CMS finalizes $3.5B boost in acute hospital spending in new rule

The Trump administration finalized a rule that increases payment rates for general acute care hospitals by up to 2.9% and boosts add-on payments for new technologies in the next federal fiscal year.

The Centers for Medicare & Medicaid Services (CMS) issued a final rule Wednesday that updates the Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System for the 2021 fiscal year. The agency also made several changes on how it will calculate payment weights for Medicare fee-for-service payments.

CMS said that it expects total Medicare spending for acute care inpatient hospital services to increase by about 2.7%, or $3.5 billion, in the next fiscal year that begins in October.

“This rule is another critical step in our effort to modernize the program and strip away bureaucratic barriers between our seniors and the latest innovative treatments,” said CMS Administrator Seema Verma in a statement.

As part of the final rule, CMS approved 13 new technologies that applied for new technology add-on payments under Medicare.

The agency is also continuing new technology add-on payments, which are used to entice hospitals to buy pricey new drugs and medical devices, for 10 technologies. An additional eight technologies that previously earned those add-on payments will no longer be eligible.

In addition, CMS created a new Medicare Severity Diagnosis Related Group that gives a predictable payment for compensating hospitals that administer the pricey cancer treatment called CAR-T cell therapy. The treatment uses a patient’s genetically modified immune cell to treat specific types of cancers, CMS said.

The agency also expanded the add-on payment for antibiotics.

Price transparency

CMS has made several changes to the pricing strategies for hospitals.

Generally, Medicare pays a weighted rate for the relative cost of providing services. “These weights are currently based in large part on the charges that hospitals report to the federal government, which often have little relevancy to the actual rates paid by insurance companies,” the agency said.

Hospitals already must post negotiated rates as part of an effort to boost price transparency. Hospital groups have sued to halt the rule, but a federal judge sided with the Trump administration.

But the final rule requires hospitals to report to CMS the median rate negotiated with Medicare Advantage plans for inpatient services instead of their charge-based data.

“CMS will begin to collect this data in 2021 and will use it in the methodology for calculating inpatient hospital payments beginning in 2024,” the agency said. “These provisions will introduce the influences of market competition into hospital payment.”

CMS also announced it will distribute $8.3 billion in payments to hospitals for uncompensated care, which is a decline of about $60 million compared with the 2020 fiscal year.

“This estimate of total uncompensated care payments reflects CMS Office of the Actuary’s projections that incorporate the estimated impact of the COVID-19 pandemic,” according to a fact sheet on the rule.