Medicare Payment and Reimbursement

HFMA provides insight into 3 key areas of CMS’s 2021 IPPS final rule

September 9, 2020 6:05 pm
  • The 2021 IPPS rule finalizes CMS’s requirement that hospitals include their median negotiated Medicare Advantage rates as part of their cost report filing.
  • Relative to what was proposed, the final rule increases the Uncompensated Care DSH dollars available to hospitals.
  • CMS finalizes a number of clarifications related to its Medicare Bad Debt requirements.

CMS released the 2021 Inpatient Prospective Payment Service (IPPS) final rule Sept. 2, and HFMA’s own Rich Daly provided excellent coverage of it in the article, “CMS finalizes requirement for hospitals to report MA plan rates.”  HFMA’s executive summary is available here.  A couple of key changes from the rule to consider:

1. Market-based MS-DRG weights: CMS finalized a requirement that hospitals report on their Medicare cost reports, filed for periods ending after Jan. 1, 2021, the median contracted payer-specific negotiated charge by MS-DRG its Medicare Advantage plans.

What CMS is asking hospitals to submit, but can’t say specifically for legal purposes, is the median negotiated MA-rate for each MS-DRG. Starting in FFY 2024, CMS will replace its current data source for rebasing MS-DRGs weights (billed Medicare charges reduced to cost using cost-to-charge ratios) with weights calculated using the median MA rates. Currently, CMS does not anticipate providing a transition period from cost-based weights to rate-based weights.


The rule indicates that moving to rate-based weights will inject market-based pricing into Medicare FFS, adopt payment strategies that are more reflective of the commercial insurance market and reduce reliance on hospital chargemasters for the calculation of Medicare payment. For a whole lot of reasons, that’s just fanciful thinking.

It’s well known that hospitals and MA plans typically use the FFS MS-DRG weight schedule and operating and capital amounts as the basis for payment, so there’s not a lot of market pricing getting injected into FFS by doing this. It also doesn’t reduce reliance on the chargemaster as Ambulatory Payment Classification (APC) weights, outlier payments and new technology payments (just to name a few) are still based on billed charges and the CCR. HFMA’s detailed feedback to CMS is available here.

The final rule suggests that CMS isn’t likely to provide additional guidance to providers related to reporting median MA MS-DRG rates beyond what’s in the proposed rule. HFMA will work with its members to understand what specific questions they have for CMS, develop possible answers and hopefully garner CMS’s input to get those questions answered. Longer term, CMS, in the final rule, acknowledges that prior to FFY24 it may consider other approaches to weight rebasing. One it specifically mentioned as recommended by multiple commenters is the Direct Cost Model, which HFMA developed with a taskforce of its members.   

2. Uncompensated Care Disproportionate Share Payments (UC DSH): In the FY21 proposed rule, the UC DSH pool was reduced by $534 million relative to the FY20 final rule. While most of this was attributed to changes in factor 1 (CMS’s estimate of DSH spending in FY21), CMS severely under-estimated factor 2, the uninsured rate (9.5% in the proposed rule), given the economic impact of the pandemic on the job market.

Based on feedback from HFMA and other stakeholders, the CMS Office of the Actuary revised its estimate of the uninsured to an average of 10.225% for FY21. As a result, the UC DSH pool available for distribution will only be $60 million lower than it was for FY20.

Specific to identifying and documenting patient eligibility for charity care, which is a component of factor 3 in the final rule, CMS, sort of, addresses comments from providers regarding the use of presumptive eligibility tools. The final rule states on page 1190, “With regard to the comments regarding the use of presumptive eligibility tools to determine charity care, we note that CMS does not set charity care criteria policy for hospitals, and within reason, hospitals can establish their own criteria for what constitutes charity care in their charity care and/or financial assistance policies.”

In subsequent discussion on page 1770 of the final rule, CMS clearly states that using presumptive tools to identify indigent Medicare beneficiaries for purposes of claiming amounts related to those patients as allowable, Medicare bad debt is not acceptable.

CMS staff have made it clear, which is now documented in the final rule and in conversations with HFMA staff, that they do not believe it is appropriate to use presumptive tools to support claiming unpaid deductibles and co-insurance as allowable Medicare bad debt.

In those same conversations, CMS staff have suggested that they view determining indigence related to Medicare bad debt and qualifying patients for financial assistance and claiming amounts related to financial assistance as uncompensated care on S-10 as two separate things. And they have said that it’s permissible for providers to use presumptive tools to qualify patients for charity care that can then be claimed on the S-10 as long as the use of the presumptive tool is explicitly discussed in their financial assistance policy. While it’s not as clear as I would like it to be, it seems that CMS is, for the first time, confirming this in writing. In recognition that their answer on this issue still leaves a bit to be desired in terms of clarity, CMS reminds hospitals that it will be offering them an opportunity to comment on this issue when it seeks feedback on the Medicare cost reporting forms in the near future.

3. Bad debt: CMS finalizes multiple changes related to Medicare Allowable Bad Debt in the IPPS rule. The intent of most of these changes, according to CMS, is to codify/clarify longstanding CMS policy that has been the source of Provider Reimbursement Review Board (PRRB) appeals related to inappropriately disallowed Medicare bad debt. Due to the volume of changes, I’ll only cover a few of them below:

  • Based on feedback from HFMA and others, CMS clarifies that emails and text messages are valid mechanisms to use for following up on a billing statement.
  • The rule clarifies that collection efforts must last 120 days from an initial bill before being written off and that the 120-day clock resets when a payment is received.
  • For dual beneficiaries, hospitals can claim deductibles and co-insurances in instances where the state Medicaid program does not provide a remittance advice (or permit a Medicare provider’s enrollment) if the provider submits the appropriate documentation to the MAC. As outlined in the final rule, this includes a notification from the state that it has no obligation to pay the Medicare cost sharing, calculation of what the state owes for cost sharing and verification of the beneficiaries’ Medicaid eligibility. Initially, CMS proposed not to allow any amounts as bad debt if the hospital could not document the amount with a remittance advice from the state.    
  • Regarding FASB Topic 606, in the final rule, CMS revises its initial proposal to specify that for cost reporting periods beginning before October 1, 2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts. For cost reporting periods beginning on or after October 1, 2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an uncollectible receivables account that results in a reduction in revenue. 

Where to look in the final rule

For more information on specifics of the final rule, see the following sections:

  • For full details on the changes to Medicare bad debt policy, the revised regulatory language starts on page 1861.
  • CMS discusses its proposals, the comments and provides rationale for the changes starting on page 1737.


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