Closer Look at the Inpatient Prospective Payment System Final Rule

Yesterday, CMS unveiled the highly anticipated Inpatient Prospective Payment System (IPPS) final rule for the 2021 fiscal year (FY). Chief among the rule’s updated policies is a 2.9 percent increase in inpatient hospital reimbursement rates for facilities meeting quality reporting and meaningful use requirements.

In total, CMS expects Medicare spending on inpatient hospital services to increase by about $3.5 billion next year, a 2.7 percent increase compared to FY 2020.

But the FY 2021 IPPS final rule also included other, more controversial Medicare payment policies, including a new push for hospital price transparency.

In the final rule, CMS stated that it will start collecting median payer-specific negotiated charges for Medicare Advantage organizations on the Medicare cost report for the cost reporting periods end on or after January 1, 2021.

The agency will then, starting in FY 2024, use the data in a new “market-based” methodology to set MS-DRG relative weights, which are used for calculating Medicare payment rates for inpatient hospital stays.

In an announcement, CMS said the new policy is to “ensure that the Medicare FFS program adopts pricing strategies based on real world market forces.”

Medicare typically reimburses hospitals at a rate that is reflective of the relative cost of providing specific services based on a patient’s diagnosis, the agency explained. However, these costs are largely based on charges hospitals report to the federal government, which according to CMS, generally have little to no connection to the actual rates paid by payers.

Since hospitals must start reporting negotiated rates with private payers per an upcoming price transparency rule in 2021, CMS decided to finalize a requirement that would mandate hospitals to also report the rates paid by Medicare Advantage organizations for inpatient services.

“These provisions will introduce the influences of market competition into hospital payment and help advance CMS's goal of utilizing market-based pricing strategies in the Medicare FFS program,” CMS said.

In addition to increasing competition, CMS also aims to foster innovation through the FY 2021 IPPS final rule.

The final rule includes a new MS-DRG for the administration of chimeric antigen receptor (CAR) T-cell therapies, which used a patient’s genetically modified immune cells to treat cancer.

In the rule, CMS also approved 24 technologies for add-on payments in FY 2021, including 13 technologies that applied for new technology add-on payments and one technology that has not been approved by the FDA but otherwise meets the criteria for an alternative pathway.

CMS projects the add-on payments to boost inpatient hospital spending by $874 million next year, representing a 120 percent increase compared to the previous fiscal year.

While hospitals may see more revenue from technology use, the facilities will see fewer payments for uncompensated care.

The FY 2021 IPPS final rule will make changes to the distribution of uncompensated care payments to hospitals participating in Medicare. CMS stated in the rule that it will decrease Medicare uncompensated care payments to hospitals by approximately $60 million compared to FY 2020, bringing total uncompensated care payments under the FY 2021 IPPS to roughly $8.3 billion.

The agency is cutting the payments based on projections from the Office of the Actuary, which did account for the estimated impact of the COVID-19 pandemic, according to the final rule.

Other notable policies in the FY 2021 IPPS final rule included the use of audited Worksheet S-10 data for uncompensated care payment distribution, a new technology add-on payment for certain antimicrobial products, and changes to the Graduate Medical Education policy.

The rule also contained updates to the Hospital-Acquired Condition (HAC) Reduction Program, Hospital Readmissions Reduction Program (HRRP), Hospital Inpatient Quality Reporting (IQR) Program, Hospital Value-Based Purchasing (VBP) Program, PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, and the Medicare and Medicaid Promoting Interoperability Programs.

On the record, CMS touted the rule’s potential to advance access to “cutting-edge therapies and technologies.”

“President Trump is committed to ensuring that seniors on Medicare have access to the latest life-saving diagnostics and therapies,” CMS Administrator Seema Verma said in the announcement. “This rule is another critical step in our effort to modernize the program and strip away bureaucratic barriers between our seniors and the latest innovative treatments.”  

Hospitals, however, were less focused on the rule’s technology policies.

“The AHA remains deeply disappointed that CMS continues to require hospitals and health systems to disclose privately negotiated contract terms with payers,” said Ashley Thompson, the American Hospital Association’s senior VP of public policy analysis and development.

“By continuing to focus on negotiated rates rather than expanding access to a patient’s out-of-pocket costs, the Administration fails to meet the goal it set for itself - assisting consumers in becoming more prudent purchasers of health care. We once again urge the agency to focus on what is really important to patients - ready access to their out-of-pocket costs,” Thompson continued.

The Association also raised concerns about the CAR T-cell therapy payment policy, citing issues with accessing the high level of resources needed to administer the therapy to patients.

“We continue to urge CMS to consider an alternative method of determining the cost of CAR T therapy, as well as to consider carving out these very costly new technologies from the MS-DRG and paying for them on a pass-through basis,” Thompson said.

The FY 2021 IPPS final rule will go into effect on October 1, 2020. Stakeholders can view the complete rule here.