A key objective is to enable updates to the MS-DRG payment rates that are no longer dependent on gross charges billed by hospitals that are reduced to cost using hospitals' cost report data.
Included in the FY 2021 inpatient prospective payment system (IPPS) proposed rule are proposals for hospitals to report their negotiated payment rates.
CMS considers these new proposals as an evolution of the existing requirements concerning price transparency.
CMS states that its proposals are in response to two Executive Orders: Executive Order 13813, Promoting Healthcare Choice and Competition Across the United States, and 13890, Protecting and Improving Medicare for Our Nation's Seniors.
A key objective in the proposals is to enable updates to the MS-DRG payment rates that are no longer dependent on gross charges billed by hospitals that are reduced to cost using hospitals' cost report data.
CMS proposes to collect data from PPS hospitals through their annual cost reports. CMS asserts that this reporting will not add much burden because hospitals are already required to report similar information on their websites for the price transparency requirements CMS previously finalized effective January 1, 2021.
CMS would require that hospitals report the median Medicare Advantage (MA) negotiated payment rates by MS-DRG for all their MA contracts and the median commercial payer negotiated payment rates by MS-DRG for all their commercial contracts.
Hospitals would crosswalk MA and commercial payment rates other than MS-DRG rates, such as per diems or case rates, to the Medicare MS-DRGs when reported on the cost report. Hospital reporting would begin for cost reporting periods ending on or after January 1, 2021.
CMS proposes using the median MA rates for updating the MS-DRG payment system for FY 2024, but it is alternatively considering using rates for all payers (both MA and commercial payers) or some other approach that would reflect relative market-based payments by MS-DRG.
CMS acknowledges that the negotiated rates are not the final payment on most accounts, yet CMS proceeds with a proposal for using the contract rates rather than actual reimbursement.
Contract rates are often significantly different than final reimbursement due to common contract provisions such as carve-outs related to expensive devices and drugs.
CMS seeks comment on these issues and the burden of calculating and submitting a median actual reimbursement amount for MA organizations and for all other third-party payers as compared to calculating and submitting the median negotiated rates for MA organizations and commercial payers by MS-DRG.
To help inform advocacy regarding these proposals, hospitals should compare negotiated rates in their contracts with final reimbursement under the terms of their contract inclusive of carve-out and outlier payments.
Both final payment and negotiated rates can be crosswalked to MS-DRGs, so which would be better for CMS to use as it intends? What about specialty pharmacies where certain expensive drug costs are no longer included in negotiated rates or hospital payment at all?
CMS does not discuss capitated rates as these would be difficult to crosswalk to MS-DRGs.
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Editor's note: This article has been adapted from the HCPro Revenue Cycle Advisor's "Note from the instructor—New Technology and Price Transparency."
Are you getting all the CMS payment you can get for new technologies? Experience underscores that the answer is likely no. So, what are hospitals to do?
First, you must check if you furnish any of the 18 technologies that qualify in FY 2020 for add-on payments and understand the potential for payment beyond the fully adjusted MS-DRG. Achieving any add-on payment is first and foremost contingent on using the correct ICD-10-PCS code on the claim. It is important to build a process to ensure correct codes.
Achieving the maximum add-on payment available is dependent on the hospital's pricing policy for the technology. CMS updated the formula for FY 2020 by upping the maximum available from 50% of the cost of the technology to 65%. For certain antimicrobial-resistant drugs, the maximum is 75% of the cost of the technology.
Let's assume a patient case groups to MS-DRG 913 for Traumatic Injury with MCC with a national unadjusted payment of $9,082 and that the hospital's charges, including the blood thinner reversal agent AndexXa® with a usual drug markup of 110%, total $67,012. CMS will multiply the total charges of $67,012 by the example hospital's overall cost-to-charge ratio (CCR) of 0.25 to calculate an estimated cost of $16,753. CMS will then subtract the MS-DRG payment of $9,082 and pay up to 65% of the residual cost, up to the maximum of $18,281.
The add-on payment in this example would be $4,986—well below the published maximum. If the hospital had marked up the technology based on their CCR, the total charges would be $109,198 times 0.25 less the MS-DRG times 65% for an add-on payment of $18,218—just shy of the cap of $18,281.
It is reasonable for hospitals to adjust their markup policies while items have CMS' new technology or outpatient OPPS pass-through payment status, which lasts three years. Once expired, the markup can revert back to the usual practice. CMS states in the 2006 OPPS final rule (70 Federal Register 68654):
We believe that hospitals have the ability to set charges for items properly so that charges converted to costs can appropriately account fully for their acquisition and overhead costs …
In the Provider Reimbursement Manual Part 1, Section 2202.4, Charges, CMS defines charges by writing:
Charges refer to the rates established by the provider for services rendered. Charges should be related consistently to the costs of the services and uniformly applied to all patients whether inpatients or outpatients. All patients' charges used in the development of apportionment ratios should be recorded at the gross value: i.e., charges before the application of allowances and discounts deductions.
CMS acknowledges paying hospitals much less than anticipated for such technologies over the last two decades. In today's environment of price transparency, hospitals may be afraid of receiving bad press if their prices for high-cost new technologies are perceived as distorted. Hospitals should price new technologies using their acquisition cost divided by their overall CCR.
Hospitals can make a discount prior to billing commercial insurances pursuant to the Section 2202.4 citation above, so negotiated payer contract pricing is not an excuse to price the technology less than necessary for appropriate payment.
The rationale for a CCR-based price is that it comports with CMS' formula and prevents cost shifting from Medicare to other payers, especially since Medicare will not even pay for the acquisition cost of the technologies. So, hospitals should investigate their pricing policies for new technologies to ensure they aren't leaving money on the table!
The inpatient prospective payment system provides for a new technology add-on payment, but it is vital for hospitals to understand the formula CMS uses to calculate it.
The inpatient prospective payment system (IPPS) that CMS and many state Medicaid payers as well as commercial payers rely upon is not capable of appropriately paying for the high costs of new technology, particularly breakthrough drugs.
As of 2001, the IPPS provides for a new technology add-on payment (NTAP) that pays an amount above and beyond the DRG payment for qualifying new technologies that meet CMS criteria.
Yet most hospitals do not understand that this is a formula that pays the lesser of a calculated amount up to the cap that CMS establishes—which, to date, has been 50% of the cost of the new technology. This means the hospital, at best, receives payment for only one-half of the acquisition cost. At prices potentially measured in millions of dollars for cell and gene therapies waiting for FDA approval, this is woefully inadequate payment.
The NTAP cap means that if a drug that costs $250,000, for example, is administered in the inpatient setting, the maximum the hospital could receive in payment under the IPPS would be $125,000. Most hospitals cannot absorb a cost of $125,000 with no opportunity for further payment.
Thus, it is important to understand the formula CMS uses. CMS takes the total covered billed charges from the inpatient claim and multiplies that amount by the hospital’s overall cost-to-charge ratio (CCR).
CMS appears to recognize the problem, at least to some extent, as evidenced in the fiscal year 2020 IPPS proposed rule in which CMS has proposed to raise the cap from 50% to 65%. However, this change does not help hospitals because it preserves the formula that calculates cost from billed charges and then pays up to the cap.
The new cell therapy designed to treat diffuse large B-cell lymphoma, called chimeric antigen receptor T-cell therapy—CAR-T for short—is the current technology impacted the most by this problematic formula. The cost for this technology from both its manufacturers is $373,000. The DRG 016 payment at the national standard amount, not adjusted for wage, medical education, or disproportionate share for this year, is $39,951; for 2020, it is proposed to be $42,493.
For the first time in history, the cost of a single item is multiple times the cost of the patient care services paid via the DRG. In other DRGs, CMS reports that the proportion of device and drug payments can rise to a high of 65%, but CAR-T is around 8.7 times the DRG payment amount.
CMS has solicited comments about its suggested alternatives in the IPPS rule regarding CAR-T payment, such as recognizing the actual acquisition cost and/or paying a uniform NTAP rather than using the CCR to calculate cost from charges. Hopefully, many hospitals and associations, including patient advocacy groups, will comment. But these issues beg the question whether the IPPS is obsolete—at least for these new technologies.
The pace and scope of change in healthcare affects many hospital services. In particular, hospital outpatient rehabilitation services is one such affected.
Physical, occupational, and speech therapy services live under the umbrella of hospital outpatient rehabilitation services, provided by credentialed professionals under treatment plans ordered by clinicians that define the type, frequency, and duration of services.
Hospital leaders may not be aware that the Medicare fee-for-service Part B payment for these outpatient therapy services is not through the hospital Outpatient Prospective Payment System (OPPS), but rather through the Medicare Physician Fee Schedule (MPFS) payment system.
It is true that these services are billed on hospital claims under the hospital’s national provider identification (NPI) number, but because the Medicare statute has a separate and unique benefit for outpatient rehabilitation services, the payment rate applicable to both freestanding therapy offices or clinics and to outpatient hospitals is via the MPFS.
Pursuant to MACRA, the MPFS payment rates are "frozen," meaning they do not receive any inflationary update, between 2020 and 2026. Instead, in order for clinicians and therapists to earn year-over-year increases for their services outside of increasing the number of patients and/or services, they will have to report under one of the two tracks provided by the Quality Payment Program (QPP) established by MACRA—that is, either report under the Merit-based Incentive Payment Program, or MIPS, or be qualified under an Advanced Alternative Payment Model, or APM.
In fact, unless a therapist meets the low-volume threshold exception, his or her MPFS payments will be reduced by 5% in 2020, 7% in 2021, and 9% annually thereafter if the therapist does not satisfactorily report. The inflationary updates that resume in 2026 for those that do not participate in the QPP is a measly 0.25% after the six years of the payment freeze.
It appears that CMS does not anticipate applying these annual reductions to therapy MPFS payments paid to hospitals, but this is unclear as CMS does not address therapy services paid to outpatient hospitals in the proposed rules.
The 2019 MPFS proposed rule has a provision for therapists who are in private practice to participate in MIPS, but there is no discussion of how hospital-employed therapists can participate.
Furthermore, even if CMS had thought to address how hospital-employed therapists could participate, the problem is that therapist NPIs are not reported on hospital claims when hospitals bill for their services.
This is likely an example of the unintended consequences of legislation impacting hospitals and CMS not thinking through all the areas that may be affected. It was important for hospital leaders to comment to CMS (the comment period closed on September 10) and question if it was reasonable to expect hospitals to have a six-year payment rate freeze for outpatient hospital rehabilitation services.
Coverage policies from Medicare are increasing in number and complexity. Now is the time to implement preservice coverage analysis teams as part of your overall revenue integrity plan.
CMS continues to develop national coverage determinations (NCD) and its Medicare Administrative Contractors (MAC) continue to develop local coverage determinations (LCD) for many high-dollar procedures.
These include treatments such as cardiac PET scans, bariatric surgery, hyperbaric oxygen therapy, pacemakers, joint replacements, cardiac defibrillators, and neurostimulators.
Coverage policies often require patients to fail months of lower-cost interventions before the more invasive and expensive procedures are covered. This is now the focus of Recovery Auditor scrutiny, as well as new MAC-initiated Targeted Probe and Educate (TPE) audits: Denials occur when provider medical records fail to prove coverage of these high-cost procedures.
Hospitals are likely to suffer denials because they do not routinely validate coverage in advance of performing a procedure by obtaining required documentation of failed and conservative treatments from physicians. This supporting documentation is expected to be in the hospital’s medical record as well as the treating physician’s medical record.
Denials are likely to become costly for hospitals once auditors discover a trend of vulnerability. This is a compelling reason for facilities to become proactive now and head off denials for future procedures.
Savvy hospital leaders will want to establish new policies by collaborating with the medical executive committee (MEC) and forming a preservice coverage analysis team to:
Quantify past denials and whether they were successfully appealed
Assess the most common procedures that require preservice coverage analysis based on the Medicare NCDs and/or LCDs
Identify the physicians who frequently perform those procedures
Review a sampling of records for documentation gaps
Meet with physicians, especially MEC leaders, to explore what processes will mitigate those gaps
Identify who will request records from clinicians, including other specialists and/or the primary care physician and possibly therapists
For hospitals using an integrated EMR, permit coverage specialists to access the treating physicians’ clinical records and put together the “picture” that supports coverage
Establish medical record policies
Policies to prevent denials require executive leadership to work with stakeholders tactfully and thoughtfully. With MEC approval, policies can include a provision under which a high-cost procedure would be postponed until appropriate documentation is obtained.
