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CMS Releases FY 2022 IPPS Final Rule

The Centers for Medicare & Medicaid Services (CMS) on Aug. 2 released its fiscal year (FY) 2022 Inpatient Prospective Payment System (IPPS) final rule, which includes payment and quality reporting provisions.

The rule does not finalize provisions on new residency program slots, calculation of organ acquisition costs, or using Section 1115 waiver days to determine Medicare disproportionate share hospital (DSH) payments. The agency intends to address these provisions in future rulemaking.

Key provisions of the rule are summarized below; follow the links here to jump to a subsection:

Payment Rates

CMS will increase operating payment rates for general acute care hospitals by 2.5 percent. This payment update is a result of a market basket increase of 2.7 percent reduced by a 0.7 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by legislation.

Due to a drop in Medicare utilization in FY 2020 resulting from the COVID-19 pandemic, which could distort rate-setting for FY 2022, CMS finalizes its proposal to use FY 2019 claims data and FY 2018 cost report data to set payment rates and weights for Medicare severity diagnosis-related groups (MS-DRGs).

Medicare DSH Payments

For FY 2022, CMS estimates total Medicare DSH payments will be $10.7 billion — $1.4 billion less than FY 2021. Of these payments, $7.2 billion will be based on uncompensated care — $1.1 billion less than UC payments in FY 2021.

CMS will continue using one year of UC data from worksheet S-10 of the Medicare cost report to calculate each hospital’s share of UC in the DSH calculation. For FY 2022 UC-based DSH payments, CMS will use FY 2018 cost report data, which has been audited.

CMS did not finalize a proposal to limit the types of Section 1115 waiver days included in calculating a hospital’s Medicare disproportionate patient percentage (DPP) and notes that, due to the volume of comments it received, the agency will address this issue in separate rulemaking. Under the proposed rule, CMS would change the definition of patients who are deemed Medicaid-eligible for inclusion in the Medicaid fraction of a hospital’s DPP, which is a hospital’s number of Medicaid-eligible days over total patient days. The DPP is used to determine eligibility for Medicare DSH payments and to calculate a hospital’s empirically justified payment. The proposed change would exclude from the Medicaid fraction patient days for which hospitals received a payment from a UC pool and days associated with patients who receive premium assistance under a Section 1115 demonstration program. America’s Essential Hospitals opposed this proposal in its comments on the rule.

Repeal of Market-based Data Collection, MS-DRG Relative Weights

CMS finalizes its proposal to repeal the requirement that a hospital include on the Medicare cost report the median payer-negotiated inpatient services charges for Medicare Advantage organizations by Medicare severity diagnosis related groups (MS-DRG), for cost reporting periods ending on or after Jan. 1, 2021.

The agency also will repeal the market-based MS-DRG relative weight methodology that would have used these data to set relative Medicare payment rates for hospital procedures beginning in FY 2024. Rather, CMS will continue using the existing rate-setting methodology for FY 2024 and subsequent years.

Graduate Medical Education

CMS did not finalize proposals implementing the graduate medical education (GME) provisions in the Consolidated Appropriations Act (CAA) of 2021, which added 1,000 new teaching slots beginning in FY 2023.

In the proposed rule, CMS further defined the types of hospitals that should receive priority for these slots. CMS also proposed to distribute 200 total slots per year over a five-year period and to cap the number of additional residency positions a hospital can acquire in any year to one full-time equivalent. Additional rulemaking on other provisions of the CAA related to the accidental triggering of GME caps and rural training track programs.

America’s Essential Hospitals commented on these provisions, including a request that CMS increase the limit on the number of residency positions available to a teaching hospital in a year. The agency received a large number of comments and noted it will address these provisions in separate rulemaking.

Organ Acquisition Costs at Transplant Centers

CMS had proposed to change the calculation of reimbursable organ acquisition costs at transplant centers and organ procurement organizations to only include costs of organs that are excised and transplanted into a Medicare beneficiary. Medicare’s longstanding policy prior to this proposal had been to pay for the cost of excising organs under the assumption that most of the organs will ultimately be transplanted into a Medicare beneficiary.

CMS will address this proposal in future rulemaking.

Quality Reporting

In the final rule, CMS provides estimated and newly established performance standards for the Hospital Value-Based Purchasing (VBP) Program. In addition, it finalizes with slight modifications updates for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, the Hospital VBP Program, and the Hospital-Acquired Condition Program.

Notably, CMS finalizes adoption of a cross-program measure suppression policy for certain program data affected by the COVID-19 public health emergency (PHE). Further, as proposed, the agency will not award a total performance score for the Hospital VBP Program to any hospital for FY 2022 program year, but rather will award each hospital a value-based incentive payment equal to the amount withheld for the fiscal year (i.e., 2 percent).

Among the five measures adopted in the Hospital IQR Program is a COVID-19 health care personnel vaccination measure. The measure includes a shortened reported period, from Oct. 1 through Dec. 31, affecting the FY 2023 payment determination and quarterly reporting for subsequent years.

The rule also finalizes changes to the reporting of electronic clinical quality measures (eCQMs) in the IQR Program.

Extension of New COVID-19 Treatments Add-on Payment

In November 2020, CMS established the New COVID-19 Treatments Add-on Payment (NCTAP) to mitigate any potential disincentives for hospitals to provide new COVID-19 treatments during the PHE. CMS finalizes a proposal to extend the NCTAP for certain technologies through the end of the fiscal year in which the PHE ends.

Medicare Shared Savings Program

CMS finalizes a change to the Medicare Shared Savings Program to allow eligible accountable care organizations to remain in the BASIC track for performance year 2022, forgoing the automatic advancement along the program’s glide path with increasing levels of risk.

Promoting Interoperability Program

CMS includes several finalized policies for the Medicare Promoting Interoperability Program, including:

  • a minimum reporting period of any continuous 90 days in calendar year (CY) 2023 for new and returning participants (eligible hospitals and critical access hospitals) and any continuous 180 days for CY 2024;
  • continuing to make optional the query of prescription drug monitoring program measure but increasing the available bonus points from five to 10;
  • requiring reporting on all four existing public health and clinical data exchange objective measures — syndromic surveillance reporting, immunization registry reporting, electronic case reporting, and electronic reportable laboratory result reporting;
  • increasing the minimum required score to be considered a meaningful electronic health record user from 50 to 60 points (out of 100); and
  • other modifications and additions to existing objects and measures, including adoption of two new eCQMs in CY 2023 and removal of four eCQMs in CY 2024.

RFI: Closing the Health Equity Gap in Hospital Quality Programs

Through a request for information (RFI) in the proposed rule, CMS sought to improve data collection to better measure and analyze disparities across programs. The RFI asked for comment regarding potential stratification of quality measure results by race and ethnicity; improvement of demographic data collection; and potential creation and confidential reporting of a “hospital equity score.” The equity score would summarize hospital performance across multiple social risk factors (including race, ethnicity, and dual eligibility for Medicare and Medicaid).

In its comments on the proposed rule, the association urged CMS to encourage efforts to collect demographic data in a culturally appropriate and standardized way; work with stakeholders to ensure a measure of hospital equity accurately reflects the ongoing efforts by essential hospitals to address the specific needs of their patient population; and examine social risk factors beyond dual eligibility and race and ethnicity to inform hospital efforts to identify disparities. CMS reviewed the comments from stakeholders and will consider the input in developing future policies.

America’s Essential Hospitals is analyzing the final rule and will send members a detailed Action Update in the coming days.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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