September 9, 2020

On September 2, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2021 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTACH) final rule, which includes “important provisions designed to ensure access to potentially life-saving diagnostics and therapies for hospitalized Medicare beneficiaries.”  According to a CMS press release, the changes will affect approximately 3,200 acute care hospitals and approximately 360 LTACHs. The agency estimates that total Medicare spending on acute care inpatient hospital services will increase by about $3.5 billion in FY 2021, representing an uptick of 2.7 percent over FY 2020.

According to CMS Administrator Seema Verma, “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.”  As with the proposed rule we discussed in last week’s alert, the final rule stresses quicker access to new treatment methodologies that will hopefully translate to a greater success rate in the healing and life-saving efforts of our hospitals.

The Government’s Summary

Among the numerous measures embedded within the 2,160-page final rule, CMS chose to highlight the following provisions in its press release and fact sheet:

• The increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users is approximately 2.9 percent. This reflects the projected hospital market basket update of 2.4 percent and a 0.0 percentage point productivity adjustment. This also reflects a +0.5-percentage point adjustment required by legislation.
• The rule creates a new Medicare Severity Diagnostic Related Group (MS-DRG) that provides a predictable payment to help adequately compensate hospitals for administering Chimeric Antigen Receptor (CAR) T-cell therapies.  The current FDA-approved CAR-T-cell cancer therapies use a patient’s genetically modified immune cells to treat specific types of cancer.
• A record number of 24 new technology add-on payments (NTAP) were approved.  These represent an additional payment to hospitals for cases involving eligible new and relatively high-cost technologies.  Last year, to remove barriers to innovation, CMS established alternative streamlined pathways for FDA Breakthrough Devices and FDA Qualified Infectious Disease Products (QIDPs) to qualify for NTAPs.  Among CMS’ approval of these 24 additional NTAPs are two technologies for new medical devices that are part of the FDA’s Breakthrough Devices Program and six technologies that received FDA QIDP designation.  This will provide additional Medicare payment for these technologies while real-world evidence is emerging, giving Medicare beneficiaries timely access to the latest innovations.
• CMS is also expanding the add-on payment alternative pathway for antimicrobial products approved under FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD pathway), which encourages the development of safe and effective drug products that address unmet needs of patients with serious bacterial and fungal infections.  Specifically, an antibacterial or antifungal drug approved under the LPAD pathway is used to treat a serious or life-threatening infection in a limited population of patients with unmet needs.
• CMS is also taking steps to ensure that the Medicare FFS program adopts pricing strategies based on real world market forces.  Medicare generally pays hospitals a rate that is weighted by the relative cost of providing certain services based on a patient’s diagnosis. These weights are currently based in large part on the charges that hospitals report to the federal government, which often have little relevancy to the actual rates paid by insurance companies.  Hospitals are already required to report these negotiated rates as part of the Trump Administration’s efforts to promote price transparency, and CMS is now finalizing a requirement for hospitals to report to CMS the median rate negotiated with Medicare Advantage Organizations for inpatient services to use instead of the charge-based data.  CMS will begin to collect this data in 2021 and will use it in the methodology for calculating inpatient hospital payments beginning in 2024.

According to CMS, 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.”  However, not everyone is voicing unabashed optimism about the rule’s overall impact.

An Industry’s Reaction

While CMS was upbeat about the final rule’s provisions, the American Hospital Association (AHA) was less effusive in its praise for the document’s provisions.  The following reflects some of the AHA’s comments on the 2021 final rule:

• “The AHA remains deeply disappointed that CMS continues to require hospitals and health systems to disclose privately negotiated contract terms with payers,” said AHA Senior Vice President for Public Policy Analysis and Development Ashley Thompson in a statement. “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.  Additionally, this policy will require hospitals to divert critically needed resources during this historic pandemic to administrative tasks that will not benefit patients.  We do not believe CMS has the authority to compel the disclosure of these terms and our legal challenge remains ongoing.”
• For FY 2021, the agency estimated that it will distribute $8.29 billion in DSH payments, a decrease of approximately $60.6 million compared to FY 2020. In addition, CMS finalized its proposal to use a single year of uncompensated care data from the 2017 Medicare cost report to determine the distribution of DSH uncompensated care payments for FY 2021. CMS also finalized its proposal to use the most recently available single year of audited uncompensated care data for FY 2022 and subsequent years.
• “While we appreciate the agency’s focus in addressing cost issues for life-saving CAR T therapy, we remain concerned that the policy the agency has put forth in this final rule is not adequate to address the extraordinary level of resources necessary to provide CAR T therapy to patients,” Thompson said. “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.”
• CMS also finalized several policies governing what can be reported as Medicare bad debt.
• For the inpatient quality reporting program, CMS finalized its proposal to, beginning with the calendar year 2021 reporting period, gradually increase the number of quarters of electronic clinical quality measure data required until it reaches a full year for the CY 2023 performance period. CMS also will begin publicly reporting eCQM measure results in late 2022, starting with data from CY 2021.

For a fact sheet on the final rule (CMS-1735-F), please go to the following website: https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2021-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute-0.  The final rule (CMS-1735-F) can be downloaded from the Federal Register at: https://www.federalregister.gov/documents/2020/09/18/2020-19637/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the

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