Medicare Inpatient Prospective Payment System Final Rule – FFY 2021
CMS-1735-F drafted on 9/3/2020; Published in the Federal Register on 9/18/2020
On September 3, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that focuses the agency’s efforts on a singular objective: transforming the healthcare delivery system through competition and innovation to provide patients with better quality and results. The final rule
updates Medicare payment policies and rates for hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS), effective for discharges on or after October 1, 2020; waiving the requirement that included a 60-day buffer between release date and effective date.
The policies in the IPPS and LTCH PPS final rule represent continuing, incremental changes to the ways that healthcare entities view the quality provisions of healthcare (through extended IQR quality reporting), the effectiveness of hospital electronic systems (through increased prospective payment for those facilities classified as Meaningful Users, and monitoring through Interoperability Programs), as well as the continuation of the Readmission Reduction Program, the Value-Based Purchasing Program (VBP), and the Hospital Acquired Condition (HAC) Program.
Overall, the final rule is projected to result in an estimated increase of $3.5B (or approximately 3%) in payments to providers, comprised of an estimated $3.0B increase in operating and uncompensated care payments and a $500M increase in capital payment and new technology add-on payments.
Medicare IPPS Base Rates
CMS is increasing the base rate 2.9% for hospitals, mostly driven by a market basket increase of 2.4%, coupled with a 0.5% “return” of payment for the MACRA Documentation and Coding adjustment.
Wage Index Rates
Based on the CMS finalized changes for FFY2021, the occupational-mix adjusted national average hourly wage is estimated to be $45.23, representing an increase of 2.45% from the prior year.
CMS proposed and finalized a policy in FFY2020 to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8465 in FFY2021). In FFY2020, CMS anticipated that it would continue this policy for at least four years, acknowledging that providers in these lower-quartile states would improve employee compensation within four years as a result of the higher wage index. Accordingly, CMS finalized the continuation of this policy in FFY2021. Consistent with the finalized policy in FFY2020, in FFY2021 CMS will “fund” this policy by applying a uniform budget neutrality adjustment to the standardized rates. The final low wage index hospital policy budget neutrality factor is 0.998835 (compared to 0.997987 in FFY2020).
In FFY2020, CMS also proposed and finalized a change to the rural floor calculation by removing urban-to-rural reclassifications from the statewide rural floor. CMS finalized its proposal to continue this policy in FFY2021 so that the statewide rural floor would be calculated without including the wage data of urban hospitals that have reclassified as rural under 42 CFR §412.103.
As a result of the policy changes noted above, CMS finalized a cap of 5% on the decrease of any hospital’s wage index from FFY2019 to FFY2020. While this cap was set to expire in FFY2020, CMS finalized its proposal to continue to apply this cap in FFY2021 and apply a budget neutrality adjustment for this transition policy in the same manner as FFY2020. The reason for the extension of the cap in FFY2021 is a result of the Office of Budget & Management (OMB) updates noted below. The final transition budget neutrality factor is 0.998015 (compared to 0.998838 in FFY 2020).
Changes to Core-Based Statistical Areas (CBSAs)
The wage index is calculated and assigned to hospitals on the basis of the labor market in which the hospital is located, based on OMB-established CBSAs. The current OMB delineations are based on OMB Bulletin No. 13-01 issued on February 28, 2013, which revised a number of CBSAs starting with FFY2015 due to changes in 2010 Census data. Normally, Census data only impacts CBSA delineations every 10 years; however, OMB Bulletin No. 18-04 issued on September 14, 2018, contained material changes to the OMB statistical area delineations. Specifically, under these revised OMB delineations, new CBSAs would be created, urban counties would become rural counties, rural continues would become urban counties, and some existing CBSAs would be split apart. In addition, the revised OMB delineations affect various hospital reclassifications, the out-migration adjustment (accounting for employee commuting patterns), and the treatment of hospitals located in certain rural counties known as “Lugar” hospitals.
CMS finalized its proposal to incorporate the revised OMB delineations from OMB Bulletin No. 18-04 in FFY2021 to “increase the integrity of the IPPS wage index system by creating a more accurate representation of geographic variations in wage levels.”
The changes to current CBSA designations due the revised OMB delineations included the following:
1. Urban counties that would become rural
2. Rural counties that would become urban
3. Urban counties that would move to a different urban CBSA.
Click here for tables listing the changes to county and corresponding CBSA designations noted in #1 –3 above.
As mentioned above and to mitigate any potential impact to a CBSA’s wage index due to the revised OMB delineations, CMS finalized its proposal to implement a transition policy to apply a 5% cap on any decrease to a hospital’s FFY2021 wage index from the hospital’s final wage index from FFY2020. This policy is made budget neutral consistent with the last fiscal period in which revised OMB delineations were applied (FFY2015). The final transition budget neutrality factor is 0.998015 (compared to 0.998838 in FFY 2020).
Click here for a comparison of current and prior WIFs for each hospital, which includes the transition policy cap of 5%.
- CMS acknowledged an increase in the number of wage index appeals relating to MACs’ disallowance of wages and hours that hospitals believe are associated with Part A administrative physician time but the MACs believe are not properly documented as such, or are associated with Part B billable activities, which would not be allowable for wage index reporting.
- While CMS does not prescribe to any changes to how hospitals are to document Part A administrative physician time, it provided clarification and specific instructions as stated in the PRM. There were no comments to this issue from the Proposed Rule.
- CMS finalized its proposal to change existing regulations to allow MGCRB appeals to be submitted electronically, by fax, or by other electronic means.
- As a result of the delay in issuance of the Final Rule, applications to the MGCRB for FFY2022 reclassifications, as well as cancellations and terminations, were due by September 17, 2020. All applications and supporting documents were submitted via the Office of Hearings Case and Document Management System (OH CDMS) consistent with FFY2021 applications.
- A new measurement of occupational mix is required for FFY2022. The Calendar Year (CY) 2019 Occupational Mix Survey was originally due July 1, 2020 via email attachment or overnight delivery to hospitals’ MACs; however, CMS granted an extension until September 3, 2020 for hospitals nationwide. Subsequent reviews of the CY 2019 Occupational Mix Survey submissions will be ongoing in the fall months of 2020.
FFY 2021 UC DSH Changes
CMS finalized national Medicare UC DSH payments at $8.29 billion for FFY 2021, a slight decrease of $61 million compared to FFY 2020 UC DSH funding of $8.35 billion. The final 2021 UC DSH pool is an increase of $473 million as compared to the amount initial proposed by CMS this previous May. The $473 million increase is attributed to an update of CMS’s projection to reflect the impact of the COVID-19 public health emergency.
Please see the table below detailing CMS’s steps arriving at annual FFY 2021 UC DSH as compared to FFY 2020.
FFY 2021 UC DSH Changes
- To avoid the duplication of UC costs, hospitals acquired under a merger partway through the surviving hospital’s cost reporting period will not have their respective WS S-10 UC cost data annualized. CMS will apply a multiplier to adjust partial year data for hospitals effected by a merger part way through the year.
- The trim methodology for all-inclusive rate providers (AIRP) is modified. CMS finalizes its proposal to recalculate UC costs for AIRPs, with UC costs greater than 50% of total operating costs, by applying a cost to charge ratio from a prior year cost report (i.e., 2015) whereby UC costs are not greater than 50% of total operating costs.
Bad Debt Changes and Clarifications
The 2021 IPPS Final Rule made several revisions, clarifications and codifications to established bad debt policy, including the following classifications:
- The collection effort by both the provider and collection agency must be similar for both Medicare and Non-Medicare patients.
- The provider must issue a bill to the beneficiary/responsible party on or before 120 days after (1) the date of the Medicare remit; or (2) the date of the remit from the beneficiary’s secondary payer, if any; and (3) the date of the notification that the beneficiary’s secondary payer does not cover the service(s) furnished to the beneficiary.
- Hospitals cannot write off a bad debt until collection efforts are exhausted. Collection efforts are considered exhausted after 120 days of not receiving a payment. If a payment is received (any amount, even $1) the 120-day collection timeframe restarts.
- Must not use a beneficiary’s declaration of their inability to pay their medical bills or deductibles and coinsurance amounts as sole proof of indigence or medical indigence.
- Must take into account the analysis of both the beneficiary’s assets (only those convertible to cash and unnecessary for the beneficiary’s daily living) and income.
- May consider extenuating circumstances that would affect the determination of the beneficiary’s indigence or medical indigence which may include an analysis of both the beneficiary’s liabilities and expenses, if indigence is unable to be determined using assets and income.
- Must determine that no source other than the beneficiary would be legally responsible for the beneficiary’s medical bill, such as a legal guardian or State Medicaid program.
- Providers must continue to bill the State Medicaid/Title XIX agency for a determination of the State’s obligation to pay any of the Medicare deductible and coinsurance.
- For QMB dual-eligible beneficiaries the provider should continue to bill the state.
- If the state does not return a Medicaid remit the hospital can still comply with the “must bill” policy by providing all of the following alternative documentation:
- The State Medicaid notification evidencing that the State has no obligation to pay the beneficiary’s Medicare cost sharing or notification evidencing the provider’s inability to enroll in Medicaid for purposes of processing a crossover cost sharing claim
- Documentation setting forth the State’s liability, or lack thereof, for the Medicare cost sharing
- Documentation verifying the beneficiary’s eligibility for Medicaid for the date of service
- 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.
Cost-based Reimbursement for Allogeneic Hematopoietic Stem Cell Acquisition Costs
- (Note: This has been a requirement for services rendered on or after January 1, 2017.)
- Acquisition costs include registry fees, tissue typing, donor evaluation, costs associated with the collection procedure, post-procedure evaluation of the donor, the preparation and processing of stem cells, and transportation
- Overhead allocations associated with these costs will also be allowed
PRRB Appeal Changes
In an effort to address the large number of back-logged cases before the PRRB, CMS finalized the requirement for mandatory electronic appeal submissions and changed several definitions – such as “date of receipt,” “reviewing entity,” and “in writing or written” – to encompass electronic, as well as, hardcopy definitions.
Quality Program Changes
While CMS is finalizing several of the proposed changes to hospital quality reporting periods, none of these changes represent significant structural changes to the programs.
- The number of quarters that hospital providers are required to submit eCQM data under the IQR program will increase incrementally from CY 2021 through CY 2023 (representing payment in FFY’s 2023-2025)
- FY 2021 (FFY Payment Yr 2023) – The current 1 provider-chosen quarter of reporting will increase to 2 provider-chosen quarters within the year
- FY 2022 (FFY Payment Yr 2024) – Reporting will increase to 3 provider-chosen quarters within the year
- FY 2023 (FFY Payment Yr 2025) – Reporting will increase to entire year of mandatory reporting
- Establish the performance period for the FY 2022 program year
- Maintains program particulars for the FY 2021 year
- Finalizes Automatic Adoption of program in future years
- Maintains measure removal policy that aligns with the policies for other quality programs (Inpatient Quality Reporting, etc.)
- Finalizes Automatic Adoption of program in future years.
- Adopts program data validation procedures to parallel changes in reporting in the Inpatient Quality Reporting (IQR) Program (matching data collection quarters, hospital-selected quarters and requiring digital filings)
- Extending the continuous 90-day reporting period into FY 2022
- Keeping the PDMP (Prescription Drug Monitoring Program) a voluntary measure for FFY 2021
- Stating that eCQM data will be publicly reported
- Indicating that it will continue to support the Interoperability Program into years beyond FY 2022 and will consider overlapping goals with the 21st Century Cures Act
Other Rules, Transmittals, and Articles Recently Published
Inpatient Psych Facility PPS Final Rule [CMS-1731-F](Display Copy available here 7/31/2020; FR Publish Date 8/04/2020)
- Per diem base rate increase from $798.55 to $815.22.
- Adopts a more recent OMB core-based statistical area (CBSA) delineation. Implements 2-year transition for all providers negatively impacted by wage index changes.
- Adjusts the Fixed Loss Threshold from $14,960 to $14,630.
- Adjusts the Labor-Related Share of the prospective payment base rate from $76.9% to 77.3%.
- Electroconvulsive therapy – ECT – payment per treatment adjusted from $343.79 to $350.97.
- Standard payment conversion factor increase from $16,489 to $16,856.
- Adopts a more recent OMB core-based statistical area (CBSA) delineation. Implements 5% decrease cap for all providers negatively impacted by wage index changes.
- IRF coverage requirements adjusted to post-admission physician evaluation requirement.
- Amends IRF coverage requirement to allow non-physician practitioners to perform some weekly visits. This could only be implemented if it is permissible within the scope of service of the non-physician practitioner under applicable state law.
- LTCH-PPS payments decreased by 1.1%, or $40Million for LTCHs, due to the implementation of a revised, rebased LTCH-PPS system.
- LTCH-PPS payment rate will increase by 2.2% from FY 2020 to FY 2021, primarily due to the 2.3% annual standard update rate for FY 2021.
- Increase in unadjusted Federal per diem rates of 2.2%.
- SNF-PPS payments increased by a net $550Million, due to $750 Million increase in SNF PPS payment rate against a $200Million decrease due to FY 2021 SND VBP changes.