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IPPS 2021 Final Rule Summary [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Jimmy Mendez, Senior Manager at BESLER, to discuss highlights from the 2021 IPPS Final Rule.

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Highlights of this episode include:

  • Details on 2021 IPPS Final Rule and how it can affect a hospital’s Medicare reimbursement.
  • How much did the Market Basket Rate increase in this year’s final rule?
  • How the 8.29 billion in Uncompensated Care will be distributed in FY 2021.
  • A look at important developments in Wage Index.
  •  A review of the new MS-DRGs being added for FY 2021.
  • And more…

For a full expert analysis on the important changes in the FY 2021 IPPS Final Rule, download BESLER’s 2021 IPPS Final Rule: Key Points. 

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. As we do every year, BESLER releases a summary of the IPPS Final Rule. And to give us some highlights of this year’s rule, I’m joined by Jimmy Mendez who is a Senior Manager on our Reimbursement Services team here at BESLER. Jimmy, welcome back to the show.

Jimmy Mendez: Thank you, Mike. It’s good to be here.

Mike: Jimmy, the release of the IPPS Final Rule for 2021 was delayed several weeks due to COVID-19 this year. What were some of the most anticipated pieces of information?

Jimmy: Well, as usual, some of the key areas are the mass market basket rate increase, the uncompensated care figures, and, of course, the wage index-related information.

Mike: So let’s walk through those. What happened to the market basket rate?

Jimmy: The market basket rate increase will be 2.4% for fiscal year 2021. This will be the update for providers that submit quality data and are meaningful EHR-users. This figure is reduced by 0.6% if quality data is not submitted, and reduced an additional 1.8% if the provider is not a meaningful EHR-user

Mike: Jimmy, what do the figures for uncompensated care look like?

Jimmy: The total to be distributed in uncompensated care for FY 2021 is 8.29 billion. This is just slightly down from the 8.35 billion distributed in FY 2020. However, the proposed FY 2021 amount had been 7.817 billion. Factor two of the calculation is the uninsured estimate provided by CMS’s Office of the Actuary. That estimate was 67.86% in the proposed final rule, but it was adjusted to 72.86% in the final rule. The updated figure takes into consideration the effects of COVID-19, and, of course, this is what contributed to the amount in the final rule being 8.9 billion and that being higher than what was proposed initially. For factor three of the uncompensated care calculation, CMS will use line 30 from the 2017 cost report as 2017 is the most recently available single year with audited S-10 data. So for future years, CMS will continue to use the most recent available single-year audited S-10 data.

Mike: Were there any interesting developments for wage index?

Jimmy: Well, there was some movement in the designations of numerous counties. There are 34 counties designated as urban that will now be rural, 47 counties that were previously rural that will now be urban, and 19 counties will move to another CBSA or to a new or modified CBSA. But one must keep in mind that there is a 5% cap on any decrease in a hospital’s wage index from the hospital’s final wage index in fiscal year 2020. In addition, approximately 285 hospitals will benefit from the rural floor rule being applied. These are urban area hospitals of the state whose wage index is below the area wage index applicable to hospitals located in rural areas of that state. Their wage index will be set at the rural area level.

Mike: So when you think about the whole rule, Jimmy, what are some areas of concern?

Jimmy: Well, an important one relates to Medicare bad debts. 42 CFR 413.89 discloses the requirements for a Medicare bad debt as does the provider reimbursement manual or PRM chapter 3. The PRM is more detailed and is what hospitals are accustomed to complying with based on its’ application by the respective max. The purpose of the final rule appears to codify the PRM chapter 3 requirements, most of which will apply retroactively. There are a couple of requirements that I wish to accentuate. One pertains to the process of determining that a non-dual eligible beneficiary is indigent and thus exempt from the reasonable collection effort requirements. The rule stipulates the provider must not use a beneficiary’s declaration of their inability to pay their medical bills or deductibles as sole proof of indigents for medical insurance. The provider must take into account the analysis of both the beneficiary’s assets, only those convertible to cash and unnecessary for the beneficiary’s daily living, and income and must determine that no source other than the beneficiary would be legally responsible for the beneficiary’s medical bill such as a legal guardian or a state Medicaid program. Another pertains to how bad debts are reported on the financial statements. For cost reporting periods beginning on or after October 1st, 2020, Medicare bad debts must not be written off to a contractual allowance account but must be charged to an uncollectable receivables account that results in a reduction in revenue.

Mike: Were there any other issues that caught your attention?

Jimmy: Well, Mike, there are 12 new MS-DRGs including MS-DRG 18, Chimeric Antigen Receptor T-cell Immunotherapy, which has the biggest the DRG weight of 37.33 surpassing the DRG weight of MS-DRG 01 heart transplant. Two of the new MS-DRG, numbers 521 and 522, relate to hip replacement and are subject to the post-acute transfer policy. Other items of note include the fact that stem cell acquisition costs will be reimbursed on a reasonable cost basis effective for cost reporting period beginning on or after 10/1/2020. Hospitals are not required to be Medicare-certified transplant centers like solid organ transplant centers are required to be. The determination of Medicare share of the stem cell acquisition costs will be somewhat different than that employed by solid organs, but the mechanics of how it will work are not entirely clear yet. Also, a new requirement relates to market-based MS-DRG data collection and change in methodology for calculating MS-DRG relative weights. Hospitals will be required to report on their Medicare costs report the median payer-specific negotiated charge that the hospital has negotiated with all of its Medicare Advantage organization payers by MS-DRG for cost reporting periods ending on or after January 1st, 2021.

Mike: And you previously mentioned that COVID-19 had an impact on factor two of the uncompensated care calculation. Were there any other areas of the final rule that stood out as being impacted by COVID-19?

Jimmy: Well, Mike, it is probable that it impacted the new technology add-on payment as it pertains to qualified infectious disease products that qualified under an alternative pathway. It seems some anti-microbial drugs will receive conditional approval for a payment even if the product has not yet been granted FDA marketing authorization.

Mike: Thanks, Jimmy. That was a great summary of some of the key highlights. To read other highlights and the rest of our report, you can go to to access the entire report. Jimmy, thanks for coming back to the podcast and talking to us about this year’s IPPS Final Rule.

Jimmy: Thank you, Mike. Thanks for having me.

The Hospital Finance Podcast

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