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Proposed Medicare Payment and Policy Changes for Fiscal Year 2021 for Hospice, Inpatient Psychiatric Facilities, and Skilled Nursing Facilities

Recently, the Centers for Medicare & Medicaid Services (CMS) issued proposed rules to update the Medicare payment rates and implement other policy changes for three types of Part A providers: hospice, inpatient psychiatric facilities (IPFs), and skilled nursing facilities (SNFs). CMS is publishing these proposed rules in accordance with existing statutory and regulatory requirements to update Medicare payment policies for these providers on an annual basis. This brief summarizes the proposed payment rates and key policy changes for each of these provider types.

In separate guidance, CMS issued an array of temporary regulatory waivers and new rules in response to the COVID-19 pandemic, including waiving the SNF benefit’s 3-day qualifying inpatient hospital stay requirement, which allows patients to be admitted to SNFs without the typically required 3-day inpatient hospital stay, and adding flexibility in how soon beneficiaries may access a new SNF benefit period without the typical 60-day “wellness” period.  CMS has introduced more flexibility for hospices to furnish services via telecommunications technology to minimize exposure risk for clinicians, patients, and the general public. For inpatient psychiatric units that are located in acute care hospitals, CMS is waiving requirements about where services are provided to allow hospitals to relocate inpatients from the distinct psychiatric unit to an acute care bed if needed. In addition, CMS is waiving the enforcement of the Emergency Medical Treatment and Active Labor Act (EMTALA) to allow hospitals, psychiatric hospitals, and critical access hospitals (CAHs) to screen patients at offsite locations from the hospital’s campus to prevent the spread of COVID-19.

For more information on CMS’s temporary regulatory waivers and new rules in response to the COVID-19 pandemic, please contact Jon Blum or Kathleen Nolan.

For all three types of providers, CMS proposes to adopt Office of Management and Budget (OMB) revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas. This change is intended to make wage index values more representative of the actual costs of labor in each geographic area. CMS proposes to apply a 5 percent cap on wage index decreases for all hospice, IPF, and SNF providers for FY 2021, regardless of the circumstance causing the decrease.

The deadline for submitting comments on each of the three proposed rules is June 9, 2020.

HMA continues to analyze these proposed rules and will analyze the final rules when they are released by CMS. For more information, please contact Jennifer Podulka.


The proposed rule would increase payments to hospices by 2.6 percent ($580 million) for fiscal year (FY) 2021. The 2.6 percent update is based on an estimated 3.0 percent inpatient hospital market basket update reduced by the multifactor productivity adjustment of 0.4 percentage point. Hospices that fail to meet quality reporting requirements receive a 2-percentage point reduction to the annual market basket update for the year.

Medicare’s hospice payment system includes a statutory aggregate cap. The aggregate cap limits the overall payments per patient made to a hospice annually. The proposed rule would set the hospice cap amount for the FY 2021 at $30,743.86, which is equal to the FY 2020 cap amount of $29,964.78 updated by the proposed FY 2021 hospice payment update of 2.6 percent.

Medicare hospice payments are made according to a fee schedule that has four different levels of care: routine home care (RHC), continuous home care (CHC), inpatient respite care (IRC), and general inpatient care (GIC). RHC is the most common level of hospice care, accounting for about 98 percent of all hospice days. For FY 2020, CMS increased the payment rates for the three higher intensity levels of hospice care (CHC, IRC, GIC) to better align with their estimated cost.  In order to maintain budget neutrality, as required by statute, the RHC rates were adjusted by a service intensity add-on (SIA) budget neutrality factor (SBNF). This adjustment has been minimal, about 1 percent for the past four years. Because the SBNF remains stable, CMS proposes to remove the factor to simplify the RHC payment rate updates. Therefore, the RHC payment rates would typically only be updated by the wage index standardization factor and the hospice payment update percentage.

In addition, the proposed rule provides model examples of the hospice election statement and the hospice election statement addendum to reflect the changes finalized in the FY 2020 hospice final rule for elections on or after October 1, 2020. Hospices must provide Medicare beneficiaries electing hospice documents similar to these models to inform them of their rights, expected cost sharing liability, and choice of physician. CMS will publish additional guidance to further educate the hospice community on the election statement and addendum content requirements.

Inpatient Psychiatric Facilities (IPFs)

The proposed rule would increase payments to IPFs by 2.4 percent ($100 million) for FY 2021.  The IPF market basket increase, which is used to update IPF payment rates, is 3.0 percent.  This is adjusted by the productivity adjustment of -0.4 percentage point, resulting in the update of 2.6 percent.  Additionally, total estimated payments to IPFs are estimated to decrease 0.2 percentage points due to updating the outlier threshold amount to maintain estimated outlier payments at 2 percent of total estimated payments.

Skilled Nursing Facilities (SNFs)

The proposed rule would increase payments to SNFs by 2.3 percent ($784 million) for FY 2021. This increase is attributable to a 2.7 percent market basket update that is reduced by a 0.4-percentage point multifactor productivity adjustment.

CMS proposes changes to the International Classification of Diseases, Version 10 (ICD-10) code mappings used for the Patient Driven Payment Model (PDPM) that would be effective beginning in FY 2021. Implemented on October 1, 2019, PDPM uses ICD-10 codes to classify SNF patients into case-mix payment groups, resulting in SNF prospective payment system (PPS) payments that are driven more by patient characteristics, rather than length of stay and volume of therapy received. Under the PDPM, patients are classified into clinical categories based on the primary SNF diagnosis. For some diagnoses, the clinical classification may also be determined based on whether the patient had a major procedure during the prior inpatient stay that impacts the plan of care. CMS proposes to add this clinical classification option for diagnoses associated with certain cancers and spinal stenosis that could require a major procedure.  In addition, under current clinical classifications, certain fracture codes map to surgical clinical categories.  CMS proposes to change the default clinical category to “Non-Surgical Orthopedic” and include the surgical classification option.

The proposed rule also includes several minor technical changes to the SNF Value-Based Purchasing (VBP) Program, but does not include any changes to measurement, scoring, or payment policies. The SNF VBP Program scores SNFs on a single all-cause claims-based measure of hospital readmissions, as required by law, and adjusts payments under the SNF PPS.  CMS proposes to:

  • Align SNF VBP Program regulatory language with previously finalized policies: switching from the currently used Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM) to the new Skilled Nursing Facility 30-Day Potentially Preventable Readmission Measure (SNFPPR) as soon as possible,
  • Apply the 30-day Phase One Review and Correction deadline to the baseline period quality measure quarterly report: CMS has a two-phase review and corrections process for SNFs’ quality measure data that will be made public; under this proposal, SNFs would have 30 days following issuance of baseline period reports to review the underlying claims and measure rate information and submit a correction request, and
  • Establish performance periods and performance standards for upcoming program years: for example, the FY 2023 performance period will be FY 2021, and the baseline period will be FY 2019.