Medicare Payment and Reimbursement

FY22 rule for the Inpatient Prospective Payment System finalizes a payment increase and key policy updates

August 3, 2021 11:08 pm
  • The FY22 final rule for the Inpatient Prospective Payment System establishes a base payment increase and adjustments to various mechanisms such as uncompensated care payments.
  • As noted previously in a proposed rule, CMS rescinded a scheduled requirement for hospitals to report median Medicare Advantage negotiated charges for all MS-DRGs.
  • CMS is not yet implementing proposals regarding newly funded medical residency slots and updated policies for organ-acquisition payment.

CMS has issued a final rule that sets FY22 Medicare payment and policy changes for hospitals paid through the Inpatient Prospective Payment System and for long-term care hospitals.

The payment increase for IPPS hospitals that successfully participate in the Inpatient Quality Reporting Program and are meaningful users of electronic health records will be 2.5%, down from the earlier proposed rate of 2.8%. The change is based on updated economic-forecasting data, including with respect to the annual productivity adjustment.

After accounting for payments for new technologies and adjustments stemming from reimplementation of the wage-index imputed floor, the total payment increase will be $3.7 billion. That amount will come down by $1.4 billion in reductions to disproportionate share hospital (DSH) and uncompensated care (UC) payments. Based on updated data, the reduction in UC payments will be $1.1 billion, instead of $660 million as stated in the proposed rule issued in April.

As previously decided, CMS will distribute UC funds based on a single year of data on Worksheet S-10 of FY18 cost reports.

Changes to the rate-setting methodology and add-on payments

Projected utilization in relation to FY22 rate-setting was derived from FY19 data, rather than FY20 as typically would be the case. The change stems from the COVID-19 public health emergency.

In a fact sheet on the final rule, CMS states, “The vaccinations in the Medicare populations coupled with the effectiveness of the vaccines leads us to believe that there will be significantly lower risk of COVID-19 infection and fewer hospitalizations for COVID-19 in FY22 than occurred in FY20” — meaning FY19 offers a better estimate of utilization patterns.

In conjunction with that change, CMS is issuing a one-year extension of new technology add-on payments for 13 technologies that otherwise would not be eligible in FY22. Including new applicants that were approved, 42 technologies will qualify for add-on payments.

In response to stakeholder feedback, CMS has opted to continue add-on payments for new COVID-19 treatments beyond the proposed expiration date of Oct. 1, 2021. The payments instead will be available through the end of the fiscal year in which the public health emergency expires.

CMS clarified that those payments will be reduced “by the amount of any new-technology add-on payments so that we do not create a financial disincentive between technologies eligible for both the new technology add-on payment and NCTAP [new COVID-19 treatments add-on payment] compared to technologies eligible for NCTAP only.”

Relief from the requirement to report MA negotiated charges

CMS finalized a stakeholder-supported proposal to repeal the requirement that hospitals report median payer-specific charges negotiated with Medicare Advantage health plans for each MS-DRG, starting with cost-reporting periods ending Jan. 1, 2021.

The data would have been used to incorporate a market-based relative-weight methodology for rate-setting starting in FY24. Instead, the existing cost-based methodology will remain in place.

CMS estimated that the change would have added 64,000 hours in administrative burden to hospital workflows.

Updates to the wage index

The COVID-19 relief legislation known as the American Rescue Plan required the permanent reinstatement of the imputed-floor wage-index methodology for designated all-urban states. As stated in the proposed rule, Connecticut, Delaware, New Jersey, Rhode Island and Washington, D.C., are eligible to receive a wage-index increase as a result of the change.

For hospitals in those states, Medicare payments will increase by approximately $200 million. Per the legislation, this increase is exempt from budget neutrality provisions.

Accommodation for providers that treat dual-eligible beneficiaries

CMS notes that “some states in the past have hindered some Medicare providers from enrolling in Medicaid,” thereby making it difficult for those providers to submit Medicare cost-sharing payment claims and, in turn, get reimbursed for bad debt.

Going forward, “CMS will require state Medicaid provider enrollment systems to allow valid enrollments from all Medicare providers serving certain Medicare-Medicaid dually eligible individuals — even if a provider or supplier is out of state — for purposes of processing cost-sharing claims for services furnished to these dually eligible individuals,” according to the fact sheet.

Pay-for-reporting changes

The Inpatient Quality Reporting program will have several new measures, including one for COVID-19 vaccination coverage among healthcare personnel. That measure will go into effect at the start of FY22, with a shortened CY21 reporting period.

Other imminent additions include:

  • A Maternal Morbidity structural measure to assess hospital participation in a statewide or national perinatal quality-improvement initiative and implementation of safety practices or bundles (effective at the start of FY22, with a shortened CY21 reporting period)
  • A Hybrid Hospital-Wide All-Cause Risk-Standardized Mortality measure (voluntary reporting for one year starting July 1, 2022, with mandatory reporting beginning thereafter)

Pay-for-performance changes

In response to the public health emergency (PHE), CMS is implementing a measure-suppression policy for the Hospital Readmissions Reduction Program, Hospital-Acquired Condition Reduction Program and Hospital Value-Based Purchasing (VBP) Program.

The agency reserves the right to suppress the use of measure data for those programs in any given performance year upon determining that “the circumstances caused by the COVID-19 PHE have affected those measures and the resulting quality scores significantly.”

For example, in the Hospital VBP program, CMS in FY22 will suppress HCAHPS survey results and the Medicare Spending Per Beneficiary measure, along with five measures related to healthcare-associated infections (HAIs).

In addition, CMS will not calculate VBP total performance scores for hospitals and instead will award value-based payment amounts on a per-discharge basis, with the amount equal to the amount initially withheld.

Medicare Shared Savings Program changes

As in 2021, accountable care organizations in the Basic track’s glide path can choose not to advance to a higher tier of risk and reward in 2022. That option is available through Sept. 10, 2021 and can be selected during the application cycle.

In 2023, ACOs will be automatically moved up to the glide-path level at which they would have been participating had they not deferred advancement in 2022 (or in both 2021 and 2022).

Proposed policies that didn’t make the cut

Due to the “number and nature of comments received,” CMS is holding off on implementing two notable policies from the proposed rule:

  • Widely criticized changes to organ-acquisition payment policies for transplant hospitals, donor community hospitals and organ procurement organizations
  • Addition of 1,000 graduate medical education slots in areas of high need, starting with up to 200 in FY23

Both issues stand to be addressed in future rulemaking, CMS says.


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