Fiscal Year (FY) 2021 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Final Rule (CMS-1735-F)
On September 2, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a final rule for acute care and long term care hospitals that ensures access to potentially life-saving diagnostics and therapies by unleashing innovation in medical technology and removing barriers to competition. The final rule will 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 2021.
The finalized policies in the IPPS and LTCH PPS final rule support the agency’s key priorities, which include Strengthening Medicare and Fostering Innovation. The finalized policies also help ensure that Americans continue 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.
CMS estimates total Medicare spending on acute care inpatient hospital services will increase by about $3.5 billion in FY 2021, or 2.7 percent. This fact sheet discusses major provisions of the final rule (CMS-1735-F), which can be downloaded from the Federal Register at: https://www.federalregister.gov/documents/2020/09/18/2020-19637/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the
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 changes, which will affect approximately 3,200 acute care hospitals and approximately 360 LTCHs, apply to discharges occurring on or after October 1, 2020.
In this final rule, CMS approved 13 technologies that applied for new technology add-on payments for FY 2021. This includes two technologies under the alternative pathway for new medical devices that are part of the FDA Breakthrough Devices Program and five technologies approved under the alternative pathway for products that received FDA Qualified Infectious Disease Product (QIDP) designation. Additionally, CMS conditionally approved one technology designated as a QIDP that otherwise meets the alternative pathway criteria but has not yet received FDA approval. After consideration of public comments, CMS also approved six technologies submitted under the traditional new technology add-on payment pathway criteria.
Additionally, CMS is continuing the new technology add-on payments for 10 of the 18 technologies currently receiving the add-on payment (the remaining 8 technologies will no longer be within their newness period in FY 2021, which includes the Chimeric Antigen Receptor (CAR) T-cell therapies approved for the new technology add-on payment in FY 2019).
In total, 24 technologies are eligible to receive add-on payments for FY 2021. CMS estimates that FY 2021 Medicare spending on new technology add-on payments will be approximately $874 million, nearly a 120% increase over the FY 2020 spending.
New Technology Add-On Payment Pathway for Certain Antimicrobial Products
In light of recent information that continues to highlight the significant concerns and impacts related to antimicrobial resistance and emphasizes the continued importance this issue represents both for Medicare beneficiaries and public health overall, we are adopting some changes regarding new technology add-on payments for certain antimicrobials for FY 2021.
- We expanded the alternative new technology add-on payment pathway for antimicrobial products designated by FDA as QIDPs to include products approved under FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD pathway). The LPAD pathway encourages the development of safe and effective drug products that address unmet needs of patients with serious bacterial and fungal infections. As is the case for QIDPs, under this policy an antimicrobial drug approved under FDA’s LPAD pathway will be considered new and not substantially similar to an existing technology and will not need to demonstrate that it meets the substantial clinical improvement criterion (the technology will need to meet the cost criterion).
- In order to allow eligible antimicrobial products to begin receiving the new technology add-on payment sooner, we are adopting a policy to provide for conditional approval for antimicrobial products that otherwise meet the NTAP alternative pathway criteria but do not receive FDA approval in time for consideration in the final rule. Under this policy, those antimicrobial products that otherwise meet the applicable add-on payment criteria will begin receiving the new technology add-on payment, effective for discharges the quarter after the date of FDA marketing authorization instead of waiting until the next fiscal year, provided FDA marketing authorization is received by July 1 of the year for which the applicant applied for new technology add-on payments.
New MS-DRG for Chimeric Antigen Receptor (CAR) T-cell Therapy
Building on the actions CMS has taken to date for payments for new medical technologies, CMS created a new Medicare Severity-Diagnosis Related Group (MS-DRG) specifically for cases involving CAR T-cell therapies. The new payment group helps to predictably compensate hospitals paid under the IPPS for their costs in delivering necessary care to Medicare beneficiaries and provide payment flexibility for the future as new CAR T-cell therapies become available.
Final Changes to Payment Rates under IPPS
The 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 2.9 percent. This reflects the projected hospital market basket update of 2.4 percent and a 0.0 percentage point productivity adjustment. This also reflects a +0.5 percentage point adjustment required by legislation.
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
Market-Based MS-DRG Relative Weight Data Collection and Change in Methodology for Calculating MS-DRG Relative Weights
CMS is finalizing to collect hospitals’ median payer-specific negotiated charges for Medicare Advantage organizations on the Medicare cost report for cost reporting periods ending on or after January 1, 2021. In addition, beginning in FY 2024, the agency is adopting the use of this data in a new market-based methodology to set the MS-DRG relative weights, that are used in determining Medicare payment rates for inpatient hospital stays.
Medicare Uncompensated Care Payments
CMS distributes a prospectively determined amount 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 will distribute roughly $8.3 billion in uncompensated care payments for FY 2021, a decrease of approximately $60 million from FY 2020. This estimate of total uncompensated care payments reflects CMS Office of the Actuary’s projections that incorporate the estimated impact of the COVID-19 pandemic.
For FY 2021, CMS will use a single year of data on uncompensated care costs from Worksheet S-10 of hospitals’ FY 2017 cost reports to distribute these funds, in part because we have conducted audits of this data. Mindful of the unique challenges facing Indian Health Service and Tribal hospitals and Puerto Rico hospitals, CMS will continue to use data regarding low-income insured days (Medicaid days for FY 2013 and FY 2018 SSI days) to determine the amount of uncompensated care payments for Puerto Rico hospitals and Indian Health Service and Tribal hospitals for FY 2021, similar to the FY 2020 methodology.
In addition, for all subsequent years, CMS is adopting a policy under which the most recent available single year of audited Worksheet S-10 data will be used to distribute uncompensated care payments for all eligible hospitals, except Puerto Rico hospitals and Indian Health Service and Tribal hospitals. We expect the Worksheet S-10 data for an increasing number of hospitals will be audited in future cost reporting years. As a result, we have confidence that the best available data in future years will be the Worksheet S-10 data for the most recent cost reporting year for which audits have been conducted.
Graduate Medical Education Policy
CMS is making policy changes related to closing teaching hospitals and closing residency programs to address the needs of residents attempting to find alternative hospitals in which to complete their training and to foster seamless Medicare indirect medical education and direct graduate medical education funding. These policy changes expand the existing definition of who is considered a displaced resident (beyond residents who are physically present at the hospital training on the day prior to or the day of hospital or program closure). These policies will provide greater flexibility for the residents to transfer while the hospital operations or residency programs were winding down, and will allow funding to be transferred for certain residents who are not physically at the closing hospital/closing program.
Hospital-Acquired Condition (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 on select measures of hospital-acquired conditions. In the FY 2021 IPPS/LTCH PPS final rule, CMS is finalizing to:
- Automatically adopt applicable periods (i.e., performance periods for measures used in the Program) beginning with the FY 2023 program year and all subsequent program years and update the definition of applicable period at 42 CFR 412.170.
- Refine the validation procedures for healthcare-associated infection (HAI) data beginning with the FY 2024 program year to align with the Hospital Inpatient Quality Reporting (IQR) Program. This includes 1) align the submission quarters with the Hospital IQR Program’s submission quarters; 2) reduce the number of hospitals selected for validation from “up to 600” to “up to 400” beginning with the FY 2024 program year (for data beginning with calendar year 2021); and 3) require hospitals to submit electronic copies of records to the Clinical Data Abstraction Center beginning with validation for the FY 2024 program year (that is, beginning with Q1 2021 data). Approximately 70% of hospitals already submit records electronically.
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 directs CMS to 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. In the FY 2021 IPPS/LTCH PPS final rule, CMS is finalizing our proposals to:
- Automatically adopt applicable periods (i.e., performance periods for measures used in the Program) beginning with the FY 2023 program year and all subsequent program years, and update the definition of applicable period at 42 CFR 412.152 to align with the automatic adoption proposal.
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 2021 IPPS/LTCH PPS final rule, CMS is finalizing proposals related to reporting and public reporting of electronic clinical quality measures (eCQMs) and the validation process. Specifically, the rule finalizes the following proposals to:
- Make changes to the hospital reporting of eCQMs, [in alignment with the PI Program] including:
- Progressively increasing the number of quarters of eCQM data reported, from one self-selected quarter of data to four quarters of data over a three-year period, by requiring hospitals to report two quarters of data for the CY 2021 reporting period/FY 2023 payment determination, three quarters of data for the CY 2022 reporting period/FY 2024 payment determination, and four quarters of data beginning with the CY 2023 reporting period/FY 2025 payment determination and for subsequent years.
- Adding EHR Submitter ID as the fifth key element for file identification beginning with the CY 2021 reporting period/FY 2023 payment determination.
- Beginning the public display of eCQM data on the Hospital Compare website (or its successor website) and/or data.medicare.gov, beginning with data reported by hospitals for the CY 2021 reporting period/FY 2023 payment determination and for subsequent years that would be included with the fall 2022 refresh of the website. We are clarifying that we plan to initially publish CY 2021 reporting period/FY 2023 payment determination eCQM data, of which there will be two quarters of data per our finalized policy in sectionVIII.A.9.e. of this final rule, on https://data.medicare.gov, or its successor website, before publishing it on Hospital Compare, or its successor website, sometime in the future.
- Make changes to the Hospital IQR Program validation process including:
- For chart abstracted measure validation, requiring the use of electronic file submissions via a CMS-approved secure file transmission process and no longer allowing the submission of paper copies of medical records or copies on digital portable media such as CD, DVD, or flash drive.
- Reducing the number of hospitals selected for validation from up to 800 to up to 400 hospitals.
- Combining the validation processes for chart-abstracted measures and eCQMs by aligning: (a) data submission quarters; (b) hospital selection; and (c) scoring processes by providing one combined validation score for the validation of chart-abstracted measures and eCQMs with the eCQM portion of the combined score weighted at zero
- Removing the current exclusions for eCQM validation selection
- Formalizing the process for conducting educational reviews for eCQM validation in alignment with current processes for providing feedback for chart-abstracted validation results.
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 providing newly established performance standards for certain measures for the FY 2023, FY 2024, FY 2025, and FY 2026 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 finalizing proposals to:
- Refine two existing National Healthcare Safety Network (NHSN) measures, Catheter-Associated Urinary Tract Infection (CAUTI) and Central Line-Associated Bloodstream Infection (CLABSI), to incorporate an updated methodology developed by the Centers for Disease Control and Prevention that uses updated HAI baseline data that is risk-adjusted to stratify results by patient location.
- Begin to publicly report the updated versions of the CLABSI and CAUTI measures in fall CY 2022.
Medicare and Medicaid Promoting Interoperability Programs
In 2011, the Medicare and Medicaid Electronic Health Records (EHR) Incentive Programs (now known as the Medicare and Medicaid 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 finalizing changes to establish an EHR reporting period of a minimum of any continuous 90-day period in CY 2022 for new and returning participants (eligible hospitals and CAHs) attesting to CMS for the Medicare Promoting Interoperability Program. We are finalizing the proposal to continue the Query of Prescription Drug Monitoring Program (PDMP) measure as optional and worth five bonus points in CY 2021. We are finalizing a change to rename the Support Electronic Referral Loops by Receiving and Incorporating Health Information measure. The finalized name will read: Support Electronic Referral Loops by Receiving and Reconciling Health Information measure. This more accurately reflects the actions required in the measure’s numerator. Additionally, the FY 2021 IPPS/LTCH PPS final rule finalizes the following proposals to:
- Adopt the following in alignment with the Hospital IQR Program:
- Progressively increase the number of quarters hospitals are required to report eCQM data (CY 2021 – 2 quarters of data; CY 2022 – 3 quarters of data; and CY 2023 and each subsequent year – 4 quarters of data).
- Publicly report eCQM performance data for the first time, beginning with data reported by eligible hospitals and CAHs for the CY 2021 reporting period, on Hospital Compare and/or data.medicare.gov, or any successor websites.
- Correct inadvertent technical errors in the regulation text, specifying transition factors for the incentive payments to Puerto Rico eligible hospitals.
Changes to Payment Rates under LTCH PPS
Overall, for FY 2021, CMS expects LTCH-PPS payments to decrease by approximately 1.1 percent or $40 million, which reflects the continued statutory implementation of the revised LTCH PPS payment system. LTCH PPS payments for FY 2021 for discharges paid using the standard LTCH payment rate are expected to increase by 2.2 percent primarily due to the annual standard Federal rate update for FY 2021 of 2.3 percent.
LTCH PPS payments for cases that will complete the statutory transition to the lower payment rates under the dual rate system are expected to decrease by approximately 24 percent. This accounts for the LTCH site neutral payment rate cases that will no longer be paid a blended payment rate with the end of the statutory transition period, which represent approximately 25 percent of all LTCH cases and 10 percent of all LTCH PPS payments.