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Medicare FY 2021 Hospital Inpatient Proposed Rule, Federal Flexibilities for COVID-19

This week, our In Focus section reviews recent announcements and actions by Congress and the Centers for Medicare & Medicaid Services (CMS) that have significant financial and operational implications for the hospital industry. This brief begins with the most recent of these actions by providing a summary of the key provisions of the CMS Fiscal Year (FY) 2021 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (CMS-1735-P), which includes Medicare payment updates and policy changes for the upcoming FY, with a comment deadline of July 10, 2020.  Although somewhat limited in scope compared to previous proposals, this year’s proposed rule includes several disruptive proposals that the hospital industry should carefully consider.

This brief also provides an analysis of the most critical regulatory flexibilities CMS and Congress created for hospitals in response to the novel coronavirus (COVID-19) pandemic. In addition, we provide a state-level analysis of the funding hospitals received as a part of the COVID-19 High-Impact Allocation. Finally, we offer a few thoughts about possible future actions policymakers could take to further assist the hospital industry.

HMA continues to monitor legislative and regulatory developments and funding opportunities that will impact the hospital sector. For more information or questions, please contact Zach Gaumer (zgaumer@healthmanagement.com) or Jennifer Podulka (jpodulka@healthmanagement.com).

FY 2021 Hospital IPPS and LTCH Proposed Rule

On May 11, 2020, CMS released the FY 2021 IPPS and LTCH Proposed Rule (CMS-1735-P). In light of the public health emergency (PHE) and recent policy changes for hospitals, the scope of the FY 2021 Proposed Rule was slightly smaller than in past years. However, the Proposed Rule contains a handful of potentially disruptive proposals. Comments on the Proposed Rule are due to CMS by July 10, 2020, with an expected publication date of 30 days before its effective date of October 1, 2020.

Payment rates: CMS estimates the overall impact of the FY 2021 IPPS Proposed Rule on general acute care hospitals will increase payments by $2.07 billion from FY 2020 to FY 2021, or 1.6 percent. Specifically, CMS proposed to increase Medicare operating payment rates by 3.1 percent, which reflects the sum of the projected hospital market basket update (3.0 percent), the statutory reduction for productivity (-0.4 percent), and statutory increase stemming from the transition of the IPPS from DRGs to MS-DRGs (+0.5 percent). Combining operating and capital payments, the FY 2021 inpatient standardized amount will be $6,448.10 per case. CMS’ proposed net percent increase in Medicare IPPS payments of 1.6 percent is lower than the 3.1 percent increase in Medicare operating payment rates because other components of proposed FY 2021 payment changes will lower payments.

Uncompensated Care payments: From FY 2020 to FY 2021, uncompensated care payments will decrease by $534 million, or 6.4 percent. This reduction is a result of several changes in CMS assumptions, including the estimated share of uninsured patients (9.5 percent in 2020 and 2021) and estimated inpatient discharge volume (decrease from 2020 to 2021). In addition, CMS proposed to use uncompensated care cost data from hospitals’ audited FY 2017 Cost Reports (worksheet S-10) to distribute these uncompensated care payments to hospitals.

Price transparency and use of private-sector negotiated charge data in calibrating DRG weights : In a potentially wide-sweeping proposal, CMS proposed to require hospitals to report two new variables as a part of the standard hospital cost reporting process to enable the agency to identify MS-DRG-level payer-specific negotiated charges. This proposal builds off of the price transparency rule CMS issued in 2019 that required hospitals to publicly report their prices for many of the services they provide. Specifically, as a part of the FY 2021 IPPS Proposed Rule CMS proposed that beginning January 1, 2021, hospitals must report:

  • The median payer-specific negotiated charge that the hospital has negotiated with all of its Medicare Advantage payers, by Medicare Severity-Diagnostic Related Group (MS-DRG), and
  • The median payer-specific negotiated charge the hospital has negotiated with all of its third-party payers (Medicare Advantage and other payers), by MS-DRG.

In the proposed rule, CMS requests feedback from stakeholders on its proposal to use the data described above to set MS-DRG weights beginning in FY 2024. CMS asserts any change from the current system (case-level resource-based costs to set MS-DRG weights) to the proposed system (negotiated charges) would be held budget neutral nationally. However, this change could result in changes to payments rates (and weights) of individual MS-DRGs. At this time, CMS seeks feedback and analysis from stakeholders with access to payer-specific negotiated charge data, regarding the potential impact of the use of such data on the MS-DRG relative weights.

New or revised MS-DRGS: CMS proposed to make two noteworthy changes as a part of its annual process for recalibrating MS-DRGs. Specifically, CMS proposed to create a new MS-DRG for CAR T-cell therapy (MS-DRG 018). This proposed changed has been contentiously debated in recent years because this therapy is extremely expensive. As such, the new MS-DRG will be reimbursed by Medicare at roughly $239,000 per case. CMS estimates the addition of the CAR-T MS-DRG will not cause significant changes in the weights and payment rates of other MS-DRGs for FY 2021 due to a low volume of cases in FY 2021 (116 cases). In addition, CMS proposed to create two new MS-DRGs (521 and 522) for hip procedures. For many years, hip and knee procedures were grouped in the same MS-DRGs and, therefore, were paid similarly. By splitting hip from and knee procedures the system becomes less bundled, and payment rates for these two services will be permitted to be independent of each other potentially causing them to differ over time.

Medicare Hospital Quality Programs: In recent years CMS has devoted significant effort to refine its hospital quality and value-based purchasing programs in its IPPS rulemaking, but for FY 2021 proposed policy changes are relatively minor. In general, we continue to see an effort by CMS to more closely align their programs.

  • Hospital Inpatient Quality Reporting (IQR) Program: CMS proposes to progressively increase the number of quarters of Electronic Clinical Quality Measures (eCQM) data reported by hospitals. Hospitals would report two quarters of data for the FY 2023 payment determination, three quarters of data for the FY 2024, and four quarters of data FY 2025 and subsequent years. In addition, CMS proposes to begin the public display of eCQM data on the Hospital Compare website in the fall of 2022. CMS also proposed to reduce the number of hospitals selected for data validation, from 800 to 400 hospitals.
  • Hospital Value-Based Purchasing (HVBP) Program: CMS provides estimated and newly established performance standards for certain measures for the FY 2023, FY 2024, FY 2025, and FY 2026 program years, however CMS does not propose to add new measures or remove measures from the HVBP Program in this proposed rule.
  • Hospital Acquired Condition Reduction and Hospital Readmissions Reduction Programs: CMS proposed to more closely align the applicable performance periods and validation procedures used for this program with the Hospital IQR program.
  • Hospital Star Ratings: Despite a previous announcement that CMS would update the Hospital Quality Star Rating methodology in the FY 2021 Proposed Rule, CMS proposed no changes.
  • PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program: CMS proposed to refine two existing National Healthcare Safety Network (NHSN) measures (Catheter-Associated Urinary Tract Infection (CAUTI) and Central Line-Associated Bloodstream Infection (CLABSI)) and to begin publicly reporting the updated versions of the CAUTI and CLABSI measures in fall 2022.

COVID-19-related flexibilities for hospitals

Since the declaration of the Public Health Emergency (PHE), CMS has implemented more than 60 COVID-19-related flexibilities to support hospital efforts to respond to the pandemic. These flexibilities have largely been implemented on a temporary basis and are effective retrospectively to March 1, 2020. These flexibilities have been implemented through legislative and regulatory actions, as well as applying the 1135 waiver authority, which permits the Secretary of Health and Human Services to temporarily waive or modify certain Medicare, Medicaid, and Children’s Health Insurance Program requirements to ensure that sufficient health care items and services are available during an emergency. Most of these flexibilities are temporary and are scheduled to expire at the end of the PHE.

Among the most significant of these flexibilities for hospitals are:

  • Hospital inpatient payment increase: Medicare will increase payment rates for inpatient cases involving COVID-19 by increasing the case weight of these cases by 20 percent.
  • Temporary suspension of sequestration payment cuts: From May through December of 2020 the statutory 2 percent reduction to Medicare fee-for-service payments will be suspended.
  • Hospital outpatient services furnished via telehealth: Patients registered as hospital outpatients may receive certain services via telehealth. Hospitals may bill for the originating site facility fee associated with these telehealth service. Clinicians providing these services to patients registered as hospital outpatients can do so from their homes.
  • Workforce/Supervision flexibilities: CMS has created several flexibilities to expand the healthcare workforce, such as allowing:
    • hospitals to use other practitioners (e.g., physician assistants and nurse practitioners) to the fullest extent possible
    • hospitals to use new physicians prior to full governing body approval
    • certified nurse anesthetists to provide care without the supervision of a physician, and
    • Critical Access Hospitals (CAH) to treat patients without a physician physically present.
  • Coverage and payment for COVID-19 diagnostic testing: Hospital outpatient departments will receive payment for symptom assessment and specimen collection for severe acute respiratory syndrome coronavirus-2. In addition, Medicare will provide coverage for FDA-authorized COVID-19 serology testing for patients with known current or prior COVID-19 infection or suspected current or past COVID-19 infection.
  • Reducing Administrative Burden: CMS has made several changes to temporarily reduce administrative requirements related to the provision of hospital services, such as:
    • granting extraordinary circumstances exceptions for quality reporting requirements
    • limiting certain discharge planning requirements
    • extending the 30-day requirement for updating the patient medical record, and
    • delaying cost reporting and wage index occupational mix data reporting.
  • Site of service flexibility: Hospitals may provide services in other healthcare facilities and sites that would not otherwise be considered part of the hospital. For example, CMS is allowing hospitals to screen patient at offsite locations and furnish inpatient and outpatient services at temporary expansion sites. Key flexibilities include items such as:
    • allowing ambulatory surgical centers (ASC) to temporarily enroll as hospitals
    • waiving enforcement of the Emergency Medical Treatment and Labor Act (EMTALA), which requires hospitals to stabilized/treat patients regardless of their ability to pay
    • allowing hospitals to create new/relocate Provider-Based Departments (PBD), and to apply for a temporary extraordinary circumstances exception that enable PBDs to receive full Medicare outpatient payment rates
    • allowing general acute care hospitals to offer long-term care services (“swing-beds”)
    • permitting CAHs, Medicare Dependent Hospitals, and Sole Community Hospitals to exceed their bed-size limit and length-of-stay limits
  • Medicare appeals in fee-for-service, Medicare Advantage (MA), and Part D: CMS is allowing Medicare Administrative Contractors and other auditors to allow extensions to providers filing appeals, to process requests that do not meet all required elements, and to waive requirements for timeliness for requests for additional information to adjudicate appeals.

Federal funding to the hospitals through the COVID-19 High-Impact Allocation

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act appropriated $175 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response. To date, HHS has distributed $70 billion of these funds.  Through one component of this funding allotment, the COVID-19 High-Impact Allocation, $12 billion was provided to 395 hospitals that provided inpatient care for 100 or more COVID-19 patients through April 10, 2020. These funds were distributed through the Department of Health and Human Service’s Health Resources and Services Administration (HRSA) using a formula based on each hospitals’ respective Medicare disproportionate share and uncompensated care payments. These 395 hospitals accounted for 71 percent of COVID-19 inpatient admissions reported to HHS from nearly 6,000 hospitals around the country.

The COVID-19 High-Impact Allocation to hospitals was highly variable by state and distributed relief to hospitals in states that were among the first to treat surges of COVID-19 patients. Ninety hospitals in New York state received a combined $5 billion, with Long Island Jewish Memorial Hospital, Tisch Hospital, New York Presbyterian, and Montefiore Hospital receiving over $150 million each. Fifty-three hospitals in New Jersey received more than $1.7 billion, including more than $200 million for Holy Name Medical Center. Thirty hospitals in Michigan received nearly $900 million. While these three states received the largest share of the COVID-19 High-Impact Allocation, other states in the top ten include Illinois ($690 million), Massachusetts ($490 million), Louisiana ($400 million), Georgia ($380 million), Pennsylvania ($320 million), Connecticut ($290 million), and Florida ($290 million).

Policymakers may act in subsequent months to address the ongoing needs of hospitals

Given the continuous flow of guidance, regulation, and legislation coming from CMS and Congress over the last few months, HMA anticipates policymakers will continue to modify regulations, create additional administrative flexibilities, and allocate funds for the hospital industry throughout 2020. Policymakers may choose to further enhance the ability of hospitals to provide additional telehealth services to patients discharged from the inpatient and outpatient settings, because only recently has CMS permitted hospital outpatient departments to provide a few services via telehealth.  HHS is still establishing its policies for how to distribute more than $100 billion in appropriated provider relief funds; and Congress may pass additional legislation providing direct funding to hospitals in areas of the country that are only recently beginning to experience an increase of COVID-19 cases. This might entail additional funding to support rural hospitals and hospitals in states that did not receive significant funding through the COVID-19 High-Impact Allocation (e.g., Texas, California, Minnesota, and Colorado). Policymakers may continue to provide the hospital industry with administrative relief, such as further delaying the submission of cost reports or quality measures. In addition, CMS may choose to modify how data from calendar year 2020 are used or not used, as a part of the annual calculation of inpatient and outpatient payment rates, quality payments, and additional add-on payments, such as uncompensated care, disproportionate share hospital (DSH), indirect medical education (IME), and outlier payments.

The extent to which the COVID-19 emergency will have an impact on hospital finances throughout the rest of 2020 is unclear, but policymakers will be making ongoing changes with significant implications for the hospital industry.

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