August 18, 2021

Earlier this month, the Centers for Medicare and Medicaid Services (CMS) released the 2022 Medicare Hospital Inpatient Prospective Payment System (IPPS) Final Rule (FR). The agency also released a multi-page fact sheet that provides a snapshot of some of FR’s key provisions. Based on our gleaning of this document, we can provide you with the following highlights on the new inpatient rules.

Payment Rates

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 2.5 percent.

Hospitals could be subject to other payment adjustments under the FR, including:

Payment reductions for excess readmissions under the Hospital Readmissions Reduction Program;
Payment reduction (1 percent) for the worst-performing quartile under the Hospital- Acquired Condition Reduction Program;
Upward and downward adjustments under the Hospital Value-Based Purchasing Program (although see information on the FY 2022 suppression policy below).
When taking into consideration the increase in operating payment rates, increases in capital payments, increases in payments for new medical technologies, and increases in payments due to implementation of the imputed floor, CMS estimates hospitals will realize an increase in payments in FY 2022 of $3.7 billion, or 3.1 percent. CMS projects Medicare DSH payments and Medicare uncompensated care payments to decrease in FY 2022 compared to FY 2021 by approximately $1.4 billion. Overall, CMS estimates hospitals payments will increase by $2.3 billion.

Add-on Payments

In response to the COVID-19 public health emergency (PHE), CMS established the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges during the PHE. To continue to mitigate potential financial disincentives for hospitals to provide new COVID-19 treatments and to minimize any potential payment disruption immediately following the end of the PHE, CMS is extending the NCTAP for eligible COVID-19 products through the end of the fiscal year in which the PHE ends. CMS is not finalizing the proposal to discontinue the NCTAP for discharges on or after October 1, 2021 for a product that is approved for new technology add-on payments beginning FY 2022. Instead, hospitals will be eligible to receive both NCTAP and the traditional new technology add-on payment for qualifying patient stays, through the end of the fiscal year in which the PHE ends, with the new technology add-on payment reducing the amount of the NCTAP.

Due to CMS’s decision to use FY 2019 instead of FY 2020 data for FY 2022 IPPS rate setting, CMS is finalizing a one-year extension of new technology add-on payments (NTAP) for 13 technologies for which the new technology add-on payment would otherwise be discontinued beginning FY 2022. The FR approves 19 technologies that applied for new technology add-on payments for FY 2022. This includes 9 technologies under the alternative pathway for new medical devices that are part of the FDA Breakthrough Devices Program and 2 technologies approved under the alternative pathway for products that received FDA Qualified Infectious Disease Product (QIDP) designation. Additionally, CMS conditionally approved one technology designated as a QIDP that otherwise meets the alternative pathway criteria but has not yet received FDA approval. CMS also approved seven technologies submitted under the traditional new technology add-on payment pathway criteria.

Additionally, CMS is continuing the new technology add-on payments for all 23 of the technologies currently receiving the add-on payment, 10 of which remain within their newness period for FY 2022. For the remaining 13 technologies that are no longer within their newness period in FY 2022, CMS is using its exceptions and adjustments authority under section 1886(d)(5)(I) of the Act to provide for a one-year extension new technology add-on payments in light of the unique circumstances for FY 2022 rate-setting due to the COVID-19 PHE, as discussed above.

In total, 42 technologies are eligible to receive add-on payments for FY 2022. CMS estimates that FY 2022 Medicare spending on new technology add-on payments will be approximately $1.5 billion, nearly a 77percent increase over the FY 2021 spending.

MS-DRG Relative Weight Policy

The FR repeals the requirement that a hospital report on the Medicare cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its MA organization payers, by MS-DRG, for cost reporting periods ending on or after January 1, 2021. Had hospitals been required to comply with this requirement, it would have resulted in approximately 64,000 hours of administrative burden.

CMS is also finalizing its proposal to repeal the market-based MS-DRG relative weight methodology that was adopted effective for FY 2024, and to continue using the existing cost-based MS-DRG relative weight methodology to set Medicare payment rates for inpatient stays for FY 2024 and subsequent fiscal years.

Uncompensated Care Payments

CMS distributes uncompensated care payments to Medicare disproportionate share hospitals (DSHs) based on their relative share of uncompensated care nationally. As required under law, this amount is equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, adjusted for the change in the rate of uninsured individuals. Under the FR, CMS will distribute roughly $7.2 billion in uncompensated care payments for FY 2022, representing a decrease of approximately $1.1 billion from FY 2021.

This total uncompensated care payment amount reflects CMS Office of the Actuary’s projections that incorporate the estimated impact of the COVID-19 pandemic. In addition, the CMS Office of the Actuary’s projection of the percent of individuals without insurance in the final rule incorporates the estimated impact of the COVID-19 pandemic and the updated expectations for FY 2022 associated with changing economic conditions, newly available data on Medicaid and Marketplace enrollment, the estimated impacts from the Families First Coronavirus Response Act (FFCRA) including the provision requiring a Medicaid Maintenance of Effort, the CARES Act, and the American Rescue Plan Act.

Consistent with the policy adopted in the FY 2021 IPPS/LTCH PPS final rule for FY 2022 and subsequent fiscal years, CMS will use a single year of data on uncompensated care costs from Worksheet S-10 of hospitals’ FY 2018 cost reports to distribute these funds. CMS will continue to use data regarding low-income insured days (Medicaid days for FY 2013 and FY 2018 SSI days) to determine the amount of uncompensated care payments for Puerto Rico hospitals, Indian Health Services, and Tribal hospitals for FY 2022, similar to the FY 2021 methodology.

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We will provide further details on the 2022 IPPS Final Rule next week. Until then, if you have a question for us, you can contact us at info@miramedgs.com.