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Medicare proposed rule for FY 2021 IPPS


Medicare Program Hospital FY 2021 Inpatient Prospective Payment Systems Proposed Policy Changes and Payment Rates 

Release date: May 11, 2020
Federal Register publication date: May 29, 2020
Effective date: October 1, 2020
Comments due: July 10, 2020

Per the Centers for Medicare & Medicaid Services (CMS) the proposed rule “focuses the agency’s efforts on a singular objective: transforming the healthcare delivery system through competition and innovation to provide patients with better value and results”. CMS has recognized the significant impact COVID-19 is having on healthcare providers and is therefore limiting its required annual rulemaking to focus primarily on essential policies, updates to Medicare payments to hospitals, and proposals that reduce provider burden. 

FY 2021 Hospital submitted quality data & meaningful EHR user Sole community or Medicare dependent hospital Hospital did NOT submit quality data & NOT a meaningful EHR user
Proposed market basket update 3.0 3.0 3.0
Proposed multi-factor productivity adjustment -0.4 -0.4 -0.4
Proposed adjustment for failure to submit quality data 0.0 0.0 -0.75
Proposed adjustment for failure to be a meaningful EHR user 0.0 0.0 -2.25
Documentation and coding adjustment 0.5 0.0 0.0
   Increase factor 3.1 2.6 -0.4

Other proposed changes in IPPS policy payments, uncompensated care payments, new technology add-on payments, and capital payments will result in an estimated total increase in IPPS payments of approximately 1.6%.

IPPS payment policies include:

  • MS-DRG documentation and coding adjustment: A positive adjustment of 0.5% will be made each year from FY 2018 through 2023.
  • Proposed changes to the new technology add-on payment policy for certain antimicrobial products: CMS is proposing an alternative pathway for certain antimicrobial products based on significant concerns with the ongoing public health crisis represented by antimicrobial resistance.
  • Continuation of the low wage index hospital policy: The continuation of FY 2020 four-year policy to provide an opportunity for certain low wage index hospitals to increase employee compensation by increasing the wage index to low wage index hospitals. This is being done in a budget neutral manner.
  • DSH payment adjustment and additional payment for uncompensated care: The uncompensated care component of the DSH payment will be $7.8 billion which is a decrease of approximately $0.5 billion from FY 2020. Distribution will be based on uncompensated care costs from the FY 2017 Medicare cost report Worksheet S-10. CMS proposes to use the most recent available year of audited Worksheet S-10 data as the basis for distribution.
  • Hospital Readmissions Reduction Program (HHRP): These are payment penalties for excess readmissions for six claims-based outcome measures. The 21st Century Cures Act requires a hospital’s performance relative to other hospitals with a similar proportion of dually eligible Medicare/Medicaid patients be used in the calculation of the payment reduction.
  • Hospital Value-Based Purchasing (VBP) Program: Payment adjustments are based on a hospital’s performance with no new measures added or removed in this proposed rule.
  • Hospital-Acquired Condition (HAC) Reduction Program: A payment penalty of 1% is assessed against the worst-performing quartile hospitals.
  • Hospital Inpatient Quality Reporting (IQR) program: IQR is a pay-for-reporting quality program that reduces payment for hospitals that do not meet program requirements.

    CMS is proposing to phase in a gradual increase in the number of quarters of eCQM (electronic Clinical Quality Measure) data required which will become a full year in FY 2023. CMS also proposes to begin publically reporting eCQM measure results in late 2022.
  • PPS-exempt Cancer Hospital Quality Reporting Program: CMS is proposing to refine two existing program measures and adopt an updated calculation methodology on one measure. CMS is also proposing to publicly display the refined versions of the measures beginning in the fall of CY 2022.
  • Medicare and Medicaid Promoting Interoperability programs: This program encourages eligible professionals and eligible hospitals to adopt, implement, upgrade, and demonstrate meaningful use. This rule is also proposing to use a minimum of any continuous 90-period EHR reporting period in CY 2022 for new and returning participants.
  • Market-based MS-DRG Relative Weight Proposed Data Collection and Potential Change in Methodology for Calculating MS-DRG Relative Weights:

    To advance the requirements of promoting healthcare choice and competition and improving price and quality transparency this rule is proposing hospitals report in the Medicare cost report (1) the hospital’s median payer-specific negotiated charges for inpatient services that the hospital has negotiated with all its Medicare Advantage (MA) payers by MS-DRG and (2) the median payer-specific negotiated charges for inpatient services that the hospital has negotiated with all of its third-party payers, which would include MA organizations, by MS-DRG. The reporting requirement would apply to cost reporting periods ending January 1, 2021 or later. CMS is also asking for comments about potentially changing the methodology for calculating MS-DRG relative rates to incorporate this market-based information for FY 2024.  

If you have any questions regarding the information in this article please contact Ellen Donahue at

Source: Medicare Program: Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2021 Rates; Quality Reporting and Medicare and Medicaid Promoting Interoperability Programs Requirements for Eligible Hospitals and Critical Access Hospitals

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