CMS Releases 2021 IPPS and LTCH Proposed Payment Rule

  • Regulations
  • 6/18/2020
CMS Releases 2021 IPPS and LTCH Proposed Payment Rule

CMS has released its FY 2021 IPPS and LTCH proposed payment rule. Here’s high-level overview of its key provisions.

Key insights

  • CMS recently released its FY 2021 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospitals (LTCH) proposed payment rule (CMS-1735-P).
  • The proposed rule increases payments to acute care hospitals, proposes to “clarify, update, and codify” Medicare bad debt policies, adopts newer wage index delineations, and creates a new code and payment for CART-T cell therapy.
  • In addition, CMS would require hospitals to report median negotiated rates from third-party payers, including Medicare Advantage, with the future goal of using those market-based rates in setting MS-DRGs to reduce reliance on the chargemaster.

Have questions about the proposed payment rule?

Get In Touch

On May 11, the Centers for Medicare & Medicaid Services (CMS) released its Fiscal Year (FY) 2021 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospitals (LTCH) proposed payment rule (CMS-1735-P). Here’s a high-level overview of key provisions in the proposed payment rule below. Please note comments on the proposed changes may be submitted by July 10, 2020.

Inpatient prospective payment system (IPPS)

CMS indicates the proposed rule would increase payments to 3,200 IPPS hospitals by $2.07 billion, with $1.98 billion for operating payments and uncompensated care, and another $98 billion for IPPS capital and new technology payments.

Payment updates

  • Market-basket update — CMS proposes a net rate increase of 3.1 percentage points (market-basket update of 3.0 minus 0.4 for productivity, plus 0.5 for documentation/coding adjustment as mandated by MACRA Section 414).
  • Rural floor — CMS calculates the national rural floor budget neutrality adjustment factor at 0.993991.
  • Indirect medical education (IME) — For discharges occurring during FY 2021, CMS proposes that the IME formula multiplier is 1.35. CMS estimates that this will result in an increase in IPPS payment of 5.5% for approximately every 10% increase in the hospital’s resident-to-bed ratio.
  • Allogeneic hematopoietic stem cell acquisition costs — For cost reporting periods beginning on or after October 1, 2020, allogeneic stem cell acquisition costs will be paid on reasonable costs.

Key payment changes

Wage index
CMS proposes to continue its policy of increasing the wage index value for certain low-wage index hospitals (those below the 25th percentile, or 0.8420, for FY2021) by applying a budget-neutral adjustment to the standardized amounts for all hospitals. In finalizing the policy in FY 2020, CMS said it would be effective for at least four years to allow time for employee compensation increases at hospitals that benefit from the policy to be reflected in wage index calculations.

Reminder for Critical Access Hospitals (CAH) and other special status hospitals

CMS notes that due to the proposed adoption of the revised OMB delineations, some CAHs that were previously located in rural areas may be located in urban areas. Impacted CAHs have a two-year transition period to reclassify as rural to retain their CAH status. However, other special status types (Sole Community Hospitals, Medicare Dependent or Rural Referral Centers) would only have until October 1, 2020.

In addition, CMS proposes to adopt the Office of Management and Budget (OMB) Bulletin No. 18-04, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas.

CMS proposes to use the revised delineations to calculate area wage indexes. Doing so would create new Core Based Statistical Areas (CBSAs), switch some urban counties to rural and vice versa, and split several existing CBSAs apart. In addition, the revised OMB delineations would affect various hospital reclassifications, the out migration adjustment, and treatment of hospitals located in certain rural counties.

In its analysis, CMS indicates adopting the new delineations would result in 34 counties (and county equivalents) and 10 hospitals once considered part of an urban CBSA to be considered a rural area, beginning in FY 2021. A total of 47 counties (and county equivalents) and 17 hospitals that were located in rural areas would now be located in urban areas.

As it has done with other wage index changes, CMS would impose a “transition cap” to protect hospitals from a decrease of greater than 5% in one year from shifts in the wage index delineations. CMS also proposes to apply a budget neutrality adjustment factor for the proposed transition of 0.998580. This would be applied to the FY 2021 standardized amount.

CMS provides the following look at hospital wage index impacts under the new OMB delineations.

Proposed FY 2021 Percentage Change in Area Wage
Index Values
Number of Hospitals:
Number of Hospitals:
Increase 10% or more 7 2
Increase greater than or equal to 5% and less than 10% 41 0
Increase or decrease less than 5% 2,331 722
Decrease greater than or equal to 5% and less than 10% 87 0
Decrease greater than or equal to 5% and less than 10% 87 0
Decrease 10% or more 25 5
Unchanged 2 0

    New CAR-T cell therapy MS-DRG
    CMS proposes creating a separate MS-DRG (MS-DRG 018) for CAR-T cell therapies, of which there are two currently approved. CMS states it prefers not to create new MS-DRGs unless there are a substantial number of cases, but in this instance, the vast discrepancy in resource consumption as reflected in the claims data analysis and the clinical differences warrant the creation of a new MS-DRG.

    CMS proposes to assign cases reporting ICD-10-PCS procedure codes XW033C3 or XW043C3 to a new MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy). CMS would also concurrently remove the “T-cell immunotherapy” reference from MS-DRG 016, since these will no longer group to that code.

    CMS indicates that data shows the average costs of CAR T-cell therapy clinical trial cases are 15% of the average costs of CAR T-cell therapy cases identified as non-clinical trial cases ($277,592). Clinical trial cases were identified as those cases with diagnosis code Z00.6 or having standardized drug charges of less than $373,000.

    As such, the adjusted case count will be 0.15 for CAR-T clinical trial cases used in determining the national average standardized cost per case, budget neutrality, and outliers.

    New MS-DRGs for hip replacement
    For FY 2021, CMS proposes two new MS-DRGs for hip replacements: MS-DRG 521 (Hip Replacement with Principal Diagnosis of Hip Fracture with MCC) and MS-DRG 522 (Hip Replacement with Principal Diagnosis of Hip Fracture without MCC). CMS supports doing so to differentiate cases reporting a total hip replacement procedure with a principal diagnosis of hip fracture from those cases without a hip fracture. Further, CMS proposes both MS-DRGs would come under the post-acute care transfer policy and payments.

    CMS notes that the Comprehensive Care for Joint Replacement (CJR) model includes episodes triggered by MS-DRG 469 with hip fracture and MS-DRG 470 with hip fracture. CMS seeks stakeholder feedback on whether to incorporate MS-DRG 521 and MS-DRG 522 — if finalized — into the CJR model’s proposed extension to December 31, 2023.

    New technology add-on payments
    CMS reviews and discusses 24 new technologies to be considered for add-on payments in FY 2021. Three of those applications were submitted as a new medical device under the FDA Breakthrough Devices Program and six were submitted as a technology that received FDA Qualified Infectious Disease Product (QIDP) designation — both alternative pathways intended to speed the inclusion of innovative technology in Medicare payment systems. The other 15 were submitted through the normal review process.

    With respect to new technologies already receiving add-on payments, CMS proposes to continue add-on payments for 10 of 18 technologies that now qualify, with the other eight discontinued from receiving new technology add-on payment. Yescarta and Kymriah, the two currently approved CAR T-cell therapies, are slated to be discontinued. However, as noted earlier, CMS is proposing a new MS-DRG code and payment specific to CAR T-cell therapy.

    Additionally, CMS proposes to expedite the new technology pathway for antimicrobial products designated as QIDPs to include those approved under the FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs. To further speed the add-on process, CMS proposes that those antimicrobial products that would otherwise meet the applicable criteria would begin receiving the new technology add-on payment for discharges the quarter after the date of FDA marketing authorization instead of waiting until the next fiscal year — as long as FDA marketing authorization is received by July 1 of the year for which the applicant applied for new technology add-on payments.

    Medicare Disproportionate Share Hospital (DSH) payments
    There are three factors that go into determining these payments to DSH hospitals. CMS estimates that the pool of uncompensated care payments will decrease by $534 million for FY 2021. For 2021, CMS calculates the factors as follows:

    • Factor 1 — DSH pool of $11.519 billion (75% of  $15.359 billion).
    • Factor 2 — Using 67.86%, the proposed FY 2021 uncompensated care amount is calculated at: $15,358,534,714.46 x 0.6786 = $7,816,726,242.92.
    • Factor 3 — Use a hospital’s FY 2017 Worksheet S–10 data. In addition, CMS seeks comments on using the most recent available single year audited Worksheet S-10 data for Factor 3 for all subsequent fiscal years and for all eligible hospitals (except Indian Health Service and Tribal hospitals).

    Policy changes

    Median negotiated rates, chargemaster
    CMS proposes that hospitals would be required to report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after January 1, 2021. This data could be used in the future to adjust the methodology for calculating the IPPS MS-DRG relative weights and reduce the dependence on the hospital chargemaster in Medicare IPPS payments. CMS also proposes hospitals would report negotiated third-party payer rates for an item or service provided by the hospital. This would also include Medicare Advantage (MA).

    Additionally, CMS proposes to define “third party” as an entity that is, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service. CMS specifically states that this definition excludes an individual who pays for a health care item or service that he or she receives (such as self-pay patients). CMS states the definition is also the definition of third-party payer finalized in the Hospital Price Transparency final rule.

    [W]e believe that by reducing our reliance on the hospital chargemaster, we can adjust Medicare payment rates so that they reflect the relative market value for inpatient items and services. Additionally, we have received public feedback that the Medicare program’s use of hospital gross charges for some payments in rate setting has served as the most significant barrier to hospitals’ efforts to rebase their chargemasters…

    …We believe the use of these data in the MS-DRG relative weight-setting methodology would represent a significant and important step in reducing the Medicare program’s reliance on hospital chargemasters, and would better reflect relative market-based pricing in Medicare FFS inpatient reimbursements. CMS FY 2021 IPPS proposed rule

    CMS indicates MA is defined in 42 CFR 422.2, and means a public or private entity organized and licensed by a state as a risk-bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements.

    Under the proposal, a hospital would report by MS-DRG its median payer-specific negotiated rates for MA plans and its median payer-specific negotiated rates for all third-party payers — including MA plans — for cost report periods ending on or after January 1, 2021. CMS said the negotiated charges hospitals use to calculate the medians would be the negotiated charges for service packages that hospitals are already required to make public under the Hospital Price Transparency Final Rule that can be cross-walked to an MS-DRG.

    To determine the median payer-specific negotiated charge for MA organizations for a given MS-DRG, a hospital would list, by MS-DRG, each discharge in its cost reporting period that was paid for by an MA organization. This also includes the corresponding payer-specific negotiated charge that was negotiated as payment for items and services provided for that discharge. The median payer-specific negotiated charge for payers that are MA organizations (for that MS-DRG) would be the median payer-specific negotiated charge in that list of discharges. This process would also be applied to other third-party payers.

    Hospitals that do not negotiate payment rates and only receive non-negotiated payments for service would be exempted from this proposed data collection. Examples referenced are CAHs and Maryland hospitals.

    Bad debts
    CMS proposes to “clarify, update, and codify certain longstanding Medicare bad debt principles” as well as recognize the new Accounting Standards Update – Topic 606 for revenue recognition and classification of Medicare bad debts. CMS does provide retroactive effective dates on the bad debt policies to avoid confusion as to which policy should be applied for which cost reporting period. For example, this might arise if the effective date was instead proposed for cost reporting periods beginning on or after the effective date of the rule. Here are brief explanations of the proposed clarifications, updates, and codifications:

    • Non-indigent versus indigent — CMS proposes to “clarify and codify” the distinction between non-indigent beneficiaries and indigent beneficiaries for Medicare bad debt purposes. Specifically, CMS proposes to define a non-indigent beneficiary as a beneficiary who has not been determined to be categorically or medically needy by a state Medicaid agency to receive medical assistance from Medicaid, and has not been determined to be indigent by the provider for Medicare bad debt purposes.

    • Required timeline to issue bill — Providers have a 120-day timeline to issue a bill to the beneficiary or the party that is financially responsible for those obligations. The 120-day timeline begins on: (1) the date of the Medicare remittance advice or (2) the date of the remittance advice from the beneficiary’s secondary payer (if any, or whichever is latest).

    • Reasonable collection efforts — CMS specifies that the reasonable collection effort requirement for a non-indigent beneficiary must be similar to the effort the provider, and/or the collection agency acting on the provider’s behalf puts forth to collect comparable amounts from non-Medicare patients. A provider’s reasonable collection effort also includes other actions such as subsequent billings, collection letters, and telephone calls or personal contacts with this party, which constitute a genuine (not a token) collection effort. Additionally, a provider must maintain and furnish various documentation if requested.

      CMS indicates that if a provider elects to refer its non-Medicare accounts to a collection agency, the provider must similarly refer its Medicare accounts of “like amount.” Additionally, fees charged by collections agencies are not considered bad debt, but are an administrative expense. A provider’s dissimilar debt collection practices for Medicare and non-Medicare patient accounts do not constitute a reasonable collection effort to claim reimbursement from Medicare for a bad debt, whether the collection effort from the provider is an in-house collection effort or if the provider elects to refer bad debt accounts to a collection agency for an outside collection effort.

    • Partial payments — With respect to receiving a partial payment, CMS indicates that within the required 120-days before a bill can be considered uncollectable, if the provider receives partial payment during that timeframe, the clock would restart with another 120 days.

    • Deductibles and coinsurance amounts — Effective for cost reporting periods beginning before, on, and after October 1, 2020, CMS indicates that the deductible and coinsurance amounts uncollected from beneficiaries are to be written off and recognized as allowable bad debts in the cost reporting period in which the accounts are deemed to be worthless.

      Any payment on the account made by the beneficiary or responsible party after the write-off date — but before the end of the cost reporting period — must be used to reduce the final bad debt for the account claimed in that cost report. If an amount written off as a bad debt and reimbursed by the program in a prior cost reporting period is recovered in a subsequent accounting period, then the recovered amount must be used to reduce the provider’s reimbursable costs in the period in which the amount is recovered.

    • Indigent non-dual eligible beneficiary — CMS proposes to define an indigent non-dual eligible beneficiary as a Medicare beneficiary who is determined to be indigent by the provider and not eligible for Medicaid as categorically or medically needy. The provider must apply its customary methods for determining whether the beneficiary is indigent under the following requirements:
    1. Beneficiary's indigence must be determined by the provider, not by the beneficiary. In other words, a beneficiary's signed declaration of their inability to pay their medical bills and/or deductibles and coinsurance amounts cannot be considered proof of indigence;
    2. Provider must take into account a beneficiary's total resources, which includes (but is not limited to) an analysis of assets (only those convertible to cash and unnecessary for the beneficiary's daily living), liabilities, and income and expenses. While a provider must take into account a beneficiary’s total resources in determining indigence, any extenuating circumstances that would affect the determination of the beneficiary's indigence must also be considered; and
    3. Provider must determine that no source other than the beneficiary would be legally responsible for the beneficiary's medical bill (such as a legal guardian).

    The provider must maintain and furnish, upon request, various documentation. Once indigence is determined and the provider concludes that there has been no improvement in the beneficiary’s financial status, the bad debt may be deemed uncollectible without applying a collection effort. Unpaid deductible and coinsurance amounts without the provider’s documentation of its determination of indigence will not be considered as allowable bad debts.

    • Dual-eligible, state Medicaid liability — When Medicare-certified providers provide services and claim bad debt to Medicare for unpaid cost-sharing amounts, Medicare bad debt policy requires providers to bill the state and submit to their contractors the Medicaid Remittance Advice (RA) as documentation to evidence the state’s liability for dual eligible beneficiaries’ deductible and/or coinsurance amounts. If a provider does not bill the state and submit the Medicaid RA to Medicare with its claim for bad debt reimbursement for dual eligible beneficiaries, the result is that unpaid deductible and coinsurance amounts cannot be included as an allowable Medicare bad debt.

    • Accounting Standard Update (ASU) Topic 606 — CMS proposes to recognize the ASU Topic 606 terminology and, specifically, propose to recognize that bad debts, also known as “implicit price concessions,” are amounts considered to be uncollectible from accounts that were created or acquired in providing services.

      “Implicit price concessions” are designations for uncollectible claims arising from the furnishing of services, and may be collectible in money in the relatively near future and are recorded in the provider’s accounting records as a component of net patient revenue. CMS proposes that effective for cost reporting periods beginning before October 1, 2020, bad debts, charity, and courtesy allowances represent reductions in revenue. The failure to collect charges for services furnished does not add to the cost of providing the services. Such costs have already been incurred in the production of the services.

    • Contractual allowance — CMS proposes to clarify that Medicare bad debts arising from Medicare-Medicaid crossover claims must not be written off to a contractual allowance account, but must be charged to an expense account for uncollectible accounts (bad debt or implicit price concession). This is effective for cost reporting periods beginning on or after October 1, 2020.

    Displaced medical residents, residency program, or teaching hospital closure
    Current Medicare policy indicates that when a program or hospital closure impacts residents, a temporary modification of a hospital’s full-time equivalents (FTE) cap may be available for the receiving hospital (i.e., where the resident would transfer). However, to qualify, a resident must be physically present at the hospital on the day prior to or the day of the hospital or program closure.

    Instead, CMS proposes to change this to training in the hospital on the day the program or hospital closure is announced. Another change would allow those residents who were not on-site (e.g., on rotation) to also qualify. Under these circumstances, CMS would allow a temporary modification on the receiving hospital’s resident cap. The receiving hospital would have to submit a letter to the Medicare Administrative Contractor (MAC )within 60 days of taking the displaced resident.

    CMS notes that the maximum number of FTE resident cap slots that could be transferred to all receiving hospitals is the number of IME and direct graduate medical education FTE resident cap slots belonging to the hospital that has the closed program, or that is closing. Therefore, if the originating hospital is training residents in excess of its caps, there is no guarantee that a cap slot will be transferred along with a displaced resident.

    Promoting Interoperability (PI) Program

    CMS proposes a reporting period of a minimum of any continuous 90-day period in calendar year (CY) 2022 for new and returning eligible hospitals and CAHs as well as continuing the Query of PDMP measure as an optional measure worth five bonus points in CY 2021. Additionally, CMS proposes to rename the Support Electronic Referral Loops by Receiving and Incorporating Health Information as the Support Electronic Referral Loops by Receiving and Reconciling Health Information.

    Finally, CMS proposes to align electronic clinical quality measures (eCQM) reporting periods with the Inpatient Quality Reporting (IQR) program and to publicly report eCQM performance data beginning with data reported for CY 2021 on Hospital Compare and/or

    For CY 2023 and each subsequent year, CMS proposes to require eligible hospitals and CAHs reporting CQMs for the PI program to report four calendar quarters of data from CY 2023 and each subsequent year for: (a) three self-selected eCQMs from the set of available eCQMs for CY 2023 and each subsequent year; and (b) the Safe Use of Opioids—Concurrent Prescribing eCQM (NQF #3316e), for a total of four eCQMs.

    Quality programs

    Hospital Acquired Conditions Reduction Program (HAC)

    CMS would refine validation procedures for HAC to align with the Hospital Inpatient Quality Reporting (IQR) Program’s validation procedures by using a single random sample of 400 (up to 200 randomly selected and up to 200 targeted hospitals), beginning with validation for the FY 2024 payment determination. CMS said 95% of hospitals eligible for HAC also participate in IQR, and the new procedure would validate hospitals for both programs.

    CMS would automatically adopt performance periods for HAC beginning with the FY 2023 program year. For the FY 2024 program year and beyond, CMS would require hospitals to submit digital files when submitting medical records for validation of HAC Reduction Program measures.

    Hospital Inpatient Quality Reporting (IQR) Program
    CMS proposes no new measures to the program, but would also reduce the number of hospitals chosen for validation, thereby, aligning IQR with HAC. CMS proposes to incrementally combine the validation processes for chart-abstracted measure data and clinical quality measures data to streamline the process and reduce the number of hospitals needed for validation, which would:

      • Update the quarters of data required for validation for both chart-abstracted measures and eCQMs
      • Expand the targeting criteria to include hospital selection for eCQMs
      • Change the validation pool from 800 hospitals to 400 hospitals
      • Remove the current exclusions for eCQM validation selection
      • Require electronic file submissions for chart-abstracted measure data
      • Align the eCQM and chart-abstracted measure scoring processes
      • Update the educational review process to address eCQM validation results

      CMS proposes to begin public display of eCQM data on the Hospital Compare website and/or, beginning with data reported by hospitals for the CY 21 reporting period/FY 23 payment determination and for subsequent years.

      Hospital Readmissions Reduction Program (HRRP)
      CMS proposes to automatically adopt performance periods for HRRP — beginning with the FY 2023 program year — and to adjust the definition of the applicable period. CMS also reported that the program will save $563 million in FY 2020. CMS maintains the current measures.

      Hospital Value-Based Purchasing (VBP) Program
      CMS does not propose new measures or removal of measures, but does provide estimated and new performance standards for program years FY 2023, FY 2024, FY 2025, and FY 2026. CMS says $1.9 billion will be available for value-based incentives in FY 2021.

      PPS-exempt Cancer Hospital Quality Reporting Program
      CMS proposes to refine two existing National Healthcare Safety Network measures for catheter-associated urinary tract infection (CAUTI) and central line-associated bloodstream infection (CLABSI). Doing so would incorporate a revised methodology using updated health care-associated infection baseline data, risk-adjusted to stratify results by the location of patients. CMS would publicly report updated versions of the two measures in late 2022.

      Long-term care hospitals (LTCH)

      LTCH payments are expected to fall overall by $36 million, based on implementation of the revised PPS payment system. Key provisions are:

      • A standard federal payment net rate increase of 2.5 percentage points (2.9% standard update minus 0.4% multifactor productivity adjustment)
      • The standard federal payment rate be set at $43,849.28
      • A total labor-related share for FY 2021 of 68% (the sum of 63.6% for the operating cost and 4.4% for the labor-related share of capital)
      • For the MS-LTC-DRG relative weights in this proposed rule, to apply a normalization factor of 1.25878 and a budget neutrality factor of 0.9993445
      • To adopt the new wage index delineations, similar to the proposed IPPS changes
      • To rebase the LTCH market basket on data from cost reports beginning in FY 2017
      • No changes to the Long-Term Care Hospital Quality Reporting Program

      How we can help

      Even though this was written to provide a high-level overview of key provisions in this proposed payment rule, we know this is a lot of information to digest. If you’re seeking more insights or details on how the proposed rule could impact your hospital, don’t hesitate to get in touch. We’re here to help you understand, model, and prepare for these changes.

      Contact Us

      Experience the CLA Promise