On May 11, 2020, the Centers for Medicare and Medicaid Services (CMS) released its proposed rules for payment and policy updates for the Medicare Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for fiscal year (FY) 2021.¹ Other than the changes in IPPS and LTCH payments, the most notable portion of the proposed rule is the innovation incentives proposed by CMS.² This Health Capital Topics article discusses the various provisions outlined in the CMS proposed rule.

Payment Rate Update

The proposed rule includes an estimated 3.1% total increase in operating payments for general acute care hospitals paid under IPPS if the hospital participates in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.³  The payment increase is lower than the 2020 increase of 3.7%.⁴ This percentage increase translates to a growth in Medicare spending on inpatient hospital services of about $2.07 billion in 2021.⁵ However, proposed changes to payment policies will decrease IPPS payments by approximately 0.4%, leading to a true overall increase in IPPS payments of only 1.6%.⁶ Proposed changes in new technology add-ons, capital payments, and uncompensated care payments will lead to decreases in overall IPPS payments.⁷  Further, the proposed rule subjects hospitals to other payment adjustments under the IPPS, including:

1. “Penalties for excess readmissions, which reflect an adjustment to a hospital’s performance relative to other hospitals with a similar proportion of patients who are dually eligible for Medicare and full-benefit Medicaid;”
2. “Penalty (1 percent) for worst-performing quartile under the Hospital-Acquired Condition Reduction Program;” and,
3. “Upward and downward adjustments under the Hospital Value-Based Purchasing Program.”⁸

For 2021, LTCH PPS payments will decrease by 0.9%, reflecting the statutorily required reductions to LTCH payments.⁹ The decrease is a reversal from last year’s increase of 1.75%.¹⁰ The LTCH PPS operates under a dual-rate system consisting of site neutral payments and traditional LTCH payments.¹¹ Currently, the number of cases paid using this blended payment rate represents approximately 25% of all LTCH cases and 10% of all LTCH PPS payments.¹² The number of LTCH cases paid under this dual model is expected to decrease by 20% by the end of 2021.¹³

Technology Add-On

In this proposed rule, CMS suggests approving 24 applications for the new technology add-on payment (NTAP) program.¹⁴ Under this program, CMS provides enhanced reimbursement (i.e., an add-on payment) to inpatient hospitals for new medical services or technologies.¹⁵ Three of the 24 technologies were submitted to the Food and Drug Administration (FDA) as Breakthrough Devices,¹⁶ and six have received FDA Qualified Infectious Disease Product (QIDP)¹⁷ designation.¹⁸ CMS has proposed expanding the technology add-on payment to other technology that addresses the “unmet needs of patients with serious bacterial and fungal infections.”¹⁹ CMS is proposing conditional approval for antimicrobial products that meet the FDA standard but have not yet been approved as a QIDP in order for the antimicrobial product to receive payment sooner.²⁰ The proposed rule highlights CMS’s significant concern relating to antimicrobial resistance.

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR Program is a quality reporting program that may reduce payments to hospitals that fail to meet quality reporting requirements.²¹ Major proposed changes to the Hospital IQR Program include publicly displaying electronic clinical quality measures (eCQM) on the Hospital Compare website. The data will be required to be reported by hospitals for the 2021 reporting period and subsequent years so that it may be included and periodically updated on the Hospital Compare website for healthcare consumers to view.²² CMS proposes streamlining the validation process for the Hospital IQR Program by requiring quality reporting information to be submitted electronically only and prohibiting the submission of CDs, flash drives, or other physical copies.²³

Additional Proposals

The changes proposed by CMS would affect approximately 3,200 acute care hospitals and 360 LTCHs.²⁴ According to CMS, the proposed changes to the payment systems are intended to “support the agency’s key priorities, which include Strengthening Medicare and Fostering Innovation.”²⁵ Further, CMS proposes the implementation of some aspects of the 2019 price transparency rules by proposing the collection of hospitals’ median payor-specific negotiated inpatient services charges for Medicare Advantage organizations and third-party payors.²⁶ CMS is also requesting comments pertaining to potentially using the data to set Medicare payment rates for hospital procedures.²⁷ The price transparency rule is further discussed in the November 2019 Health Capital Topics article entitled, “Trump Administration Brings Transparency to Healthcare.”²⁸ CMS notes in the proposed rule its recognition of the impact of COVID-19 on limiting the ability of impacted parties from commenting on the proposals, so it has limited its annual rulemaking to focus on essential policies, as well as policies that may help providers responding to the COVID-19 pandemic.²⁹ Comments from industry stakeholders regarding the proposed rule are due by July 10, 2020.³⁰