On April 27, 2021, the Centers for Medicare & Medicaid Services (CMS) released its proposed rules for payment and policy updates for the Medicare Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for fiscal year (FY) 2022.¹ Other than the changes in IPPS and LTCH payment rates, the most notable portion of the proposed rule is the health equity incentives proposed by CMS.²  Additionally, CMS has proposed to use data from FY 2019 in the 2022 proposed rule because utilization and spending data from FY 2020 may be skewed due to the COVID-19 public health emergency (PHE).³ This Health Capital Topics article discusses the various provisions outlined in CMS’s proposed rule.

IPPS Payment Rate Updates

The proposed rule includes an estimated 2.8% 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 is a meaningful electronic health record (EHR) user.⁴  The payment increase is lower than the FY 2021 increase of 3.1%.⁵ This percentage increase translates to a growth in Medicare spending on inpatient hospital services of approximately $3.4 billion in 2022, before adjusting for Medicare disproportionate share hospital (DSH) payments and uncompensated Medicare payments.⁶ CMS predicts that Medicare DSH and uncompensated care payments by approximately $0.9 billion, resulting in an overall hospital payment increase of $2.5 billion.⁷ Other payment adjustments hospitals may be subject to under the proposed IPPS rule include:

1. “Payment reductions for excess readmissions under the Hospital Readmissions Reduction Program;”
2. “Payment reduction (1 percent) for the worst performing quartile under the Hospital Acquired Condition Reduction Program;” and,
3. “Upward and downward adjustments under the Hospital Value-Based Purchasing Program.”⁸

LTCH PPS Payment Rate Updates

For 2022, LTCH PPS payments will increase overall by 1.4%, or $52 million, a reversal of last year’s decrease of 0.9%.⁹ Further, for FY 2022, LTCH discharges paid the standard payment rate are expected to increase by 1.2%, while LTCH discharges paid the site neutral payment are expected to increase by 3%,  for FY 2022.¹⁰ LTCH discharges can be paid in one of two ways:

1. A standard rate – In order to be paid this rate upon discharge, the patient must have been directly admitted to the LTCH from an IPPS hospital after (a) spending at least three days in an intensive or coronary care unit or (b) admitted to the LTCH after having been on a ventilator for at least 96 hours, and must have not been assigned to psychiatric or rehabilitation services upon discharge; or,
2. A site neutral rate – For all other discharges that do not meet the above criteria.¹¹

For 2022, discharges paid the site neutral payment will comprise 25% of all LTCH cases and 10% of all LTCH PPS payments, the same composition as in 2021.¹²

New Technology Add-On Payments

In the FY 2021 IPPS Proposed Rule, CMS considered 24 applications for the new technology add-on payments (NTAP) program and approved 13 technologies in the final rule.¹³ For FY 2022, CMS proposed to extend NTAP for 14 technologies that would otherwise be discontinued.¹⁴ NTAP is additional reimbursement that provides “add-on” payments (up to 65%) to hospitals for the use of technology that may not be included in the diagnosis-related group bundled payment due to the novelty of that technology.¹⁵ CMS’s proposal to extend NTAP for those 14 technologies emanates from concerns related to COVID-19, similar to IPPS data (discussed above).¹⁶ Further, CMS proposed establishing the New COVID-19 Treatments Add-On Payment (NCTAP) to incentivize hospitals to provide new COVID-19 treatments and minimize any payment disruption for inpatient discharges through the end of the COVID-19 PHE.¹⁷

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.¹⁸ CMS is looking to adopt five new measures, remove five measures, make changes to EHR certification requirements, and adopt outcome measures for COVID-19 mortality and elective total hip and/or knee arthroplasty.¹⁹ The proposed measures to adopt include: Maternal Morbidity Structural measure; a COVID-19 Vaccination Coverage Among Health Care Personnel measure; a Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measure; and two medication-related adverse event electronic clinical quality measures (eCQMs).²⁰ Additionally, CMS is looking to remove the following five measures: the Death Among Surgical Inpatients with Serious Treatable Conditions measure; the Exclusive Breast Milk Feeding measure; the Admit Decision Time to Emergency Department Departure Time for Admitted Patients measure; and two stroke-related eCQMs.²¹

Additional Proposals – Health Equity

CMS also made a notable proposal seeking stakeholder feedback to closing gaps in health equity related to graduate medical education (GME) and quality programs. First, CMS is looking to distribute 1,000 new Medicare-funded medical residency positions to train physicians under the 2021 Consolidated Appropriations Act, a trillion dollar spending bill that seeks to provide economic relief from the COVID-19 PHE.²² Beginning in FY 2023, 200 residency slots per year will be added, prioritizing those hospitals that serve populations and demographics with the greatest need.²³ CMS’s additional funding for new residency positions added between FY 2023 and FY 2031 is estimated to total $1.8 billion.²⁴ Second, CMS is seeking to close the health equity gap in quality programs in parallel with President Joe Biden’s Executive Order (EO) on Advancing Racial Equity and Support for Underserved Communities.²⁵ President Biden’s EO revoked two of the Trump Administration’s EOs that banned diversity and inclusion training for federal employees, and pledged that equal opportunity and diversity would be a primary focus in his next four years.²⁶ CMS issued a request for information within the proposed rule to stakeholders on ideas to address inequities in health outcomes throughout the U.S. CMS is also exploring collecting a minimum set of demographic data elements from hospitals at the time of patient admission and using electronic data nationwide to move toward developing quality measures.²⁷

Conclusion

The American Hospital Association (AHA) quickly expressed their enthusiasm for the health equity programs proposed by CMS, as well as the proposed adjustments to help hospitals financially through the end of the COVID-19 PHE.²⁸ AHA’s Executive Vice President stated that many are applauding the CMS for helping hospitals and health systems after these facilities rose to the challenge of treating COVID-19 patients and saving lives.²⁹ The Association of American Medical Colleges (AAMC) also expressed support for the GME health equity program, but recommended that no hospital should receive more than one full-time equivalent resident per year.³⁰   Comments from industry stakeholders on the IPPS and LTCH PPS Proposed Rule are due to CMS by June 28, 2021.³¹