CMS Finalizes Rule for the FY 2021 Inpatient Prospective Payment System

On September 2, 2020, the Centers for Medicare & Medicaid Services (CMS) finalized fiscal year (FY) 2021 policies in the Inpatient Prospective Payment System (IPPS) for acute care and long-term care hospitals. The rule safeguards access to critical diagnostic technology and medical treatments through increasing technological innovation in the medical industry, easing industry competition, and updating hospital payment policies. IPPS is the Medicare payment system for acute care hospitals. Payments are issued per inpatient or per patient discharge.  Discharge cases are categorized into diagnosis related groups (DRGs) based on similar diagnoses and services provided during the inpatient process. CMS updates the IPPS regulations each year, which allows inpatient hospitals to address quality improvement efforts and maximize cost effectiveness. The updated IPPS final rule takes effect on October 1, 2020 with two very noteworthy changes.

The first important change to the final rule is the switch to a market-based method for weight data collection for calculating Medicare Severity Diagnosis Related Groups (MS-DRGs). Currently, payments for cases under IPPS are calculated by multiplying a hospital’s standardized cost per case, adjusted by geographic location, by the relative weight for the MS-DRG assigned to the case. This cost-based methodology mainly uses hospital charges based on claims and hospital report data. However, recently CMS has acted to reduce Medicare’s use of hospital charge data, due to the thought that gross rates are an inaccurate representation of market costs. In the final rule, MS-DRG weights will instead be based on median payer specific negotiated charges for Medicare Advantage (MA) organizations, collected through Medicare cost reports. This new methodology will be fully implemented by FY 2024. CMS predicts that since hospitals are already obligated to publicly report payer-specific negotiated charges, that calculating and reporting the MA negotiated charge by MS-DRG will be less taxing on hospitals compared to the current method of weight data collection.

The second important change to the final rule is that it encourages the development of medical technology through the creation of several new alternative pathways and payment groups. Under this rule, 13 new technologies that applied for new FY 2021 add-on payments were approved. CMS will continue new technology add-on payments for a portion of the technologies that currently receive the add on payment. Thus, 24 technologies in total will be eligible to receive add-on payments for FY 2021. In addition, this payment expansion includes a new MS-DRG for Chimeric Antigen Receptor (CAR) T-cell Therapy, which will allow for more predictable compensation as well as accurate and efficient billing for hospitals paid through the IPPS when offering these immunotherapy procedures.

Another important aspect of the technological innovation procedure changes in the final rule is the expansion of alternative pathways for antimicrobial products. Information continues to surface highlighting antimicrobial resistance as threat to public health, especially in surgical situations and hospitals offering treatment for cancer. Antimicrobial resistance not only compromises the success and safety of surgeries and chemotherapy treatments, but the cost of treating patients with infections with antimicrobial resistant infections is more expensive for hospitals compared to treatment for patients with nonresistant infections. To address these concerns, CMS expanded the new technology add-on payment pathway for antimicrobial products that the FDA designates as Qualified Infectious Disease Products (QIDPs). Under the new pathway for FDA approved QIDPs, the products must only reach a cost benchmark to receive the add-on payment. CMS expanded this pathway for FY 2022 to include products approved through the FDA Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) that have also been granted FDA marketing authorization.

For over 35 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding new developments in CMS. If you or your healthcare entity has any questions pertaining to healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com