On the evening of September 2, 2020, the Centers for Medicare & Medicaid Services (CMS) released its final rule, Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long Term Care Hospital Prospective Payment System and Final Policy Changes and Fiscal Year 2021 Rates (link), which updates the FY 2021 payment systems for these providers and finalizes other specified policies as shown below:

• Increases operating payment rates by 2.9 percent;[1]
• Finalizes proposal to require hospitals to report median payer-specific negotiated charges with Medicare Advantage (MA) organizations by MS-DRG;
• Finalizes proposal to incorporate new market-based data in its MS-DRG relative weight methodology, without a transition period, for the FY 2024 rulemaking cycle;
• Continues low wage index policy;
• Updates Factor 2 used for Medicare Disproportionate Share Hospital payment and calculates Factor 3 using a single year of S-10 data from 2017;
• Codifies certain longstanding Medicare bad debt policies with retroactive effective date;
• Adopts definition of displaced resident for GME/IME;
• For IQR program, CMS finalizes gradual increase in amount of data reported for eCQMs;
• Updates promoting interoperability program to mirror policies of hospital IQR program;
• Finalizes automatic adoption of applicable periods for HRRP and HACRP;
• Adopts new MS-DRG for Chimeric Antigen Receptor T-cell (CAR-T) therapy; and
• Approves 13 technologies that applied for new technology add-on payment for FY 2021.

Due to prioritization of COVID-19 support, CMS is limiting this year’s rulemaking to “essential” policies and waiving the normal 60-day notification requirement. The final rule is scheduled to be published in the Federal Register on September 19, 2020 and unless otherwise specified, the effective date of provisions in this final rule is October 1, 2020.

CMS Predicts Payments to Hospitals Increase by 3.5 Billion

The Inpatient Prospective Payment System (IPPS) per-discharge payment is based on two national standardized base payment rates, one for operating costs and the other for capital-related costs. CMS adjusts each of these rates for geographic, case-mix, and other factors.[2]

For FY 2021, CMS includes a 2.9 percent increase in its operating payment rates for hospitals that submitted quality data and were meaningful EHR users (see Tables 1 and 2). This increase and other payment changes in the final rule are expected to result in a $3.5 billion increase in FY 2021, primarily due to a $3.0 billion increase in FY 2021 operating payments and a $506 million increase in FY 2021 capital payments and new technology add-on payments. The total amount of $3.5 billion represents a 2.7 percent increase in total Medicare IPPS payments for FY 2021 as compared to FY 2020.

Operating Payments

Table 1. Update Factors for Hospital Operating Payment Rates (FY 2021)[3]

Submitted Quality Data	Meaningful EHR User	Number of Hospitals	Gross     FY2021 Market Basket	Adjustment for Failure to Submit Quality Data	Adjustment for Failure to be Meaningful EHR User	Multifactor Productivity Adjustment	MACRA Documentation & Coding Adjustment	Net Increase in Operating Payment Rates
Yes	Yes	2981	+2.4	N/A	N/A	0.0	+0.5	+2.9
No	Yes	37	+2.4	-0.6	N/A	0.0	+0.5	+2.3
Yes	No	153	+2.4	N/A	-1.8	0.0	+0.5	+1.1
No	No	30	+2.4	-0.6	-1.8	0.0	+0.5	+0.5

Table 2. Resulting Standardized Operating Amounts (FY 2021)[4]

Submitted Quality Data	Meaningful EHR User	Standardized Operating Amounts (Wage Index > 1)		Standardized Operating Amounts (Wage Index <= 1)
		Labor	Non-Labor	Labor	Non-Labor
Yes	Yes	$4,071.49	$1,889.70	$3,695.94	$2,265.25
No	Yes	$4,047.63	$1,878.63	$3,674.28	$2,251.98
Yes	No	$3,999.92	$1,856.48	$3,630.97	$2,225.43
No	No	$3,976.06	$1,845.41	$3,609.31	$2,265.25

Capital-Related Payments

The basic methodology for determining capital payments for each discharge is below:

• Capital-Related Payment = (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)[5]

For FY 2021, the capital standardized Federal Rate is $466.22, which is 0.84 percent more than FY 2020.[6]

IPPS Impact Favors Large Teaching and/or DSH Hospitals

The estimated increase in the total IPPS payments is determined largely by the 2.9 percent increase in operating payment rates. CMS provides impact estimates for various types of providers and these estimates incorporate all of the policy changes in the final rule (certain categories are included below in Table 3). Overall, CMS estimates that facilities will experience an increase of 2.5 percent for FY 2021.

Table 3. Impact Analysis of Changes to the IPPS for Operating Payment Rates (FY 2021)[7]

Provider Type		Number of Hospitals	Net Increase to Operating Payment Rates[8]	All Budget Neutral Changes[9]	Frontier State Wage Index & Outmigration Adjustment[10]	All Changes[11]
ALL HOSPITALS		3,201	+2.8	0.0	+0.1	+2.5
URBAN HOSPITALS		2,462	+2.9	-0.1	+0.1	+2.5
RURAL HOSPITALS		739	+2.6	+0.7	+0.1	+2.2
TEACHING STATUS
	Non-Teaching	2,037	+2.8	-0.1	+0.1	+2.2
	Fewer than 100 residents	907	+2.9	0.0	+0.2	+2.5
	More than 100 residents	257	+2.8	+0.2	+0.1	+2.7
OWNERSHIP
	Voluntary	1,885	+2.8	0.0	+0.1	+2.5
	Proprietary	827	+2.9	-0.2	+0.1	+2.4
	Government	488	+2.8	+0.1	0.0	+2.5
MEDICARE PCT OF INPATIENT DAYS
	0 – 25	641	+2.8	-0.4	0.0	+2.6
	25 – 50	2,114	+2.8	+0.1	+0.1	+2.5
	50 – 65	373	+2.7	+0.6	+0.2	+2.2
	Over 65	49	+2.8	-2.1	+0.1	+1.7
URBAN DSH
	Non-DSH	505	+2.8	-0.7	+0.2	+2.2
	100 or more beds	1,289	+2.9	-0.4	+0.1	+2.5
	Less than 100 beds	351	+2.9	-0.7	+0.2	+2.1
URBAN TEACHING & DSH
	Both teaching and DSH	739	+2.9	-0.4	+0.1	+2.6
	Teaching and no DSH	74	+2.9	-0.6	+0.1	+2.4
	No teaching and DSH	901	+2.9	-0.2	+0.1	+2.3
	No teaching and no DSH	335	+2.8	-1.1	+0.2	+2.2

Low Wage Index Policy to Continue

The IPPS base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The applicable labor-related share is multiplied by a wage index for the area where the hospital is located and then added to the nonlabor-related share (see Appendix A). To calculate the final FY 2021 wage indices, CMS adopts updated OMB delineations and related IPPS wage index adjustments (e.g., 5 percent cap on any decrease in a hospital’s final wage index).

CMS implemented a low wage index policy in FY 2020 for certain hospitals to increase their employee compensation and announced the policy would be effective for 4 years. CMS made the policy budget-neutral by adjusting standardized amounts for all hospitals and will continue this policy for FY 2021.

CMS Updates DSH Calculation for Uninsured and Will Use Most Recent Single Year of Audited S-10 Data in Future Years

Hospitals that receive Medicare disproportionate share hospital (DSH) receive two separate payments:

1. 25 percent of the amount they previously would have received under statute for DSH and
2. An additional payment for uncompensated care (UC) as determined by the product of three factors:

• Factor 1: 75 percent of the payments that would otherwise be made under statute;
• Factor 2: 1 minus the percent change in the percent of individuals who are uninsured; and
• Factor 3: a hospital’s UC amount relative to all DSH hospitals expressed as a percentage.

CMS projects that it will distribute approximately $8.3 billion in Medicare UC in FY 2021, which is a decrease of approximately $60 million from FY 2020. In addition, CMS proposes to continue to use uninsured estimates produced by their Office of the Actuary (OACT) in the calculation of Factor 2 and notes that, in response to comments, OACT updated their estimate of Factor 2 in the final rule. To calculate Factor 3 for FY 2021, CMS used a single year (FY 2017) of Worksheet S–10 data. To calculate Factor 3 in subsequent years, CMS will use the most recently available single year of audited S-10 data.[12]

CMS Codifies Longstanding Bad Debt Policies

Medicare beneficiaries failing to pay deductible or coinsurance amounts can lead to non-Medicare patients bearing these costs, which is prohibited by 1861(v)(1)(A)(i) of the Act. To help address the issue of bad debt, Medicare pays some of the uncollectible deductible and coinsurance amounts to certain providers, suppliers and other entities. Allowable bad debts must meet the following criteria:

• Debt must be related to covered services and derived from deductible and coinsurance amounts;
• Provider must be able to establish that reasonable collection efforts were made;
• Debt was actually uncollectible when claimed as worthless; and
• Sound business judgment established there was no likelihood of recovery at any time in the future.

CMS finalizes its proposal to clarify and codify certain longstanding Medicare bad debt policies with a retroactive effective date. Many commenters assert that CMS does not have the authority to retroactively codify these policies and believe this change will cause confusion and lead to the reopening of prior years’ cost reports. CMS disagreed and believes these changes will not affect prior transactions or create new burdens as the guidance already exists in their Provider Reimbursement Manual.

CMS Finalizes New Market-Based Data Collection

CMS restates its interest in reducing Medicare’s reliance on hospital chargemasters and cost-to-charge ratios (CCRs) for MS-DRG weights as it believes that certain hospital strategies (e.g., charge compression) bias relative weights and may lead to the abuse of outlier payments.[13]^,[14] The Office of Inspector General noted “prior reports concluded that hospitals’ high charges, unrelated to cost, lead to excessive inpatient outlier payments.” [15] Furthermore, a recent Health Affairs article examined the hospitals with the highest markups and noted that 92% of them were owned by one for-profit system.[16]

To help address this issue, CMS proposed a new market-based data collection that follows from the new Hospital Price Transparency requirements (84 FR 65524) that take effect January 1, 2021, in which hospitals are required to make their payer-specific negotiated charges available to the public in a consumer-friendly manner. In the final rule, CMS makes the following decisions regarding its proposals:

• Finalizes its proposal to require hospitals to report median payer-specific negotiated charges that the hospital has negotiated with its Medicare Advantage (MA) organizations by MS-DRG;
• Finalizes its proposal to incorporate these new market-based data in its MS-DRG relative weight methodology, without a transition period, for the FY 2024 rulemaking cycle; and
• Did not finalize its proposal to require hospitals to report median payer-specific negotiated charges that the hospital has negotiated with its third-party payer organizations by MS-DRG.

Though CMS decided to back-off its proposal for hospitals to report median negotiated charges with third-party payer organizations on their cost reports, it still intends to move forward: “there may be potential challenges in comparing data across all third-party payers…It may take additional time to adequately address these challenges.” [17] This intent is controversial as both providers and payers largely oppose the transparency and market-based provisions in their comments on the proposed rule:[18]

• The American Hospital Association stressed in comments that “we do not believe CMS’s proposals to collect and apply payer-specific charge data are lawful and urge CMS not to finalize them”;
• The BlueCross Blue Shield Association stated that “the proposal for market-based rate data collection in this rule builds on what we believe is a flawed policy finalized in the Hospital Price Transparency Final Rule and urge that it not be finalized”;
• Kaiser Permanente added that it believes the “disclosure of median payer-specific negotiated charges will further solidify the FFS system and may increase prices of health care”; and
• The America’s Health Insurance Plans association does not believe this proposal “achieve[s] the goal of transitioning toward true market-based pricing” and recommends that CMS focus instead on alternate payment models that use market forces as a tool to improve delivery systems.

All of the major organizations above noted that the Hospital Price Transparency Rule, on which the proposal is based, remains under legal challenge. They are currently asking for HHS to delay the effective date of the rule as they work to understand and implement the provisions by January 1, 2021.[19]^,[20]

CMS Finalizes Definition of Displaced Resident For GME/IME

CMS proposed to redefine how teaching hospital count residents when they close or terminate residency programs in order to assist residents with finding alternative programs to complete their training. Due to a significant number of supportive comments, CMS is finalizing the definition of “displaced resident” to include residents training at the hospital, regardless of if they have begun their training or if they are on approved leave, on the day prior to or of the public announcement of the hospital closure. CMS also finalizes in this rule that a hospital receiving a displaced resident must submit a letter to its Medicare Administrative Contractor (MAC) within 60 days of the start of training to be considered for an increase in the IME and GME FTE resident cap.

CMS Finalizes Automatic Adoption of Applicable Periods For Hospital Readmissions Reduction (HRRP) Program

Under the HRRP, hospitals can be penalized financially for excess readmissions. There are currently six applicable conditions and procedures in the HRRP: acute myocardial infarction (AMI); heart failure; pneumonia; elective primary total hip arthroplasty/total knee arthroplasty (THA/TKA); chronic obstructive pulmonary disease (COPD); and coronary artery bypass graft (CABG) surgery.

The HRRP has a 3-year data collection period to calculate payment adjustment factors. To provide more certainty around future applicable periods in this program, CMS is finalizing its proposal to automatically adopt applicable periods for FY 2023 and all subsequent program years. The applicable period for HRRP will be the 3-year period beginning 1 year in advance of the previous fiscal year’s start. For FY 2023, the applicable period will be the 3-year period from July 1, 2018 through June 30, 2021. This is advanced one year from the applicable period for FY 2022, which was established in the FY 2020 rule.

CMS is not making any changes to quality measures used in the HRRP or the Hospital Value-based Purchasing Program. CMS does note that as a result of the August 25th COVID-19 IFC, no claims data or chart-abstracted data reflecting services provided from January 1, 2020 – June 30, 3030 will be used in calculations for the Hospital VBP Program due to the COVID-19 Public Health Emergency.

CMS Finalizes Automatic Adoption of Applicable Periods For Hospital-Acquired Condition Reduction Program (HACRP) 

Under the HACRP, hospitals in the worst performing quartile receive a one-percent payment reduction on all hospital discharges for the specified fiscal year. CMS is finalizing its proposal to automatically adopt applicable periods for the HACRP beginning with the FY 2023 program year. The applicable period will be the 24-month period beginning 1 year advanced from the previous program year’s start of the applicable period. For the CMS PSI 90 measure in FY 2023, the period will be the 24-months from July 1, 2019 to June 30, 2021, since that is advanced one-year from the period for FY 2022, which was finalized in previous rulemaking. For the CDC NHSN HAI Measures, the period will be from January 1, 2020 to December 31, 2022. All subsequent program years would advance the period by one year.

In addition, CMS will align the hospital validation selection and submission quarters for the HACRP with the Hospital IQR Program beginning with FY 2024, which will reduce the number of hospitals selected for HACRP validation from 600 to a maximum of 400. CMS is not making any changes to quality measures used in the HAC Reduction Program.

Hospital IQR Program Sees Gradual Increase in Amount of Data Reported For eCQMS

For the Hospital Inpatient Quality Reporting (IQR) Program, CMS finalizes its proposal to gradually increase the number of quarters for which hospitals are required to report electronic clinical quality measure (eCQM) data over a period of 3-years:

• 2 self-selected quarters of data the CY 2021 reporting period/FY 2023 payment determination;
• 3 self-selected quarters of data for CY 2022 reporting period/FY 2024 payment determination; and
• 4 quarters beginning with CY 2023 reporting period/FY 2025 payment determination.

CMS will continue to allow the reporting of 3 self-selected eCQMs and the Safe Use of Opioids eCQM and will begin public display of data with the CY 2021 reporting period/FY 2023 payment determination.

CMS is also finalizing its proposal to begin public display of eCQM data starting with the CY 2021 reporting period. These data would likely be publicly available in the fall of 2022 and hospitals would have a typical 30-day preview period. In addition, EHR technology certified to the 2015 edition will be required for all hybrid measures in the IQR program, not just the Hybrid Hospital-Wide Readmission measure. And finally, CMS is not adding any new measures to the Hospital IQR Program measure set.

CMS Reduces Data Validation Burden For Hospitals

CMS also streamlines its selection, submission, and scoring processes under its data validation program and includes a number of changes to take effect with the FY 2024 payment determination:

• Finalizes a shift in quarters for data validation so that chart-abstracted and eCQMs are the same;
• Aligns the selection process so that only one set of hospitals is selected for both HACRP and IQR;
• Reduces the validation pool from 1,400 (800 for IQR and 600 for HACRP) to a maximum of 400 hospitals for both programs (200 randomly selected and 200 targeted);
• Requires hospitals to submit documentation electronically; and
• Updates the validation scoring process to combine both chart-abstracted and eCQM measures.

Promoting Interoperability Changes Mirror IQR Program

CMS finalizes an EHR reporting period for CY 2022 of a minimum of any continuous 90-day period during the year for new and returning participants in the Medicare Promoting Interoperability Program. This mirrors the 90-day reporting period for CY 2021. For CY 2021, the Electronic Prescribing Objective’s Query of PDMP measure will remains optional and worth five bonus points.

Consistent with a finalized policy for the Hospital IQR program, CMS is adopting changes to eCQM reporting for the Promoting Interoperability program. Eligible hospitals would have to report two self-selected quarters of eCQM data from CY 2021, three quarters of data from CY 2022, and four quarters of data from CY 2023 and each subsequent year. The Safe Use of Opioids-Concurrent Prescribing eCQM will be required in CYs 2022 and 2023 reporting periods. Again, mirroring the IQR program, eCQM performance data from CY 2021 will be publicly available. CMS predicts the data will be reported publicly around the fall of CY 2022. Table 4 below highlights scoring policies finalized in previous rulemaking for the CY 2021 Promoting Interoperability reporting period.

Table 4. Performance-Based Scoring Methodology for EHR Reporting Period (CY 2021)

Objective	Measure	Maximum Points
Electronic Prescribing	·    e-Prescribing ·    Bonus: Query of PDMP	10 points 5 points (bonus)
Health Information Exchange	·    Support Electronic Referral Loops by Sending Health Information ·    Support Electronic Referral Loops by Receiving and Reconciling Health Information (name change for this measure)	20 points 20 points
Provider to Patient Exchange	Provide Patients Electronic Access to Their Health Information	40 points
Public Health & Clinical Data Exchange	Choose any two: ·    Syndromic Surveillance Reporting ·    Immunization Registry Reporting ·    Electronic Case Reporting ·    Public Health Registry Reporting ·    Clinical Data Registry Reporting ·    Electronic Reportable Laboratory Result Reporting	10 points

Note: Security Risk Analysis measure, information blocking attestations, & eCQM measures are required but will not be scored.

CMS Finalizes CAR-T Therapy As Medicare’s Highest Paying DRG

Over the past few years, CMS received numerous requests for an additional MS-DRG to cover CAR T-cell therapy. During this time, CMS paid for currently available therapies under MS-DRG 016 and allowed for new technology add-on payments (NTAP). Starting FY 2021, CMS will assign cases with ICD-10-PCS procedure codes XW033C3 or XW043C3 to a new MS-DRG 018 with arithmetic mean charges and length of stay of $1,402,833.04 and 17.6 days, respectively.[21] The new MS-DRG 018 is the highest weighted group at 37.3290, which translates to an unadjusted base payment of $239,929 (operating + capital).[22]

Figure 1. Hospital Reimbursement Example for CAR-T Cases under IPPS

Source: Avalere. CMS Finalizes New Reimbursement Method for CAR-T Treatments.[23]

Additionally, KYMRIAH® and YESCARTA®, the therapies available now, are no longer considered “new” for purposes of new technology add-on payments for FY 2021. Neither Kite Pharma (the applicant for KTE-X19) nor Juno Therapeutics, a Bristol-Myers Squibb Company (the applicant for Liso-cel) received FDA approval for their therapies by July 1, and therefore, these technologies were not eligible for consideration for new technology add-on payments for FY 2021.

CMS also finalized its proposal to apply a payment reduction to claims that group to new MS-DRG 018 for clinical trial and expanded use cases because for those cases, the CAR-T cell therapy product is generally provided without charge (see Figure 1). CMS identifies these cases through ICD-10-CM diagnosis code Z00.6 (Encounter for examination for normal comparison and control in clinical research program) or which contain standardized drug charges of less than $373,000. Because the cost of CAR-T cell therapy products comprise such a large part of the payment for MS-DRG 018, CMS will only pay 17 percent of the MS-DRG 018 amount for clinical trial and expanded use cases. If the CAR T-cell therapy product is purchased in the usual manner, but the case involves a clinical trial of a different product, CMS will not reduce payment for the case.

CMS signaled that it foresees the need to address solid tumor treatments such as Tumor-Infiltrating Lymphocyte (TIL) Therapy and Engineered T Cell Receptor (TCR) Therapy in the near future.

CMS Approves New Products for NTAP in FY 2021

CMS’ New Technology Add-On Program (NTAP) allows for an additional payment for medical services or technologies found to be 1) new; 2) disproportionately costly to the existing MS-DRG; and 3) a substantial clinical improvement. CMS reviews the applications annually and the status of applications for FY 2021 is in Table 5 below (additional applications approved under alternative NTAP pathways).

Table 5. Status of NTAP Applications (FY 2021)

Manufacturer/ Applicant	Technology	Indication/Use	FY 2021 NTAP Status
Accelerate Diagnostics	Accelerate Pheno Test BC Kit (for use w/ Accelerate Pheno system)	Provides microorganism identification and phenotypic antimicrobial susceptibility test results for patients with bacteremia/fungemia & positive blood culture	Missed July 1 FDA clearance deadline
BioFire Diagnostics	BioFire FilmArray Pneumonia Panel	Identifies 33 clinically relevant targets from sputum and bronchoalveolar lavage samples	Not Approved
Viz.ai	ContaCT	Radiological computer-assisted triage & notification software system that analyzes images of the brain acquired in the acute setting	Approved
TherOx, Inc.	Supersaturated Oxygen (SSO2) Therapy (DownStream System)	Preparation and delivery of supersaturated oxygen to targeted ischemic regions of the heart immediately following revascularization	Not Approved
Boston Scientific	Eluvia Drug-Eluting Vascular Stent System	Treatment of lesions in the femoropopliteal arteries	Approved
GT Medical Technologies	GammaTile	Provides adjuvant radiation therapy to eliminate remaining tumor cells in patients who required surgical resection of recurrent brain tumors	Not Approved
Cook Medical	Hemospray Endoscopic Hemostat	Management of nonvariceal gastrointestinal bleeding	Approved
AstraZeneca	IMFINZI (durvalumab)	First-line treatment of patients with extensive-stage small cell lung cancer	Approved
Kite Pharma	KTE-X19	Treatment of adult patients with relapse and refractory (r/r) mantle cell lymphoma	Missed July 1 FDA approval deadline
Juno Therapeutics	Lisocabtagene Maraleucal	Treatment of adult patients with r/r large B-cell lymphoma after at least two prior therapies	Missed July 1 FDA approval deadline
Alexion, Inc.	SOLIRIS (eculizumab)	Treatment of neuromyelitis optical spectrum disorder in adult patients who are AQP4 antibody positive	Approved
Stryker, Inc.	SpineJack System	Reduction of painful osteoporotic vertebral compression fractures	Approved
Genentech, Inc.	TENCENTRIQ (atezolizumab)	First-line treatment, in combination with carboplatin and etoposide, in adult patients with ES-SCLC	Approved
Becton Dickinson & Company	WavelinQ (4F) EndoAVF System	Creation of AV fistula using concomitant ulnar artery & ulnar vein or concomitant radial artery & radial vein in patients with minimum artery and vein diameters of 2.0 mm at the fistula creation site who have chronic kidney disease and need hemodialysis	Not Approved
Sage Therapeutics	ZULRESSO (brexanalone)	Treatment of postpartum depression (PPD) in adults administered via a continuous intravenous infusion	Not Approved

Two Devices Approved for NTAP Under Breakthrough Devices Pathway

Medical devices that are part of the FDA’s Breakthrough Devices Program are considered for NTAP under an alternative pathway. These products are deemed new and not substantially similar to an existing technology. These products must still meet the cost criterion. The following devices were approved for NTAP in FY 2021 under this pathway: BAROSTIM NEO® System (CVRx) and the Optimizer® System (Impulse Dynamics). The NanoKnife® System (Angiodynamics) was not approved for NTAP.

Six Products Approved for NTAP Under Alternative Pathway for QIDPs

Qualified Infectious Disease Products (QIDPs) applying for NTAP also us an alternative pathway where these products would be automatically deemed to meet the newness and substantial clinical improvement criterion. QIDPs still have to meet the cost criterion. Six products approved for NTAP beginning in FY 2021 utilized this pathway:

• FETROJA (cefiderocol) (Shionogi & Co.)
• CONTEPO (fosfomycin for injection) (Nabriva Therapeutics) (contingent upon FDA approval by 7/1/21)
• NUZYRA (omadacycline for injection) (Paratek Pharmaceuticals)
• RECARBRIO (imipenem/cilastatin/relebactam) (Merck)
• XENLETA (lefamulin) (Nabriva Therapeutics)
• ZERBAXA (ceftolozane and tazobactam) (Merck)

More Rapid New Technology Payments Finalized for Qualified Infectious Disease Products

CMS is proposing to expand the alternative pathway for QIDPs to include drugs approved under the FDA’s Limited Population Approval Pathway for Antibacterial and Antifungal Drugs (LPAD). These products will be deemed to have met the newness and substantial clinical improvement criteria but will still have to demonstrate that they meet the cost criterion for NTAP. This pathway for LPAD products will be for applications received for payments in FY 2022 and subsequent years. These products will also have a maximum add-on payment percentage of 75%, consistent with the policy for QIDPs.

The agency is also finalizing a policy to speed up payments to hospitals for these products. Under this policy, QIDPs and LPADs will be eligible for conditional NTAP payments the quarter after they receive FDA marketing authorization, instead of requiring manufacturers to wait the annual NTAP application process. Manufacturers will still be required to submit an application during the NTAP application cycle.

LTCH Decrease by $40 Million, Largely Due to the End of Transitional Period for Site Neutral Payment Rate Cases

Long-Term Care Hospitals (LTCHs) play a vital role within the Medicare program by caring for many patients that suffer from long-term debilitating illness. In 2017, the average length of stay (ALOS) in LTCHs was 26.2 days compared to 5.0 days for IPPS hospitals. Because of this difference in complexity, resource use, and lengths of stay, LTCHs are excluded from the IPPS and are paid under the LTCH PPS. This system uses MS-DRGs but updates their weights to reflect the different resources used by LTCHs.

Starting in FY 2016, CMS started paying differently for some cases in LTCHs:

1. LTCH cases that immediately follow an acute care hospital stay are paid under the higher LTCH PPS if the preceding hospital stay included three days or more in an intensive care unit or the LTCH case includes mechanical ventilation services for at least 96 hours [75 percent of cases] or
2. LTCH discharges not meeting these criteria in (1.) are paid the lower “site-neutral” payment rates, which are based on the IPPS rates and are the lesser of either the IPPS comparable per diem amount or 100 percent of the estimated cost of the case [25 percent of LTCH cases]

The site-neutral payment policy was transitioned over a 5-year period, ending FY 2021. During this transition period, “site-neutral” cases were paid a 50/50 blend of the lower site-neutral payment and the higher LTCH PPS payment. This “site-neutral” policy is controversial as the American Hospital Association and other hospital associations claim that the policy is unfair, unwarranted, and inaccurately applied.[24] They cite the recent MedPAC report, which estimated that Medicare margins for LTCHs went negative after the “site-neutral” policy went into place (-2.2 percent in 2017 and -0.5 percent in 2018).[25] MedPAC also notes that LTCHs consistently meeting the criteria in (1.) had a margin of +4.7 percent.

In FY 2021, CMS estimates that LTCHs will receive $40 million less due to the balance of 3 main factors:

• INCREASE – Though total payments are decreasing because of site-neutral policy, the annual payment update for discharges using standard LTCH PPS will increase by 2.2 percent;[26]
• DECREASE – CMS eliminated the 25 percent threshold policy in the FY 2019 LTCH PPS rule and applies a permanent one-time budget-neutrality factor of 0.991249 for FY 2021 and beyond;[27] and
• DECREASE – The statutory transition period of blended payment rates for “site-neutral” cases ends in FY 2021, which will decrease payment by approximately 24 percent or $114 million for these cases.

There are no updates to the LTCH Quality Reporting Program (QRP). The LTCH QRP currently has 17 measures for FY 2022. LTCHs will be required to report additional standardized patient assessment data beginning with the FY 2022 LTCH QRP.

Sections 1886(d) and 1886(g) of the Act set forth systems of payment for the operating costs and capital costs of acute care hospital inpatient stays under Medicare Part A. The hospitals that are paid under 1886(d) are referred to as “subsection (d) hospitals.” Under these prospective payment systems (PPSs), Medicare covers the costs that reasonably efficient providers would incur by making payment for hospital inpatient operating and capital-related costs at predetermined, specific rates for each hospital discharge.

1. The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The applicable labor-related share is multiplied by a wage index for the area where the hospital is located and then added to the nonlabor-related share.
2. Discharges are classified by diagnosis-related groups (DRGs). The MS-DRG system has 335 base DRGs, most of which are split into 2 or 3 MS-DRGs based on the presence of complication or comorbidity (CC) or a major CC. The relative weight of the MS-DRG is multiplied by the base payment (adjusted for geographic factors).
3. If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. If the hospital is training residents in an approved residency program, it receives a percentage add-on payment known as the indirect medical education (IME) adjustment. Medicare also makes adjustments for value-based purchasing programs (e.g., HVBP and HRRP).
4. Medicare reduces payments when patients have a short-stay (at least one day less than the geometric mean for the MS-DRG) or are transferred to another acute care IPPS hospital or post-acute care setting.
5. Even after the final payment is determined, other adjustments may be made. For example, additional payments may be made for cases that involve certain new technologies or medical services and for extremely costly outlier cases. CMS also applies any 1% reduction in payments for hospitals that are in the worst performing quartile for hospital acquired conditions (HACs).

[1] 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.

[2] The basic methodology for determining operating payments is included in Appendix A.

[3] Source(s): Tables on pages 1088, 1132, and 2037 through 2040 of the unpublished final rule.

[4] Final Rule Tables 1a-1c at: https://www.cms.gov/medicare/acute-inpatient-pps/fy-2021-ipps-final-rule-home-page.

[5] Hospitals also may receive outlier payments for high-cost cases that qualify under thresholds established for each fiscal year.

[6] Final Rule Table 1d at: https://www.cms.gov/medicare/acute-inpatient-pps/fy-2021-ipps-final-rule-home-page.

[7]   Table I on pages 2037-2040 of the final rule (estimates do not include assumptions about changes in volume & service-mix).

[8]    Payment impact of the hospital rate update and other adjustments included across all hospitals in a category.

[9]   Includes weights & DRG changes, wage index changes, geographic reclassifications, and applicable budget neutrality factors.

[10] Combined impact for policies that hospitals located in frontier States have a wage index no less than 1.0 and an increase in a hospital’s wage index if a threshold percentage of residents of the county where the hospital is located commute to work at hospitals in counties with higher wage indexes. These are not budget neutral policies.

[11] Includes all other impacts, including an estimated decrease in outlier payments of 0.2 percent, effects of the adoption of the revised labor market area delineations in OMB Bulletin 18-04, and effects of the transition to apply a 5-percent cap on any decrease in a hospital’s wage index from the hospital’s final wage index from the prior fiscal year.

[12] For all eligible hospitals except tribal, IHS, & Puerto Rico hospitals, which use low-income insured days as a proxy for Factor 3.

[13] https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/dalton.pdf

[14] https://oig.hhs.gov/oei/reports/oei-06-10-00520.pdf

[15] https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000079.asp

[16] https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.1414

[17] Page 1,370 of the unpublished final rule (CMS-1735-F)

[18] https://beta.regulations.gov/document/CMS-2020-0052-0002/comment

[19] https://www.aha.org/news/headline/2020-07-06-states-urge-hhs-delay-hospital-price-disclosure-start

[20] https://www.hfma.org/topics/news/2020/06/hospitals-scramble-to-meet-price-transparency-requirements-after.html

[21] FY 2021 IPPS Final Rule AOR/BOR File

[22] FY 2021 IPPS Final Rule Tables 1 and 5

[23] https://avalere.com/insights/cms-proposes-significant-changes-to-reimbursement-mechanisms-for-car-t

[24] https://www.aha.org/system/files/media/file/2019/04/fact-sheet-ltch-0319.pdf

[25] http://medpac.gov/docs/default-source/reports/mar20_medpac_ch11_sec.pdf?sfvrsn=0

[26] For LTCHs that fail to submit quality reporting data, the payment update will be 0.3 percent.

[27] The 25 percent threshold policy was a per discharge payment reduction in the LTCH PPS payments for LTCHs that admit more than 25 percent of Medicare cases from an onsite or neighboring inpatient acute care hospital.