Key payment details in the Medicare FY22 Inpatient Prospective Payment System proposed rule

• CMS’s FY22 proposed rule for the Inpatient Prospective Payment System includes a 2.8% payment increase for general acute care hospitals.
• Reductions are in store for Disproportionate Share Hospital and uncompensated care payments, shaving about $900 million off the overall increase.
• Hospitals in several states will get a payment increase as a result of legislative changes to the wage index methodology.

Note: For the key policy-related details in the FY22 IPPS proposed rule, see this HFMA Blog post.

In formulating its proposed FY22 Medicare payment update for inpatient hospitals, CMS projected a significant drop-off in COVID-19 hospitalizations.

CMS noted that it therefore based FY22 Inpatient Prospective Payment System (IPPS) rates on FY19 utilization data, rather than FY20 data as typically would be the case.

“The continuing rapid increase in vaccinations coupled with the effectiveness of the vaccines leads us to believe that there will be significantly lower risk of COVID-19 infection and fewer hospitalizations for COVID-19 in FY22 than occurred in FY20,” CMS stated in a fact sheet.

“We are proposing to use the FY19 data from prior to the COVID-19 PHE [public health emergency] to approximate the expected FY22 inpatient hospital utilization.”

CMS is seeking comments on whether to instead use FY20 data.

Specifics of the payment update

IPPS hospitals will receive a 2.8% payment increase if they successfully participate in the Hospital Inpatient Quality Reporting Program and fulfill meaningful-use criteria with respect to electronic health records.

The increase is based on a 2.5% update in the projected hospital market basket, with a 0.2-percentage-point reduction as a productivity adjustment and a 0.5-percentage-point statutory increase.

The base update does not include potential payment reductions via the Readmissions Reduction Program and the Hospital-Acquired Condition Reduction Program or upward and downward adjustments through the Value-Based Purchasing Program.

The percentage increase equates to a $3.4 billion payment hike for IPPS hospitals, although that total is projected to decrease by $900 million due to reductions in Medicare Disproportionate Share Hospital (DSH) payments and uncompensated care (UC) payments.

The $660 million decrease in UC payments to Medicare DSH hospitals stems from projected changes in the uninsured rate. The payment amount is equal “to an estimate of 75% of what otherwise would have been paid as Medicare DSH payments, adjusted for the change in the rate of uninsured individuals,” CMS states.

The update to UC funding reflects CMS Office of the Actuary projections that account for the estimated impact of the pandemic but not of the COVID-19 relief legislation known as the American Rescue Plan, according to the fact sheet.

The FY21 final rule established that in FY22, UC funds will be distributed based on a single year of UC cost data from Worksheet S-10 of hospitals’ FY18 cost reports.

Extension for some ‘new technology’ payments

CMS is proposing to issue a one-year extension of add-on payments for 14 technologies for which payment otherwise would be discontinued if the proposal to use FY19 utilization data is implemented. The payments typically are limited to a two- or three-year period following the date of FDA approval or clearance for marketing of a technology.

For new COVID-19 treatments, add-on payments will continue through the end of the fiscal year in which the PHE ends. That approach is intended “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 stated.

The American Hospital Association commended that proposal, saying it will “help hospitals and health systems continue to treat COVID-19 patients and save lives.”

New wage index methodology for several states

Hospitals in four all-urban states — those with no designated rural areas — will get an estimated cumulative payment boost of $200 million in FY22 because of a statutory change implemented by the recent COVID-19 relief legislation.

Connecticut, Delaware, New Jersey and Rhode Island, along with Washington, D.C., are eligible to receive an increase in their wage indexes due to reinstatement of the imputed-floor wage index methodology, as required by the legislation.

Due to time restrictions between passage of the bill and the release of the proposed rule, CMS did not incorporate the required changes when calculating the provider wage index. The agency says it will do so in the final rule.

Long-term care hospital payment updates

CMS expects LTCH-PPS payments to increase by 1.4%, or $52 million, in FY22.

For LTCH discharges that are paid the standard rate, payments are expected to increase by 1.2% after factoring in a projected 0.8% decrease in high-cost outlier payments.

For discharges that are paid the site-neutral payment rate, payments are expected to increase by 3%. These discharges are estimated to account for 25% of all LTCH cases and 10% of LTCH PPS payments for the upcoming year.