CMS Releases FY 2021 IPPS Proposed Rule

Yesterday, the Centers for Medicare and Medicaid Services (CMS) released proposed updates to the Inpatient Prospective Payment System (IPPS) for fiscal year (FY) 2021, including updates to Medicare payment policies and payment rates for most acute care hospitals. Of particular note, is the agency’s discussion of a potential new market-based methodology for establishing relative weights for Medicare Severity Diagnosis Related Groups (MS-DRGs).

In the proposed rule, CMS indicates that it does not expect to release the FY 2021 IPPS final rule by August 1 or August 2. Current statute requires the IPPS final rule to be published at least 60 days prior to its effective date (August 1). However, the Congressional Review Act (CRA) allows the agency to not meet the 60-day requirement under certain circumstances. CMS is planning on providing the final rule 30 days prior to its effective date (September 1), citing the COVID-19 public health emergency as grounds for not meeting the 60-day requirement.

A CMS factsheet on the proposed rule is available here. Comments are due on July 10, 2020.

Key Takeaways

1. CMS estimates that provisions in the proposed rule would result in an estimated $1.98 billion increase in FY 2021 payments to IPPS hospitals. Increases are primarily driven by the proposed increase to IPPS rates, but are also impacted by other proposed changes.

2. The proposed FY 2021 standardized amount for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and that are meaningful electronic health record (EHR) users is $5,979.74 — an increase of 3.08 percent over the FY 2020 standardized amount.

3. CMS requests public comment on a potential market-based MS-DRG relative weight methodology that would begin in FY 2024 and that would utilize the market-based data collected on hospital cost reports.

4. CMS proposes additional changes to the NTAP process to facilitate add-on payments for certain antimicrobial products, including accelerating access to add-on payments by allowing conditional approval for products not FDA-authorized by July 1.

5. CMS proposes to maintain the low wage index policy first implemented for FY 2020. Hospitals with wage index values below 0.8420 would benefit in FY 2021.

6. CMS declines to propose updates to the Overall Hospital Quality Star Rating on Hospital Compare despite previous indications it would.

FY 2021 Standardized Amount

The proposed FY 2021 standardized amount for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and that are meaningful electronic health record (EHR) users is

$5,979.74. This would result in an increase of 3.08 percent over the FY 2020 standardized amount ($5,801.13) for these hospitals. The proposed update reflects an increase of 3.0 percent for the market basket increase, less a 0.4 percent productivity adjustment, plus a 0.5 percent positive adjustment for documentation and coding mandated by Section 414 of MACRA for fiscal years 2018 through 2023, as well as budget neutrality adjustments discussed in the proposed rule.

The standardized amount varies based on an individual hospital’s participation in the Hospital IQR Program and meaningful use of EHR. Hospitals that fail to submit quality data are subject to a -0.75 percent adjustment and hospitals that fail to be a meaningful EHR user are subject to a -2.25 percent adjustment.

Proposed FY 2021 standardized amounts are shown below. Amounts shown are the sum of the labor- related and non-labor related shares without adjustment for geographic factors.

Market-Based MS-DRG Relative Weight Methodology and Data Collection

POTENTIAL CHANGE IN METHODOLOGY FOR CALCULATING MS-DRG RELATIVE WEIGHTS

Key Takeaway: CMS is seeking public comment on a potential market-based MS-DRG relative weight methodology beginning in FY 2024 that would utilize market-based data collected from hospital cost reports.

CMS calculates payment for a specific case under the IPPS by multiplying an individual hospital’s geographically adjusted standardized amount per case by the relative weight for the MS-DRG to which the case is assigned. Each MS-DRG relative weight represents the average resources required to care for cases in that particular MS-DRG, relative to the average resources required to care for cases across all MS- DRGs. MS-DRG classifications and relative weights are required to be adjusted at least annually to account for changes in resource consumption.

Currently, DRG relative weights are calculated using a cost-based methodology that primarily utilizes hospital charges from the MedPAR claims data and hospital cost report data from the Healthcare Cost Report Information System (HCRIS). CMS has in recent years sought to reduce the Medicare program’s reliance on hospital charge data, believing that charge-master (gross) rates may not reflect true market costs.

CMS evaluated existing research comparing Medicare fee-for-service (FFS) rates, Medicare Advantage (MA) rates, and rates of other commercial payers and concluded that payer-specific charges negotiated between hospitals and MA organizations are generally well-correlated with Medicare IPPS payment rates, and payer-specific charges negotiated between hospitals and other commercial payers are generally not as well-correlated with Medicare IPPS payment rates. As a result, CMS is considering a more market-based methodology for estimating MS-DRG relative weights using the median payer-specific negotiated charge for each MS-DRG for payers that are MA organizations.

The specific methodology being considered includes the following steps: