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%.

Toyon’s Take: The transition policy implemented by CMS to apply the revised OMB delineations is appropriate and consistent with past year’s where CMS had to apply similar revisions to the CBSA designations. The impact to urban hospitals as a result of the revised OMB delineations is minimal with the exception of hospitals in the Northeast, primarily New York-New Jersey as a number of counties were redefined to new CBSA designations and “moved out” of New York City which historically has produced a higher wage index for such hospitals. The impact to these hospitals specifically will be mitigated in FFY2021 due to the transition policy; however, beyond FFY2021 the impact could be significant, hence the opposition expressively commented on by impacted hospitals in the Proposed Rule. Hospitals in these areas will need to pay close attention to their future wage index filings and consider any reclassification opportunities, and also, if a hospital in these areas has an existing MGCRB reclassification, it should continue to review the reassignment policy implemented by CMS to ensure the hospital is reclassified to the appropriate geographic area.

Other Changes Impacting Wage Index

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.

For additional information regarding wage index changes or updates, please contact Ryan Sader at ryan.sader@toyonassociates.com.

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

1. Single Annual Base Year of UC Cost for Distributions

The most recent available single year of audited WS S-10 will be used for Medicare DSH UC payments for all subsequent fiscal years.

Toyon’s Take: CMS’s proposal to use a single year of UC cost as the basis of UC DSH payments (Factor 3) is a significant change to the DSH reimbursement system. Although CMS has not committed to an audit cycle as prescribed and transparent as wage index, many providers are currently experiencing an audit of 2018 UC costs (for FFY 2022 UC DSH payments). Toyon anticipates audits of future UC costs to reflect the current process, with improvements as further guidance is issued.

Toyon recommends hospitals report current year UC DSH listings (e.g., FYE 12/31/2019, 6/30/2020) with the intent of amending these listings before or during S-10 audit. Please visit Toyon’s Website for a further discussion of filing UC costs here under “Current S-10 Reporting.”

2. Clarifications on Bad Debt Reporting

CMS is amending Medicare bad debt regulations at §413.89(c) to specify bad debts, also known as “implicit price concessions,” charity, and courtesy allowances represent reductions in revenue. In the Final Rule’s Uncompensated Care section, CMS refers readers to the Medicare bad debt section for a discussion treatment of implicit price concessions under GAAP Topic 606. In the Medicare bad debt section of the Rule, CMS cites 42 CFR §413.20 “Financial data and reports” and 42 CFR §413.89 “Bad debts, charity, and courtesy allowances.”

Toyon’s Take: Although bad debts are reported as reductions to revenue for accounting purposes, these amounts may be reported as bad debt expense on WS S-10. Toyon also anticipates further WS S-10 cost reporting clarification is pending, as CMS states “implicit price concession terminology should be incorporated into the Worksheet S-10 for incorporation into uncompensated care calculations. We believe that it is most appropriate to adopt this policy with a future effective date.” CMS refers to a forthcoming Paper Reduction Act (PRA) package^[1] for an additional opportunity to comment on the cost reporting instructions.

3. Reduction of Payment Variation Risk

CMS finalized hospitals may submit a request, with support, to their Medicare auditor for a lower discharge interim uncompensated care payment amount, before the beginning of the fiscal year and/or once during the fiscal year.

Toyon’s Take: Toyon recommends providers assess annual UC reporting for year over year consistency. CMS’s use of a single base year for UC funding may cause large variations in annual DSH funding. As hospital teams look for more predictability in annual payments, hospital teams may consider smoothing the timing of charity and bad debt write-offs so there is mitigated variation in UC cost from year to year (aside from other market conditions).

4. Other 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.

For additional information, please contact Fred Fisher, lead of Toyon’s Uncompensated Care Recognition Services, at 888.514.9312, fred.fisher@toyonassociates.com.

[1] Form CMS–2552–10 (OMB Control Number 0938– 0050, expiration date March 31, 2022

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:

Reasonable Collection Effort for Non-Indigent Beneficiaries

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.

120-Day Collection Effort and Reporting Period for Writing off Bad Debts

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.

Toyon’s Take: This is consistent with how the MACs are currently auditing bad debt listings. Providers should ensure that these protocols are in place. Please record and document all collection actions such as the issuance of bills, collection letters, telephone calls, etc.

Reasonable Collection Effort for Beneficiaries Determined as Indigent (Non-Dual Eligible)

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.

Toyon’s Take: CMS removed the requirement to initially review the liability and expense. Providers first need to focus on assets and income. Presumptive Eligibility (including PARO) is not an allowable method to determine a patient’s indigent status for Medicare bad debt purposes.

Reasonable Collection Effort for Dual Eligible Beneficiaries

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

Toyon’s Take: The provider must ensure that proper supporting documentation can be made available during the audit for all dual eligible claimed accounts.

Accounting Standard Update Topic 606 and Accounting for Medicare Bad Debt

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.

Toyon’s Take: Medicare bad debt, specifically Medicare/Medicaid dual-eligibles, cannot be written off to a contractual allowance account. The hospital will need to review their internal policy regarding write-offs and ensure that they are following these protocols for writing off bad debt claims.

For additional information, please contact Dylan Chinea at dylan.chinea@toyonassociates.com.

Market-Based MS-DRG Weights Beginning in FFY2024

In an effort to reduce the Medicare programs’ reliance on the hospital chargemaster, as well as to inject market pricing into Medicare FFS reimbursement, CMS will replace the current relative weight methodology that uses charges on Medicare claims in combination with cost-to-charge ratios from Medicare cost reports. Beginning with cost reporting periods ending on or after January 1, 2021, hospitals will report the median negotiated rates with Medicare Advantage payers to be used to establish MS-DRG relative weights for FFY 2024. Hospitals that do not negotiate payment rates, such as federally owned facilities, Indian Health Service facilities, Critical Access Hospitals (CAHs), and hospitals located in Maryland, would be exempted from this reporting.

CMS recognizes that hospitals may negotiate rates with third party payers as a percent discount off chargemaster rates, on a per diem basis, or by MS-DRG or other similar DRG system. There may be hospitals that do not negotiate charges for service packages by MS-DRG or for service packages that could be crosswalked to an MS-DRG.

CMS provided an example where the payer-specific negotiated charge is $30,000 with a 3rd party payer for major joint replacement paid under the All Patient Refined (APR)-DRG system (equivalent to MS-DRG 470). The hospital and payer have agreed to additional payment above a stop loss threshold ($150,000) based on 50 percent of charges as well as 60 percent of the cost of implanted hardware. In this example, the hospital’s payer-specific negotiated charge for a major joint replacement (MS-DRG 470 equivalent) is $30,000. However, the resulting payment per discharge will vary, depending on whether the patient’s cost exceeded the stop loss threshold, or the patient received implanted hardware. As finalized, the hospital would only consider the $30,000 negotiated rate in determining the median.

Further instructions for the reporting of this market-based data collection requirement on the Medicare cost report will be discussed in a forthcoming revision of the Information Collection Request currently approved under OMB control number 0938-0050, expiration date March 31, 2022.

Toyon’s Take: Hospitals should review their Medicare Advantage (MA) payers to identify those that are contracted and then determine the base payment methodology by MS-DRG. If the MA payer does not reimburse under MS-DRGs, review whether the patient accounting system contains the grouper for MS-DRG assignment.

Cost-based Reimbursement for Allogeneic Hematopoietic Stem Cell Acquisition Costs

Effective for cost reporting periods beginning on or after October 1, 2020, CMS will reimburse hospitals on a reasonable cost basis its acquisition costs associated with allogeneic hematopoietic stem cell transplants (i.e., when stem cells are obtained from a donor rather than the recipient). Currently, these costs are included within the MS-DRG payment. The cost reimbursement will closely resemble to the methodology in which the acquisition costs for solid organs are reimbursed with certain differences.

1. Gather and report acquisition costs on Line 77 of the Medicare cost report

(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

2. Include the actual donor charges for the Medicare recipient on the inpatient hospital bill for the MS-DRG using Revenue Code 815. CMS is developing a worksheet similar to Worksheet D-4, Part I to convert charges to cost by routine and ancillary cost centers.

3. Tabulate the hospital’s Medicare share of costs by developing a ratio of the number of allogeneic hematopoietic stem cell transplants furnished to Medicare beneficiaries to the total number of those same procedures furnished to all patients.

Changes to the forms and instructions will be described in more detail in a forthcoming Paperwork Reduction Act (PRA) package, with comment period. The PRA package will address providers’ requests for a standardized format for data collection.

Toyon’s Take:

Because these amounts will now be reimbursed on a reasonable cost basis, it is important that hospitals verify that they are properly capturing these costs, charges, and statistics to ensure proper reimbursement.

For additional information or assistance with calculating these amounts, please contact Robert Howey at robert.howey@toyonassociates.com

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.

For additional information, please contact Karen Kim at karen.kim@toyonassociates.com.

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.

Hospital Inpatient Quality Reporting (IQR)

CMS is making the following adjustments to the program reporting protocols for participating providers:

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

Hospital Value Based Purchasing (HVBP)

CMS is not adding or removing any measures for the FY2022 and FY2023 program years. However, CMS will be establishing new performance standards for FY2024 and FY2025.

Hospital Readmission Reduction (HRR)

CMS will adopt the following adjustments to the program:

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

Hospital Acquired Conditions (HAC)

CMS will make the following adjustments to the program:

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)

Medicare Interoperability Program

CMS continues support of the Medicare Interoperability Program into the future by:

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 21^st 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)

(Correction Notice Display Copy available here 8/27/2020; FR Publish Date 8/27/2020)

Fact Sheet Link

Federal Register Link

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.

Inpatient Rehab Facility PPS Final Rule [CMS-1729-F]

(Display Copy available here 8/04/2020; FR Publish Date 08/10/2020)

Fact Sheet Link

Federal Register Link

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.

Long-Term Care Hospital PPS Final Rule [CMS-1735-F]

(Display Copy available here 09/03/2020; FR Publish Date 9/18/2020) – Published as part of the IPPS Acute Care Hospital Final Rule

Fact Sheet Link

Federal Register Link

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.

Skilled Nursing Facility PPS Final Rule [CMS-1737-F]

(FR Publish Date 08/05/2020)

Fact Sheet Link

Federal Register Link

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.

Should you have further questions about these changes and wish to discuss them, please contact the persons listed with the articles above, or tim.vanderford@toyonassociates.com.

Medicare Inpatient Prospective Payment System Final Rule – FFY 2021

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