That is, under this proposal a hospital’s final wage index for FY 2020 would not be less than 95 percent of its final wage index for FY 2019. 

Proposed Changes to Payment Rates under IPPS
The proposed increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users is approximately 3.2 percent. This reflects the projected hospital market basket update of 3.2 percent reduced by a 0.5 percentage point productivity adjustment. This also reflects a proposed +0.5 percentage point adjustment required by legislation.

CMS projects the rate increase, together with other proposed changes to IPPS payment policies, will increase IPPS operating payments by approximately 3.5 percent. Proposed changes in uncompensated care payments, new technology add-on payments, low-volume hospital payments, and capital payments will increase IPPS payments by an additional 0.2 percent. Therefore, CMS estimates a total increase in IPPS payments of approximately 3.7 percent.

Hospitals may be subject to other payment adjustments under the IPPS, including:

  • Penalties for excess readmissions, which reflect an adjustment to a hospital’s performance relative to other hospitals with a similar proportion of patients who are dually eligible for Medicare and full-benefit Medicaid   
  • Penalty (1 percent) for worst-performing quartile under the Hospital Acquired Condition Reduction Program 
  • Upward and downward adjustments under the Hospital Value-Based Purchasing Program.

In sum, CMS projects total Medicare spending on inpatient hospital services, including capital, will increase by about $4.7 billion in FY 2020.

Medicare Uncompensated Care Payments
CMS distributes a prospectively determined amount to of uncompensated care payments to “Medicare disproportionate share hospitals” based on their relative share of uncompensated care nationally. As required under law, this amount is equal to an estimate of 75 percent of what otherwise would have been paid as Medicare disproportionate share hospital payments, adjusted for the change in the rate of uninsured people. In this rule, CMS proposes distributing roughly $8.5 billion in uncompensated care payments in FY 2020, an increase of approximately $216 million from FY 2019.

For FY 2020, CMS proposes using a single year of data on uncompensated care costs from Worksheet S-10 of the Medicare cost report for FY 2015 to distribute these funds. In addition, CMS is seeking public comments on whether we should, due to changes in the reporting instructions that became effective for FY 2017, use a single year of Worksheet S‑10 data from the FY 2017 cost reports, instead of the FY 2015 Worksheet S-10 data, to distribute the amount available for uncompensated care payments for FY 2020.  We also propose to continue to use only data regarding low-income insured days for FY 2013 to determine the amount of uncompensated care payments for Puerto Rico hospitals, and Indian Health Service and Tribal hospitals.

Hospital-Acquired Conditions (HAC) Reduction Program
The HAC Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions by requiring the Secretary to reduce payment by one percent for applicable hospitals, which are subsection (d) hospitals that rank in the worst-performing quartile. In the FY 2020 IPPS/LTCH PPS proposed rule, CMS is proposing to:

  • Specify the dates to collect data used to calculate hospital performance for the FY 2022 HAC Reduction Program
  • Adopt eight factors CMS would use when deciding whether a measure should be removed from the HAC Reduction Program; all of these factors were previously adopted by the Hospital IQR and Hospital VBP Programs
  • Clarify administrative processes for validating National Healthcare Safety Network (NHSN) Healthcare-associated Infection (HAI) data submitted by hospitals to the Centers for Disease Control and Prevention (CDC).

Hospital Readmissions Reduction Program (HRRP)
The Hospital Readmissions Reduction Program (HRRP) reduces payments to hospitals with excess readmissions. The program includes six claims-based outcomes measures. The 21st Century Cures Act requires CMS assess payment reductions based on a hospital’s performance relative to other hospitals with a similar proportion of patients dually eligible for Medicare and full-benefit Medicaid. For the FY 2020 IPPS/LTCH PPS proposed rule, CMS is proposing to:

  • Establish the performance period for the FY 2022 program year
  • Adopt eight factors CMS would use when deciding whether a measure should be removed from the Hospital Readmissions Reduction Program; all of these factors were previously adopted by the Hospital IQR and Hospital VBP Programs
  • Update the definition of “dual eligible”
  • Adopt a subregulatory process to address potential nonsubstantive changes to the payment adjustment factor components.

Hospital Inpatient Quality Reporting (IQR) Program
The Hospital IQR Program is a pay-for-reporting quality program that reduces payment to hospitals that fail to meet program requirements. In the FY 2020 IPPS/LTCH PPS proposed rule, CMS proposes updating the Hospital IQR Program’s measure set, among other changes.  Specifically, the rule proposes to:

  • Remove the Claims-Based Hospital-Wide All-Cause Readmission measure and replace with the proposed Hybrid Hospital-Wide All-Cause Readmission (Hybrid HWR) Measure with Claims and Electronic Health Record Data measure require reporting begining with the FY 2026 payment determination after 2 years of voluntary reporting of the Hybrid HWR measure; and establish reporting and submission requirements for the hybrid measures.
  • Adopt two new opioid-related electronic clinical quality measures (eCQMs) beginning with the CY 2021 reporting period/FY 2023 payment determination:
    1. Safe Use of Opioids – Concurrent Prescribing eCQM, and
    2. Hospital Harm – Opioid-Related Adverse Events eCQM.

Also, CMS is proposing three changes for reporting eCQMs. These proposals align with the Promoting Interoperability Program’s Clinical Quality Measure proposals:

  • For the CY 2020 reporting period/FY 2022 payment determination and CY 2021 reporting period/FY 2023 payment determination, to extend the current eCQM reporting and submission requirements finalized for the CY 2019 reporting period, such that hospitals submit one, self-selected calendar quarter of discharge data for four self-selected eCQMs in the Hospital IQR Program measure set;
  • For the CY 2022 reporting period/FY 2024 payment determination, to require hospitals to report one, self-selected calendar quarter of data for: (1) three self-selected eCQMs, and (2) the proposed Safe Use of Opioids – Concurrent Prescribing eCQM, for a total of four eCQMs,
  • Require EHR technology be certified to all eCQMs available to report for the CY 2020 reporting period/FY 2022 payment determination and subsequent years.

CMS also invites public comment on three potential new measures for the Hospital IQR Program: Hospital Harm—Severe Hypoglycemia eCQM; Hospital Harm—Pressure Injury eCQM; and Cesarean Birth eCQM. In addition, CMS is providing an update on continuing and expanding confidential reporting of outcome measures data stratified by patients’ dual eligibility status using two disparity methods in order to account for social risk factors in quality measurement.

Hospital Value-Based Purchasing (VBP) Program
The Hospital VBP Program adjusts payments to hospitals under the IPPS for inpatient services based on their performance. CMS is proposing that the Hospital VBP Program would use the same data as the HAC Reduction Program to calculate the National Health Safety Network (NHSN) Healthcare-Associated Infection (HAI) measures beginning with CY 2020 data collection, which is when the Hospital IQR Program will cease collecting data on those measures. CMS is also proposing that the Hospital VBP Program would rely on the process used by the HAC Reduction Program to validate the NHSN HAI measures to ensure that the measure rates are accurate for use in the Hospital VBP Program. In addition, CMS is estimating the performance standards that would apply to a number of measures in future program years. 

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
The PCHQR Program collects and publishes data on an announced set of quality measures. CMS is proposing to:

  • Adopt one new claims-based outcome measure, the Surgical Treatment Complications for Localized Prostate Cancer measure, beginning with the FY 2022 program year
  • Remove one measure because the burden outweighs the benefit of its use, the External Beam Radiotherapy for Bone Metastases measure, beginning with the FY 2022 program year
  • Remove the current pain management questions from the version of the Hospital Consumer Assessment of Healthcare Providers and Systems survey used in the PCHQR Program, beginning with October 1, 2019 discharges
  • Begin publicly reporting the Admissions and Emergency Department Visits for Patients Receiving Outpatient Chemotherapy measure in Calendar Year 2020
  • Begin publicly reporting data for the Colon and Abdominal Hysterectomy Surgical Site Infection, Methicillin-resistant Staphylococcus Aureus (MRSA), Clostridium Difficile (CDI) and Healthcare Personnel Vaccination measures beginning with the October 2019 Hospital Compare release
  • Conduct confidential national reporting for four end-of-life measures and one unplanned readmissions measure to prepare hospitals for the public reporting of these measures.

Medicare and Medicaid Promoting Interoperability Programs
In 2011, the Medicare and Medicaid EHR Incentive Programs (now known as the Promoting Interoperability Programs) were established to encourage eligible professionals, eligible hospitals, and critical access hospitals (CAHs) to adopt, implement, upgrade, and demonstrate meaningful use of certified EHR technology (CEHRT).

We are proposing an EHR reporting period of a minimum of any continuous 90-day period in CY 2021 for new and returning participants (eligible hospitals and CAHs) in the Medicare Promoting Interoperability Program attesting to CMS.

We are proposing to continue for CY 2020 the Query of PDMP measure as optional and available for bonus points instead of being required as was finalized last year because of unintended and unforeseen challenges which arose from the stakeholder community citing implementation difficulties and provider burden. To minimize burden, we also propose converting this measure from a numerator/denominator response to a yes/no attestation beginning with the EHR reporting period in CY 2019. 

We are proposing to remove the Verify Opioid Treatment Agreement measure beginning in CY 2020 from the Promoting Interoperability Program because of received feedback from stakeholders that this measure presents significant implementation challenges, leads to an increase in burden, and does not further interoperability. We are requesting information on the inclusion of more meaningful measures to combat the opioid epidemic. After receiving feedback from stakeholders, we expect to consider adopting other opioid measures will have more value in combatting the opioid epidemic.

CMS also seeks comment on the following topics:

  • Opioid measures based on existing efforts by NQF and the CDC for potential inclusion in the Promoting Interoperability Program
  • Measures to engage vendors and clinicians in improving the efficiency of healthcare providers use of EHRs
  • Inclusion of Medicare Promoting Interoperability Program data on the CMS Hospital Compare website
  • Integration of Patient-Generated Health Data into EHRs using CEHRT
  • Activities that promote the safety of the EHR
  • Measure requiring the use of an open application programming interface (API), including reporting of such a measure as an alternative to the patient access measure.

Proposed Changes to Payment Rates under LTCH PPS
Beginning in FY 2016, under the statutory dual-rate LTCH PPS payment system, only certain discharges receive the LTCH PPS standard payment amount; the remaining discharges receive a relatively lower site neutral payment rate. The law also included a transition period, which ends after cost reporting periods that began in in FY 2019. Therefore, LTCH site neutral payment rate cases will begin to be paid fully on the site neutral payment rate, rather than the transitional blended rate, for LTCH discharges occurring in cost reporting periods beginning in FY 2020.

Overall, for FY 2020, CMS expects LTCH-PPS payments to increase by approximately 0.9 percent or $37 million, which reflects the continued statutory implementation of the revised LTCH PPS payment system. LTCH PPS payments for FY 2020 for discharges paid using the standard LTCH payment rate are expected to increase by 2.3 percent after accounting for the proposed annual standard Federal rate update for FY 2020 of 2.7 percent, and an estimated decrease in outlier payments and other factors.

LTCH PPS payments for cases continuing to transition to the site neutral payment rates are expected to decrease by approximately 4.9 percent. This accounts for the LTCH site neutral payment rate cases that will no longer be paid a blended payment rate as the rolling statutory transition period ends for LTCH discharges occurring in cost reporting periods beginning in FY 2020.

LTCH Quality Reporting Program (QRP)
The LTCH QRP is authorized by section 1886(m)(5) of the Act and was implemented in FY 2012. LTCHs must report standardized patient assessment data, as  well as data on quality, resource use, and other measures and such measures must be published. LTCHs that do not satisfy the requirements of the program for a fiscal year receive a two percent reduction to their annual update to the LTCH PPS standard Federal rate for discharges for that fiscal year. 

In the FY 2020 proposed rule, CMS is proposing to adopt two new quality measures in satisfaction of the quality measure domain in the IMPACT Act pertaining to transferring health information as well as a number of standardized patient assessment data elements that assess either functional status, cognitive function and mental status, special services, treatments and interventions, medical conditions and comorbidities, impairments, or social determinants of health (race and ethnicity, preferred language and interpreter services, health literacy, transportation, or social isolation). In response to stakeholder input, CMS is proposing to modify the previously adopted Discharge to Community measure to exclude nursing home residents who already reside in the nursing home, to move the implementation date of future versions of the LTCH CARE Data Set from April to October, to adopt data collection and public display periods for various measures, and to no longer publish a list of compliant LTCHs on the LTCH QRP website.