United States: CMS Issues Final FY 2020 Medicare Ipps/Ltch Update, Including New Medical Device Technology Policies

Last Updated: August 30 2019
Article by Gail Daubert, Paul Pitts and Debra A. McCurdy

The Centers for Medicare & Medicaid Services (CMS) has finalized Medicare acute inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS) rates and policies for fiscal year (FY) 2020, which begins October 1, 2019. Key provisions of the final rule are outlined below.

IPPS Payment Update

CMS projects total Medicare IPPS spending in FY 2020 will increase by about $3.8 billion under the final rule taking into account operating, capital, new technology, and low volume hospital payments. The IPPS market basket update is 3.0%, which is reduced by a 0.4 percentage point productivity adjustment and a +0.5 percentage point statutory adjustment. The final FY 2020 standardized amount is $6,263.74 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, poor performance under the Hospital-Acquired Condition Reduction Program, and adjustments under the Hospital Value-Based Purchasing Program.

Promoting Access to Innovative Devices and Antimicrobial Products

CMS adopted several policies intended to improve beneficiary access to innovative medical technologies in the IPPS setting for FY 2020.

  • CMS adopted an alternative IPPS new technology add-on payment (NTAP) pathway for certain "transformative" medical devices beginning in FY 2021. 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 (SCI). In other words, the device would only need to meet the NTAP cost criterion
  • In response to comments, CMS extended the alternative NTAP pathway to antimicrobial products designated by the FDA as a Qualified Infectious Disease Product (QIDP), but not to technologies approved under an FDA expedited program for drugs.
  • CMS adopted its proposed increase in NTAP payments for discharges beginning on or after October 1, 2019. Specifically, CMS is increasing the NTAP payment to the lesser of: (1) 65% (up from 50%) of the costs of the new medical service or technology; or (2) 65% (rather than 50%) of the amount by which the costs of the case exceed the standard DRG payment. In the case of a QIDP, the NTAP amount rises to 75%.
  • CMS clarified the SCI criterion for evaluating NTAP applications and provided examples of information sources and outcomes that may be used to demonstrate SCI. CMS will continue to consider comments received on the proposed rule's solicitation of input on longer-term changes to related CMS policies.

Note that CMS also has proposed similar proposals to promote innovative medical technologies as part of the pending calendar year 2020 Medicare hospital outpatient PPS proposed rule.

Wage Index Revisions

CMS finalized revisions to the wage index methodology that are intended to reduce the disparity between high and low wage index hospitals. CMS is increasing the wage index values for certain hospitals with low wage index values (below the 25th percentile wage index value). CMS will apply this adjustment for at least four years, beginning in FY 2020, "to allow employee compensation increases implemented by these hospitals sufficient time to be reflected in the wage index calculation." Under the final rule, CMS is offsetting this increase in IPPS payments through a uniform budget neutrality adjustment applied to the standardized amounts for all hospitals; CMS did not finalize its proposal achieve budget neutrality by decreasing the wage index for hospitals that currently have high wage index values. CMS adopted a one-year transition policy under which it cap at 5% the decrease in a hospital's wage index from the hospital's final wage index in FY 2019. CMS also adopted revisions to the calculation of the rural floor.

Other IPPS Policy Changes

The final rule also updates, among other things: Medicare inpatient hospital quality program policies; MS-DRG assignments; Medicare graduate medical education for teaching hospitals; payments to critical access hospital; uncompensated care payments; and limits on payment increases for certain hospitals exclude from the IPPS that are paid on a reasonable cost basis.

LTCH Rates and Policies

CMS expects LTCH-PPS payments to increase by about 1%, or $43 million, in FY 2020 under the final rule. The standard federal rate for LTCHs that submit required quality data is $42,677.64 for FY 2020, up from $41,558.68 for FY 2019, while the standard federal payment rate for LTCHs that fail to submit quality reporting data is $41,844.90 in FY 2020 (note that Table 1E appears to have a transposed number). The increase to the standard federal payment reflects a 2.5% annual update, offset by a one-time budget neutrality adjustment factor of 0.999858 for eliminating the "25-percent" threshold policy and an area wage budget neutrality factor of 1.0020203. CMS expects about 71% of LTCH cases to meet the established patient-level criteria to be paid based on the LTCH PPS standard federal payment rate, rather than the lower "site neutral" payment rate. CMS projects that payments for such PPS standard federal payment rate cases will increase by approximately $91 million (2.7%). On the other hand, CMS estimates that aggregate payments for LTCH site neutral payment rate cases will fall by approximately 5.9% (or -$49 million).

The final FY 2020 LTCH-PPS fixed-loss amount for high cost outlier cases is $26,778, down from $27,121 in FY 2019. The fixed-loss amount for high cost outlier cases paid under the site neutral payment rate is $26,473 in FY 2020, compared with $25,743 in FY 2019. In the final rule, CMS also adopted updates to LTCH Quality Reporting Program measures, data elements, and data collection and public reporting requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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