2021 IPPS proposed rule: MS-DRG changes and new requirements to report negotiated charges

Wednesday, May 13, 2020

CMS’ fiscal year (FY) 2021 Inpatient Prospective Payment System (IPPS) proposed rule, released May 11, proposes new price transparency requirements focused on reporting of negotiated charges. It also includes a proposed increase to hospital payment rates, the creation of a new Medicare-Severity Diagnosis-Related Group (MS-DRG) for chimeric antigen receptor T-cell (CAR-T) therapy, and ICD-10-CM/PCS code update proposals.

Payment update

According to the proposed rule, CMS will increase operating payment rates by approximately 3.1% for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting Program and are meaningful electronic health record users. In comparison, in the FY 2020 IPPS proposed rule, CMS proposed an approximate increase of 3.2% in operating payment rates

For FY 2021 CMS projects the rate increase, together with other proposed changes to IPPS payment policies, will increase IPPS operating payments by approximately 2.5%. Proposed changes in uncompensated care payments, new technology add-on payments, and capital payments will decrease IPPS payments by approximately 0.4%, according to the proposed rule. Therefore, CMS estimates a total increase in overall IPPS payments of approximately 1.6%.

According to the proposed rule, CMS projects total Medicare spending on inpatient hospital services, including capital, will increase by about $2.07 billion in FY 2021.

Price transparency

CMS is proposing that hospitals report inpatient payer-specific median negotiated rates with Medicare Advantage organizations and third-party payers on the hospital cost report.

Specifically, the agency is proposing that hospitals report:

  • The median payer-specific negotiated charge by MS-DRG for all contracted Medicare Advantage plans
  • The median payer-specific negotiated charge by MS-DRG for all other contracted third-party payers


CMS’ rationale is that because previous rules already require hospitals to publicly report the information, the proposal will not create additional burden for hospitals. The agency also stated that the proposal will help move Medicare fee-for-service reimbursement to a market-based payment system.

According to the FY 2020 Hospital Outpatient Prospective Payment System (OPPS) Policy Changes: Hospital Price Transparency Requirements final rule, starting in 2021 hospitals will be required to make public payer-specific negotiated rates for standard charges in the chargemaster and for 300 shoppable services. The American Hospital Association, the Association of American Medical Colleges, the Children’s Hospital Association, and the Federation of American Hospitals, along with three individual hospitals, filed a lawsuit in December 2019 challenging the requirements.

A separate rule released in 2019, the Transparency in Coverage Proposed Rule, would require payers to make plan-specific, cost-sharing and negotiated rates public. That rule has not yet been finalized. It already faces strong opposition from industry stakeholders such as America’s Health Insurance Plans and would likely face legal challenges if finalized.

Although it’s difficult to predict how those current and potential legal challenges will progress, CMS may be on sound footing with its 2021 IPPS proposals, says Valerie Rinkle, MPA, CHRI, regulatory specialist with HCPro. The proposal is similar to the clinical laboratory fee schedule created by the Protecting Access to Medicare Act of 2014 which is based on weighted average negotiated rates for lab tests.

As CMS suggested in the proposed rule, it’s possible the agency will use this data to reimagine its rate-setting method as early as 2024 and create new national weighted MS-DRG rates, Rinkle says.

“CMS is trying to get off the ‘treadmill’ of hospital charges reduced to cost using hospital cost to charge ratios from the cost reports which results in ever higher gross charges,” she says.

Getting CMS off of this treadmill is long overdue, agrees Jugna Shah, MPH, CHRI, president of Nimitt Consulting, Inc., in Spicer, Minnesota. The need for change has become obvious in recent years and the fact that CMS itself is possibly taking steps toward giving its 35-year-old payment system a facelift is a significant moment in time, she adds.

MS-DRG proposals

CMS is also proposing the creation of a new MS-DRG, 018, specifically for cases involving CAR-T therapies. The new payment group would help to predictably compensate hospitals for their costs in delivering necessary care to Medicare beneficiaries and provide payment flexibility for the future as new CAR-T therapies become available, the rule says.

In determining payment for 018, CMS departed from normal rate-setting by setting aside clinical trial claims as defined by either the presence of Z00.6 (Encounter for examination for normal comparison and control in clinical research program) or standardized drug charges lower than the cost of the current two CAR-T products for diffuse large b-cell lymphoma of $373,000. CMS will also reduce payment by 85% for this MS-DRG when the claim is shown to be for a clinical trial case. The agency departed from normal rate-setting due to data driven advocacy, without which the proposed national unadjusted payment rate of about $240,000 might have only been $135,000, Shah says. While this may still seem like inadequate payment, providers should remember that CMS will still apply all of the usual adjusters and outlier payment is still available, which means reviewing what you charge for all items and services, and specifically the CAR-T product is crucial to understanding overall financial impact, she adds.

Other proposed MS-DRG changes affect hip and knee replacements. The agency is proposing to create two new MS-DRGs, 521 (hip replacement with principal diagnosis of hip fracture with MCC) and 522 (hip replacement with principal diagnosis of hip fracture without MCC).

Currently, these procedures would be assigned to 469 (major hip and knee joint replacement or reattachment of lower extremity with MCC or total ankle replacement) or 470 (major hip and knee joint replacement or reattachment of lower extremity without MCC). Both 469 and 470 trigger episodes of care under the Comprehensive Care for Joint Replacement (CJR) model.

CMS is particularly interested in comments on how the proposed MS-DRGs 521 and 522 would impact the CJR model and whether they should be incorporated into it. Hospitals should take the opportunity to review how the proposed changes might function in practice. Although it makes sense to separate hip fractures from elective replacements, the proposed changes fail to address other longstanding CJR questions, says Ronald Hirsch, MD, FACP, CHCQM, CHRI, vice president of R1 Physician Advisory Solutions in Chicago.

“The removal of both of the replacement surgeries from inpatient only list, and the addition of only outpatient total knee arthroplasty to CJR but not total hip arthroplasty, makes the whole program unwieldy,” he says. “The confusion in the provider community about status and eligibility for CJR is rampant.”

Code updates

As for ICD-10-CM code updates, if all the proposed changes are finalized, coders will see 490 new, 47 revised, and 58 invalidated ICD-10-CM codes. Newly proposed ICD-10-CM codes include options for sickle cell anemia, arthritis, cytokine release syndrome codes to capture complications of CAR-T therapy, and a series of new options for reporting headaches. The entire list of proposed changes to the ICD-10-CM/PCS codes are available in tables 6A-6K and 6P.1a-6P.4a of the rule.

CMS invites the public to comment on all proposals. For more information on the rule, see the Federal Register. Comments are due to CMS no later than 5 p.m. Eastern Standard Time on July 10 as CMS is waiving the 60-day delay in the effective date of the final rule and replacing it with a 30-day delay. This means the final rule may not be out until September 1.