On August 2, 2021, the Centers for Medicare & Medicaid Services (CMS) released its finalized 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 Notably, CMS determined in their final rule that it would be using FY 2019 data to determine inpatient hospital utilization for FY 2022 due to aberrations in the FY 2020 data stemming from the COVID-19 public health emergency (PHE).² The final rule authorized Medicare inpatient reimbursement increases for 2022, extended reimbursement for COVID-19 diagnostics and treatment, moved forward with improvements to quality measurement and data evaluations, but did not approve the addition of 1,000 new graduate medical education (GME) slots. This Health Capital Topics article will discuss the IPPS final rule and stakeholder reactions.³

IPPS and LTCH PPS Payment Rate Updates

The final rule includes a 2.5% payment increase for hospitals that report quality data through the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful users of electronic health records (EHRs).⁴ This payment increase is 0.3% lower than the proposed payment rate.⁵ CMS estimates hospital payments to increase by an adjusted total (after various decreases) of $2.3 billion in FY 2022.⁶ Under the FY 2022 IPPS, hospitals may also see payment reductions for excessive readmissions, 1% payment reductions for the worst-performing quartile of hospitals, and neutral payment adjustments due to CMS suppressing many hospital value-based purchasing program measures during COVID-19.⁷

Additionally, CMS finalized LTCH-PPS payment increases of approximately 1.1%, or $42 million, a reversal from last year’s decrease of 0.9%.⁸ Further, for FY 2022, LTCH discharges paid the standard payment rate are expected to increase by 0.9%, a decrease of 0.3% from the proposed rate.⁹ To be paid this rate upon discharge, a 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) having been on a ventilator for at least 96 hours, and must have not been assigned to psychiatric or rehabilitation services upon discharge.¹⁰ Additionally, the proposed site-neutral payment rate for LTCH discharges was finalized at an increased rate of 3.0% for FY 2022.¹¹ The site-neutral payment rate is applied to all discharges that do not fit the criteria for the standard payment rate.  For FY 2022, CMS estimates discharges paid the site-neutral payment will comprise 25% of all LTCH cases and 10% of all LTCH PPS payments, the same composition as 2021.¹²

These payment changes will affect inpatient discharges for approximately 3,200 acute care hospitals and 360 LTCHs.¹³

Extended Reimbursements for COVID-19 Treatments and Diagnosis

For FY 2022, CMS finalized 19 technologies that applied for new technology add-on payments (NTAP) and is continuing NTAP for the 23 technologies currently receiving the add-on payments.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 (DRG) bundled payment due to the novelty of that technology.¹⁵ 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.¹⁶ In total, CMS has finalized 42 technologies that are eligible to receive NTAP for FY 2022, which will increase Medicare spending on NTAP by approximately $1.5 billion from FY 2021.¹⁷

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. CMS finalized several changes to the IQR Program, which adds five new measures to the program, including the COVID-19 vaccination rates among healthcare personnel, a metric targeting maternal morbidity, a hybrid hospital-wide-all-cause risk standardized mortality measure, and two medication-related adverse event electronic clinical quality measures (eCQMs).¹⁸ CMS will also remove the exclusive breast milk feeding measure, the admit decision time to emergency department departure for admitted patients measure, and a discharge-related eCQM.¹⁹

Other Changes

Notably, CMS decided not to move forward with the increase of 1,000 GME positions to promote health equity under the Consolidated Appropriations Act, a trillion-dollar spending bill that seeks to provide economic relief from the COVID-19 PHE.²⁰ CMS had proposed to allow additional funding for residency positions added between FY 2023 and 2031, prioritizing underserved populations.²¹ However, CMS said these issues would be addressed in future payment rules.²²

Additionally, CMS will distribute $7.2 billion in uncompensated care payments for FY 2022, an approximately $1.1 billion decrease from FY 2021.²³ The finalized uncompensated care payments are lower than the $7.6 billion proposed payment, and a decrease of $660 million from FY 2021.²⁴ CMS is required to prospectively distribute payment equal to 75% of what would have otherwise been uncompensated care to disproportionate share hospitals.²⁵

CMS will also move forward with its proposal to remove median payor-specific negotiated rates by Medicare severity-diagnosis related group (MS-DRG) with Medicare Advantage insurers.²⁶ CMS said this will reduce the administrative burden on hospitals by approximately 64,000 hours.²⁷

Conclusion

While important health equity changes from the proposed rule, such as increases to GME slots, did not make the final rule, CMS still addressed many gaps that were highlighted by the COVID-19 PHE. Further, with this rule, CMS can improve how it measures and evaluates data while promoting high-quality care for Medicare beneficiaries. In an announcement following the release of the final rule, CMS expressed the importance of standardizing hospital quality data, with CMS Administrator Chiquita Brooks-LaSure asserting, “how Medicare pays for hospital care and evaluates quality, are integral pieces of achieving and addressing gaps in health equity and strengthening our health care system for a more sustainable future.”²⁸ Additionally, stakeholders such as the American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC) commented upon the release of the final rule, showing support for CMS helping inpatient hospitals during the COVID-19 PHE.²⁹ While these stakeholders did look forward to addressing health equity issues through additional GME slots, they appreciate that CMS will address this in future rules.³⁰ The final rule will take effect on inpatient discharges that take place on or after October 1, 2021.³¹