Medicare Hospital Inpatient Prospective Payment System (IPPS) Federal Fiscal Year (FFY) 2022 Final Rule

CMS-1752-F drafted on 8/2/2021; Published in the Federal Register on 8/13/2021

On August 2, 2021, the Centers for Medicare & Medicaid Services (CMS) issued the final rule for Federal Fiscal Year (FFY) 2022 Inpatient Prospective Payment System (IPPS). The Final Rule builds on key priorities to close health care equity gaps and support greater access to life-saving diagnostics and therapies during the public health emergency (PHE) and beyond. Its polices will assist in supporting a hospital’s readiness to respond to future public health threats and develop the health care workforce in rural and underserved communities. The Final Rule revises reporting requirements for scoring, payment, and public quality data in their effort to reduce the adverse impacts of the pandemic and any future unplanned events. The Final Rule updates Medicare payment policies and rates for hospitals under the IPPS and the Long-Term Care Hospital (LTCH) PPS effective for discharges on or after October 1, 2021 (FFY 2022).
CMS received greater than 6,500 public comments to the FFY 2022 Proposed Rule. These comments related to empirical disproportionate share hospital (DSH) payments, organ acquisition costs, and the provision of the Consolidated Appropriations Act (CAA) 2021, related to payments to hospitals for direct graduate medical education (GME) and indirect medical education (IME) costs, will be addressed in subsequent parts. 
CMS, in this Final Rule, establishes new requirements and revises existing requirements for the Hospital Value-Based Purchasing (VBP) Program, Hospital Readmissions Reduction Program, Hospital-Acquired Condition (HAC) Reduction Program, Hospital Inpatient Quality (IQR) Reporting Program, LTCH Quality Reporting Program, PPS-Exempt Cancer Hospital Reporting (PCHQR) Program, and the Medicare Promoting Interoperability Program
CMS uses FY 2019 data where “FY 2020 data is significantly impacted by the COVID-19 PHE” in FFY 2022 rate setting. For instance, CMS uses FY 2019 MedPAR claims data in its MS-DRG classification analysis, and FY 18/19 HCRIS cost report data in determining FY 2022 IPPS MS-DRG relative weights. Throughout the Final Rule, CMS “clearly identifies” where and how the Agency uses alternative data (as compared to more recent data from 2020 CMS would ordinarily use for rate setting).
Overall, the Final Rule will result in an estimated increase of $2.3bn in payments to providers. Included in that amount is a reduction of approximately $1.4bn in Medicare DSH and Uncompensated Care (UC) payments. Increases to hospital payments before the DSH and UC reduction for FFY 2022 is $3.7bn (3.1 percent). 

Rural Redesignation Update

CMS had issued an Interim Final Rule with Comment (IFC) amending current regulations at § 412.230. This amendment allows hospitals with a rural redesignation to reclassify through the Medicare Geographic Classification Review Board (MGCRB) using the rural reclassified area as its geographic location. These regulatory changes align CMS policy with the decision in Bates County Memorial Hospital v. Azar, 464 F. Supp. 3d (D.D.C. 2020). 

Medicare IPPS Base Rates

CMS is finalizing a base rate net increase of 2.7% for hospitals, after budget neutrality, for hospitals that comply with the CMS quality reporting program (QRP). There is also a 1.4% increase in the federal capital rate. As it has done in prior years, CMS will reduce payments to those hospitals which do not meet IQR or EHR requirements.
Click here for the full base rate calculation table and comparison to prior year.

Repeal of Market-based Data Collection, MS-DRG Relative Weight Policy

CMS is finalizing its proposal to repeal the requirement that a hospital include on the Medicare cost report the median payer-negotiated inpatient services charges for Medicare Advantage organizations by MS-DRG, for cost reporting periods ending on or after January 1, 2021.
CMS is going to repeal, the market-based MS-DRG relative weight methodology, slated to be effective for FFY2024, that would have used these data to set relative Medicare payment rates for hospital procedures. Rather, CMS, in the FFY 2022 Final Rule, states that they will continue using the existing rate-setting methodology for FFY2024 and subsequent years.

Changes to the New COVID-19 Treatments Add-on Payment (NCTAP)

CMS, in their response to the pandemic, established the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges during the Public Health Emergency (PHE).  CMS has approved 19 technologies that applied for new technology add-on payments for FFY 2022. This amount includes 9 technologies under the alternative pathway for new medical devices that are part of the FDA Breakthrough Devices Program and 2 that received the FDA Qualified Infectious Disease Product (QIDP) designation. In addition, CMS approved (conditionally) one technology, designated as a QIDP that met the criteria but had not received FDA approval. The remaining seven of these 19 new technologies were submitted under the traditional new technology add-on payment criteria and approved. 
CMS will also continue new technology add-on payments for 23 technologies which are currently receiving the add-on payment. Ten of these remain within their newness period and for the remaining 13, CMS will use its exemptions and adjustment authority, for one year, under section 1886(d)(5)(I) of the Act due to the “unique circumstances” for FFY 2022 rate-setting due to the COVID-19 PHE.
In total there will be 42 new technologies that will be eligible to receive add-on payments for FFY 2022. CMS estimates these payments to be $1.5bn, which is a 77% increase over FFY 2021 spending.
Toyon’s Take
CMS allowing the exemption on the 13 technologies and remain on the NCTAP list will provide additional relief to hospitals at a time when many still desperately need support. Hospitals will continue to have the flexibility awarded by CMS to continue to manage the care for these patients past the PHE. Providing care without these exemptions may have led to disincentives when using these new technologies. Hospitals need to ensure they are capturing these amounts in their claims.
Please contact Scott Besler at with NCTAP reimbursement questions.

Finalized Changes to Wage Index

Based on the CMS finalized rates for FFY 2022, the occupational mix-adjusted national average hourly wage is estimated to be $46.47, representing an increase of 2.74% from the prior year.
Continuation of Prior Year Wage Index Policy Changes
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, which for FFY 2022 was finalized at a Wage Index Factor (WIF) of 0.8437. Consistent with the finalized policy in FFY 2020 and 2021, in FFY 2022 CMS will “fund” this policy by applying a uniform budget neutrality adjustment. The finalized low wage index hospital policy budget neutrality factor is 0.998035 (compared to 0.997970 in FFY 2021).
Also, in FFY 2020, CMS 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 FFY 2022 (as it did in FFY 2021) so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.
Lastly, in FFY 2021, CMS proposed and finalized changes to specific Core-Based Statistical Areas (CBSAs) based on updated census data as released by the Office of Management and Budget (OMB) in its OMB Bulletin No. 18-04 dated September 14, 2018. In unprecedented fashion, CMS incorporated the revised OMB delineations to CBSAs impacted in FFY2021, which included new CBSAs, urban counties that became rural counties, rural counties that became urban counties, and existing CBSAs that were split apart. CMS finalized its proposal in FFY 2022 to continue to use the OMB delineations adopted beginning with FFY 2015 and updated most recently in OMB Bulletin No. 18-04.
As a result of the policy changes noted above, in FFY 2020 and FFY 2021 CMS finalized a “transition” policy which included a cap of 5% on the decrease of any hospital’s wage index from the prior year. For instance, in FFY 2021, a hospital could not receive a final wage index that was less than 5% of what it received in FFY2020. While this transition policy was set to expire in FFY2021 and CMS proposed to not include a transition policy in FFY 2022, CMS finalized an extension of the transition policy for FFY 2022. Specifically, for hospitals that received the transition in FFY 2021, CMS is continuing a wage index transition for FFY 2022 where it will apply a 5% cap on any decrease in a hospital’s WIF compared to its WIF for FFY 2021. In accordance with CMS, the transition policy is intended to mitigate significant negative impacts of, and provide additional time for hospitals to adapt to, CMS policy changes described above, specifically the revised OMB delineations. CMS finalized this transition policy on a budget-neutral basis consistent with FFY 2021. The finalized wage index transition budget neutrality factor for FFY 2022 is 0.99987.
Click here for a comparison of current and prior WIFs for each hospital as well as a comparison to the Proposed Rule. In addition, CMS Table 2 includes the bottom quartile wage index adjustment as well as where the transition policy cap of 5% applied.
Toyon’s Take
Please refer to our FFY 2022 Proposed Rule brief for further discussion on the continuation of the policy changes implemented by CMS as proposed and finalized to continue in FFY 2022. The FFY 2022 Final Rule update relates to the transition policy extension that was not otherwise extended in the Proposed Rule. Despite its good intentions, the extension of the wage index transition policy came with a limitation applied. By limiting the transition cap of 5% to only those hospitals that received it in FFY 2021, the number of hospitals that benefit from the transition cap is minimal (less than 30 hospitals across the country compared to well over 100 in FFY 2021). This is primarily a result of the inclusion of the imputed rural floor for “all-urban” States in FFY 2022. For instance, hospitals in the New Jersey market that were significantly impacted by the revised OMB delineations were “protected” in its wage index reduction to the inclusion of the FFY 2022 imputed rural floor for New Jersey hospitals. See further discussion below on the imputed rural floor for “all-urban” States. On the contrary, with a uniform budget neutrality factor of 0.99987 reducing standardized rates by less than 0.02%, the impact to hospitals not receiving the wage index transition cap is negligible.
Occupational Mix Adjustment using Calendar Year (CY) 2019 Survey Data
CMS provides for the collection of data every three years on the occupational mix of employees for each short-term, acute care hospital. In 2016, CMS collected survey data to compute an occupational mix adjustment for the FFY 2019, FFY 2020, and FFY 2021 wage indexes. For FFY 2022, a new measurement of the occupational mix was required using data from CY 2019. CMS finalized its proposal to utilize this data using the same methodology as prior years to calculate an occupational mix adjustment factor. The final unadjusted national average hourly wage is $46.52 compared to the occupational-mix adjusted national average hourly wage of $46.47.
Reincarnation of the Imputed Rural Floor in “All-Urban” States
In FFY 2005, CMS adopted an imputed rural floor policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that argued they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. After extending the imputed rural floor policy eight times since FFY 2005, the policy expired and was not renewed in FFY2018 and has not been included in FFYs 2019 through 2021.
However, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS is finalizing permanent reinstatement of the imputed rural floor wage index calculation for hospitals located in “all-urban” States, which refers to States without designated rural areas. In accordance with the American Rescue Plan of 2021, “For discharges occurring on or after October 1, 2021, the area wage index applicable under this subparagraph to any hospital in an all-urban State…may not be less than the minimum area wage index for the fiscal year for hospitals in that State.” CMS is required by the statute to reinstate the previous imputed rural floor methodology, and this rate cannot be less than the imputed rural floor CMS calculated for such States in FFY 2018. Unlike FFY 2018 and prior, the new statute specifies that the adjustment pertaining to the imputed rural floor policy shall not be applied in a budget neutral manner, which means that any increase to the wage index for these all-urban States will not be offset by a decrease to the standardized amount or applied to wage indexes.
While not in the Proposed Rule, CMS finalized the imputed rural floor adjustment into the rate-setting, calculation of the wage index and tables of the Final Rule in a non-budget neutral manner. CMS Table 2 (link above) includes the imputed rural floor WIFs for those hospitals that received it in Connecticut, Rhode Island, Delaware, New Jersey, and Washington D.C. (Note: Puerto Rico hospitals are also subject to an imputed rural floor, but no hospitals received the imputed rural floor in FFY 2022.)
Other Proposed Changes Impacting Wage Index
  • CMS proposed to make two changes to the timing of a hospital’s request to cancel a previously granted reclassification from urban to rural, which would in effect lock a hospital into its rural status for a longer period. CMS acknowledges that these changes are necessary to address the practice of applying for and canceling rural reclassification to manipulate a State’s rural wage index, which is “detrimental to the stability and accuracy of the Medicare wage index system”. The proposed two changes are described below.
    • First, CMS proposed that requests to cancel rural reclassifications be submitted to the CMS Regional Office no earlier than one calendar year after the date when the reclassification became effective, and
    • Second, CMS proposed to replace an existing rule, which requires cancellation of reclassification no later than 120 days prior to the end of Federal Fiscal Year to be effective at the beginning of the next Federal Fiscal Year, with a requirement that cancellation requests become effective in the Federal Fiscal Year that begins in the calendar year after the calendar year in which the request was submitted.
CMS finalized its proposed policy for the cancellation of rural reclassifications to be effective until no earlier than one calendar year after the date when the reclassification became effective, which will be reflected in the corresponding regulation – CFR §412.103(g)(4). However, CMS delayed the proposal to require cancellation requests to be effective in the Federal Fiscal Year that begins in the calendar year after the calendar year in which the request was submitted. CMS stated that it will delay this proposal to revise it further in order to assure the policy effectively targets the form of wage index manipulation it intends to deter.
  • For all IPPS hospitals whose wage indexes are greater than 1.000, CMS finalized its proposal in FFY 2022 to apply the wage index to the proposed labor-related share of 67.6% of the national standardized amount, compared to 68.3% in FFY 2021.
Please contact Ryan Sader at with any wage index questions.

Finalized Changes to Uncompensated Care DSH

CMS proposes to decrease Medicare UC DSH payments by $1.1bn, to $7.2bn in FFY 2022.  This decrease is primarily due to estimated FFY 2022 DSH payments under the “empirical” method[1] – including data from the PHE – in the determination of “Factor 1”.  Specifically, the $103m update[2] in the Factor 1 computation includes update factors inclusive of data from the PHE (notably discharges and Medicaid enrollment) and is significantly less than prior year updates (e.g., $1.170bn in FFY 2021).
[1] In the Factor 1 calculation, CMS first determines Medicare DSH payments in the absence of UC DSH payments under the ACA (section 1886(r)(1) of the Act). Data from the Office of the Actuary’s January 2021 Medicare DSH estimates, based on data from the March 31, 2021 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2021 IPPS/LTCH PPS final rule IPPS Impact File.
[2] Updates include Market Basket (Update Factor component), ACA Payment Reductions (Update Factor component), Multifactor Productivity Adjustment (Update Factor component), Documentation and Coding (Update Factor component), Discharge Factor, Case-Mix Index Factor, and an Other Factor.  
Furthermore, CMS decreased Final FFY 2022 Medicare UC DSH payments by $436m as compared to the $7.6bn in the FFY 2022 Proposed Rule.  This decline is driven by a decrease in CMS’ estimated uninsured patients for FFY 2022 (“Factor 2”). CMS highlights the uninsured projection has decreased due to a “faster-than-anticipated employment growth, an improving economic outlook based on a consensus of the Blue-Chip forecasters, and substantial recent and anticipated, temporary increases in Medicaid enrollment”.
CMS finalized one significant change for FFY 2022 only using an average of two years discharge data (FY 2018 and FY 2019), rather than a three-year average that would include data from the PHE (FY 2018, FY 2019, and FY 2020). CMS also finalized new trims to exclude rare cases hospitals do not have audited FY 2018 Worksheet S-10 data and are not currently projected to be DSH eligible.  
Toyon’s Take
Decreasing UC DSH Payments
CMS’ use of discharges and Medicaid enrollment data from the PHE (“Factor 1”), combined with a projection of decreasing uninsured population (“Factor 2”), significantly lowers hospital FFY 2022 UC DSH payments.  The amount of UC costs incurred by DSH hospitals has increased each year (e.g., $1.2 billion, or 3.6%, from FFY 2021 to FFY 2022), however, the UC DSH pool is decreasing. For instance, in FFY 2021 hospitals received 25% of UC costs from FY 2017 cost reports. In FFY 2022, hospitals are receiving lower reimbursement at 21% of UC costs from FY 2018 cost reports. A hospital’s UC cost had to increase 20% from FY 2017 to FY 2018 just to break even in FFY 2022 and maintain UC DSH payments at FFY 2021 levels. 
New Proposed WS S-10 Reporting Instructions
As commenters provided CMS suggestions for recording UC costs on Worksheet S-10, CMS highlights that it will respond in a separate impending Federal Register. CMS’ comments will relate to proposed cost report instructions per the November 10, 2020, Federal Register (85 FR 71653). Please feel free to read Toyon’s article on CMS’ proposed S-10 instructions. This article was used as part of Toyon’s contribution to the American Health Lawyers 2021 Institute on Medicare and Medicaid Payment Issues. Notable proposed changes to S-10 UC reporting include:
  • Charity Care and Uninsured Discounts for “Medically Necessary” services only
  • Shift to Short Term Hospital Services Only
  • Split between patient coinsurance, copayment deductibles vs. other patient liabilities
  • Clarification on the reporting of Implicit Price Concessions and Inferred Contractual Relationships
  • New Reporting Tables for Charity Care and Bad Debt Information  
Please contact Fred Fisher at Fred.Fisher@toyonassociates.comwith any UC DSH questions.
There were three provisions contained in the Consolidated Appropriations Act of 2021 (“CAA”) which will affect IME and GME payments to teaching hospitals as well as new requirements for submission of resident data through the Intern and Resident Information System (IRIS).
CMS noted that the FY 2022 IPPS/LTCH PPS proposed rule included our proposals related to the implementation of the provisions of the Consolidated Appropriations Act (CAA) of 2021 related to payments to hospitals for direct graduate medical education (GME) and indirect medical education (IME) costs.
Please refer to the proposed rule (86 FR 25502 through 25524) as well as our summary released May 14, 2021, which can be found on this link, for additional background information on these proposals. Due to the number and nature of the comments that we received on the implementation of sections 126, 127 and 131 of the CAA of 2021 relating to payments to hospitals for direct GME and IME costs, we will address public comments associated with these issues in future rulemaking.
Please contact with IME/GME questions.

Organ Acquisition Payment Policies

There were several changes in CMS’ FFY 2022 IPPS/LTCH PPS Proposed Rule regarding the regulation of organ acquisition reimbursement. Some of these changes codify existing Medicare organ acquisition payment policies, that are currently in the Provider Reimbursement Manual (PRM). Other proposed changes codify new organ acquisition payment policies. Please note these changes are CMS’s response to statutory directives in both the recent 21st Century Cures Act, which expanded Medicare coverage for kidney acquisition costs, as well as the Medicare Modernization Act of 2003. 
CMS mentions that the FFY 2022 IPPS/LTCH PPS Proposed Rule included their proposals related to the organ acquisition payment policy for transplant hospitals, donor community hospitals, and organ procurement organizations.
Please refer to the Proposed Rule (86 FR 25656 through 25676), as well as our summary released May 14, 2021, which can be found on this link, for additional background information on these proposals. Due to the number and nature of the comments that we received on the organ acquisition payment policy proposals we will address public comments associated with these issues in future rulemaking.
Toyon’s Take
CMS’s delay in applying its proposed changes will now allow the donor community to collaborate within its groups as well as with CMS and its leaders to formulate a plan which can allow for an agreement on collection of data from transplant hospitals and organ procurement organizations to calculate their share of costs.
Recommendation: Toyon recommends the industry continue to review and monitor the potential impact these regulations will have on their facility.
Please contact Scott Besler at with Organ Acquisition reimbursement questions.

FFY 2022 Value-Based Purchasing (VBP) Program, Hospital Readmission Reduction (HRR), and Hospital Acquired Conditions (HAC) Update

CMS will provide all hospitals with a neutral score for FFY 2022 VBP adjustment. This is a result of many measures impacted but the PHE. CMS also will finalize its measure suppression policy for certain measures in the Readmissions and Hospital-acquired Conditions (HAC) Reduction programs impacted by the PHE. Please note that the hospitals will be scored for their FFY 2022 Readmissions and HAC Reduction programs using the remaining measures.
Please contact Scott Besler at with questions.  

Empirical DSH – Section 1115 Waiver Days

The FFY 2022 Proposed Rule states Section 1115 days may be counted in the numerator of the Medicaid fraction only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan that includes coverage for inpatient hospital care on that day or directly receives inpatient hospital insurance coverage on that day under a Section 1115 waiver. This excludes patient days for which hospitals receive payment from an uncompensated care pool.
CMS will continue to review the large number of comments on the proposed revision to the regulation relating to the treatment of section 1115 waiver days for purposes of the DSH adjustment. Due to the number and nature of the comments that CMS received in the FFY 2022 IPPS/LTCH PPS Proposed Rule, they intend to address the public comments in a separate document. 
Toyon’s Take
This has not been finalized and Toyon will continue to monitor any updates issued by CMS.
Please contact Dylan Chinea at with empirical DSH questions.

Medicare Bad Debt

The FFY 2022 Proposed Rule requires State Medicaid programs to accept enrollment of all Medicare-enrolled providers and suppliers (even if the provider or supplier is not recognized as eligible to enroll but meets all Federal Medicaid enrollment requirements) for purposes of processing Medicare-Medicaid dual eligible claims for cost-sharing liability. State Medicaid programs must comply for dates of service beginning January 1, 2023.
Toyon’s Take
The “must bill” policy is still in place. This should create additional opportunity for providers to claim Medicare bad debt on the cost report. CMS is hopeful this policy will result in a reduction in the number of future bad debt appeals.  
For questions regarding DSH and Medicare Bad Debt, contact

Should you have further questions about these changes and wish to discuss them, please contact the


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