The Centers for Medicare & Medicaid Services (CMS) has released its proposed rule to update the Medicare acute inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2020.  Notably, the proposed rule includes a number of provisions that aim to “unleash medical innovation” by expediting access to novel medical technology – and the agency signals that similar reforms are contemplated for the hospital outpatient prospective payment system (OPPS).  CMS will accept comments on the proposed rule through June 24, 2019.

IPPS Payment Update

CMS projects total Medicare IPPS spending will increase by about $4.7 billion in FY 2020 under the proposed rule.  The projected market basket update is 3.2%, which is subject to a -0.5 percentage point productivity adjustment.  CMS also is making a statutory +0.5 percentage point adjustment to the standardized amount. The proposed standardized amount is $6,287 for hospitals that submit quality data and are meaningful electronic health record (EHR) users, with reduced payment to hospitals that do not report quality data and/or are not meaningful EHR users.  Specific hospital payments can be impacted by other factors, including penalties for excess readmissions under the Hospital Readmissions Reduction Program (HRRP), poor performance under the Hospital-Acquired Condition (HAC) Reduction Program, and adjustments under the Hospital Value-Based Purchasing (VBP) Program.  For instance, CMS estimates that 2,599 hospitals will have their base operating payments reduced under the HRRP by a total of approximately $550 million in FY 2020.

Promoting Access to Innovative Devices

CMS includes proposals that are intended to improve beneficiary access to innovative medical technologies, and the agency solicits comments on additional changes and clarifications that could be adopted either in FY 2020 or beyond. Specifically:

  • CMS proposes an alternative IPPS new technology add-on payment (NTAP) pathway for certain “transformative” medical devices. Specifically, if a new medical device is part of the Food and Drug Administration’s (FDA) Breakthrough Devices Program and receives FDA marketing authorization, the device would be considered new for NTAP purposes and it would not need to demonstrate substantial clinical improvement.  In other words, the device would only need to meet the NTAP cost criterion.  This policy would apply to technology add-on payments for FY 2021 and subsequent fiscal years.  CMS is not proposing an alternative inpatient NTAP pathway for drugs at this time.
  • CMS proposes to increase NTAP payments for discharges beginning on or after October 1, 2019. Currently the NTAP payment is set at the lesser of:  (1) 50% of the costs of the new medical service or technology; or (2) 50% of the amount by which the costs of the case exceed the standard diagnosis related group (DRG) payment.  Acknowledging that this payment may “no longer provide a sufficient incentive for the use of new technology,” CMS is proposing to increase the NTAP payment to the lesser of: (1) 65% of the costs of the new medical service or technology; or (2) 65% of the amount by which the costs of the case exceed the standard DRG payment.
  • CMS seeks comments on potential changes and/or clarifications to the substantial clinical improvement criteria for evaluating applications for both the IPPS NTAP and the OPPS transitional pass-through payment for devices. The agency is considering a number of revisions for FY 2020 (or calendar 2020 in the case of the OPPS changes), along with broader reforms for future years. For instance, CMS is considering specifying the types of evidence or study design that would be considered by the agency, including real-world data, and clarifying that the substantial clinical improvement requirement can be met if the technology would be “broadly adopted.”

Other Proposed IPPS Policies

CMS proposes to revise the wage index methodology to “reduce the disparity between high and low wage index hospitals.  Under this policy, CMS would increase the wage index values for certain hospitals with low wage index values (below the 25th percentile wage index value).  To maintain budget neutrality, CMS would decrease the wage index values for certain hospitals that currently have high wage index values (above the 75th percentile wage index value).  CMS proposes a one-year transition policy under which it would establish a 5% cap on any decrease in a hospital’s wage index in FY 2020 compared to its final wage index for FY 2019.

Additionally, CMS proposes to update policies for the Hospital Inpatient Quality Reporting (IQR) Program, Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, the Hospital-Acquired Condition (HAC) Reduction Program; and the Medicare and Medicaid Promoting Interoperability Program.  The proposed rule also addresses, among many other things:  proposed changes to MS-DRG classifications; updates to graduate medical education, critical access hospital, and uncompensated care payments; and limits on payment increases for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis.

LTCH Rates and Policies

With regard to LTCHs, CMS expects LTCH-PPS payments to increase by about 0.9% ($37 million) in FY 2020 if the proposed rates and policies are finalized.  CMS proposes to update the standard federal rate for FY 2020 by a market basket increase of 3.2%, less a productivity adjustment of 0.5%.  The proposed standard federal rate includes an area wage budget neutrality factor of 1.0064747.  The proposed FY 2020 rule includes a temporary, one-time budget neutrality adjustment in connection with elimination of the “25 Percent Rule” in the final FY 2019 rule; CMS also anticipates making a permanent, one-time adjustment in FY 2021. The proposed FY 2020 standard federal rate is $42,951, compared with the FY 2019 standard federal rate of $41,559.  For LTCHs that fail to submit data for the LTCH Quality Reporting Program (QRP), the standard federal payment rate would be $42,114.  CMS expects about 71% of LTCH cases to meet the patient-level criteria to be paid based on the LTCH PPS standard federal payment rate, rather than the lower “site neutral” payment rate.  For FY 2020, the transition period for site-neutral cases will end and LTCH site neutral payment rate cases will be paid fully based on the site neutral payment rate.  CMS estimates that aggregate payments for LTCH site neutral payment rates would decrease by approximately 4.9%.

The proposed LTCH-PPS fixed-loss amount for high cost outlier cases would be set at $29,997, up from $27,121 in FY 2019.  The proposed fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate would be $26,994, compared with $25,743 in FY 2019.  CMS also proposes updates to LTCH QRP quality measures, data elements, and data collection and public reporting requirements.