News & Insights


August 9, 2021

Health Headlines – August 9, 2021

CMS Issues Medicare IPPS and LTCH Final Rule for FY 2022—On August 2, 2021, CMS published the Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) final rule for federal fiscal year (FY) 2022.  The final rule updates Medicare payment policies, quality reporting programs, and rates for operating and capital-related costs of inpatient hospitals.  This article provides an overview of key components of the final rule.

Payment Rates Overview

CMS has finalized a 2.5 percent increase to the standardized amount in FY 2022 for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record users.  The updated rate consists of a 2.7 percent market basket update, a 0.5 percent positive adjustment required by the Medicare Access and CHIP Reauthorization Act of 2015, and a 0.7 percent negative productivity adjustment.  CMS projects that IPPS operating payments per discharge will increase by approximately 2.6 percent for urban hospitals and 2.8 percent for rural hospitals in FY 2022 compared to FY 2021.  Overall payments to acute care hospitals are expected to increase by $3.7 billion in FY 2022.  CMS projects that overall LTCH payments will increase by 1.1 percent ($42 million) in FY 2022. 

Uncompensated Care Payments

CMS updated estimates of the three factors used to determine uncompensated care payments for FY 2022.  The three factors represent CMS’ estimate of 75 percent of the amount of Medicare DSH payments that would otherwise have been paid, an adjustment to this amount for the percent change in the current national rate of uninsured individuals compared to the rate in 2013, and each eligible hospital’s estimated uncompensated care amount relative to the estimated uncompensated care amount for all eligible hospitals.  Under the final rule, CMS will distribute approximately $7.2 billion in uncompensated care payments for FY 2022, a decrease of approximately $1.1 billion from FY 2021.  This total uncompensated care payment amount reflects CMS Office of the Actuary’s projections that incorporate the estimated impact of the COVID-19 pandemic.

Consistent with the policy adopted in the FY 2021 IPPS/LTCH PPS final rule for FY 2022 and subsequent fiscal years, CMS will use a single year of data on uncompensated care costs from Worksheet S-10 of hospitals’ FY 2018 cost reports to distribute these funds.

Medicare DSH 

Under current policy, the Medicaid fraction is computed by dividing the hospital’s number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital’s total number of inpatient days in the same period.  CMS considers a patient to be eligible for Medicaid if the patient is eligible for inpatient hospital services under an approved State plan or under a waiver approved under Section 1115.  In the FY 2022 IPPS proposed rule, CMS proposed to modify the formula for the Medicaid fraction of the Medicare DSH payment by only counting Section 1115 days in the Medicaid fraction if the patient directly received inpatient hospital insurance coverage on such days.

CMS decided not to finalize its proposed treatment of Section 1115 waiver days in the FY 2022 IPPS final rule.  CMS says that it is continuing to review the comments received and will address them in a separate document.

Tracking and Reporting Staff COVID-19 Vaccination Rate

In the FY 2022 IPPS final rule, CMS added a new measure to the Hospital Inpatient Quality Reporting (IQR) Program that will require hospitals to report the percentage of health care personnel (HCP) who have received a complete vaccination course against COVID-19.  The first reporting period will span October 1, 2021 through December 31, 2021 and will be applicable for payments in FY 2023.  Thereafter, hospitals will be required to submit data on a quarterly basis beginning in CY 2022 for FY 2024 and later payment determinations.  Although this would not be an outcome measure, CMS says that it will publicly report this data on a quarterly basis. 

Graduate Medical Education Changes

In the FY 2022 IPPS proposed rule, CMS proposed to implement the statutory changes to the GME payment rules that were enacted in the Consolidated Appropriations Act, 2021 (CAA).  Section 126 of the CAA instructs CMS to distribute 1,000 new residency full-time equivalent (FTE) cap positions to qualifying hospitals over a five-year period spanning 2023 to 2027.  Section 131 of the CAA provides an opportunity for qualifying hospitals to establish new FTE caps and/or per-resident amounts.  And Section 127 of the CAA repeals the “separate accreditation” requirement for rural training track (RTT) programs. 

In the FY 2022 IPPS final rule, CMS stated that it intends to address the public comments in a separate document due to the number and nature of the comments it received.  The final rule does not indicate when providers can expect CMS to finalize its implementation of these statutory changes. 

The FY 2022 IPPS proposed rule also contained proposed changes to the guidelines for submitting data to the Intern and Resident Information System (IRIS).  First, CMS proposed requiring hospitals to submit IRIS data in the new XML IRIS format that CMS has adopted starting with cost reporting periods beginning on or after October 1, 2021.  Second, CMS proposed that Medicare cost reports would be rejected unless both the cost report and the IRIS data contain the same total counts of direct GME FTE residents (unweighted and weighted) and of IME FTE residents.  Commenters generally supported the former proposal, but roundly opposed the second out of concern that hospitals might experience software issues with the new XML format that might result in their cost reports being rejected. 

In the FY 2022 IPPS final rule, CMS finalized (with modifications) its proposed changes to the IRIS submission guidelines.  Hospitals will still be required to report IRIS data on the cost report for reporting periods beginning on or after October 1, 2021.  But cost reports will not be rejected if the IRIS data does not match the cost report until cost reports for reporting periods beginning on or after October 1, 2022.  Furthermore, CMS said it will implement tolerance thresholds for variances between IRIS and cost report data to account for potential rounding variances.  Finally, CMS stated that it is in the process of validating vendor IRIS software to ensure that it meets IRIS XML specifications and will release a list of all approved IRIS software vendors. 

Medicare Wage Index

CMS finalized several changes to the Medicare wage index in the FY 2022 IPPS final rule.  First, CMS has reestablished the imputed rural floor.  The imputed rural floor is a policy that CMS first established in 2005 to create a minimum wage index for hospitals located in states that do not have rural areas.  The additional payments made to hospitals under this policy were offset by a budget neutrality adjustment.  CMS discontinued this policy in 2019 out of concern that the budget neutrality adjustment was putting hospitals in states with rural areas at a disadvantage.  Section 9831 of the American Rescue Plan Act of 2021 (ARPA) (enacted on March 11, 2021) instructed CMS to revive the imputed rural floor policy beginning in FY 2022.  In accordance with that instruction, CMS reestablished the imputed rural floor policy in the final rule for FY 2022.  Section 9831 of ARPA further specifies that the imputed rural floor should not be applied in a budget-neutral manner.  Accordingly, CMS did not adopt a nation-wide budget neutrality adjustment for the imputed rural floor. 

CMS has also finalized changes to the cancellation rules for rural reclassification under 42 C.F.R. § 412.103.  In the FY 2022 IPPS proposed rule, CMS proposed requiring requests to cancel rural reclassification must be submitted to the CMS regional office not earlier than one calendar year after the reclassification effective date.   CMS further proposed to repeal the current rule that a cancellation request must be submitted 120 days prior to the end of the federal fiscal year.  In place of that rule, CMS proposed allowing cancellation requests to be submitted at any time, but that cancellation would not take effect until the federal fiscal year that begins in the calendar year after the year in which the request is submitted.  Commenters generally supported both proposals but expressed concern that the latter proposal might result in penalizing hospitals that are not attempting to manipulate the rural wage index. 

In the final rule, CMS finalized its proposal that rural reclassifications must be in effect for at least one year before cancellation can be requested.  However, in response to comments received, CMS elected not to finalize its proposal to repeal the current rule that cancellation requests must be submitted 120 days prior to the end of the federal fiscal year. 

CMS also decided to again adopt a wage index stop loss policy in FY 2022 like the policies adopted in FYs 2020 and 2021, though more limited in scope.  Specifically, in FY 2022, CMS has adopted a 5 percent cap on any decreases in the wage index compared to FY 2021.  However, unlike in previous years where the policy applied to all hospitals nationwide, in FY 2022 the 5 percent cap will only apply to hospitals that received transition adjustments in FY 2021.  CMS has also made a budget neutrality adjustment to the standardized amount to offset the increased payments resulting from this change. 

CMS is also continuing in FY 2022 the low wage index policy that it first adopted in FY 2020.   Under this policy, CMS makes upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile.  The adjustment for each eligible hospital is equal to half of the difference between the otherwise applicable final wage index value for the hospital and the 25th percentile wage index value for all hospitals that same year.  The 25th percentile wage index in FY 2022 will be 0.8437.  As in past years, CMS is proposing to fund these adjustments by making a budget neutrality adjustment to the standardized amount. 

Organ Acquisition Payment Policies

In the proposed rule, CMS proposed several changes to Medicare’s organ acquisition payment policies, including revising and codifying the Medicare usable organ counting policy to count only organs transplanted into Medicare beneficiaries.  CMS proposed to facilitate more accurate payment of Medicare’s share of organ acquisition costs by collecting data from transplant hospitals and organ procurement organizations (OPOs) to calculate this share, and to ensure Medicare payment at reasonable costs by requiring donor community (not transplant) hospitals to bill OPOs customary charges that are reduced to costs, in line with Medicare reasonable cost principles.

However, CMS elected not to address the organ acquisition policies included in the proposed rule due to the number and nature of the comments received on the implementation of these proposals. Instead, CMS will address these policies in future rulemaking.

Changes to the New COVID-19 Treatments Add-on Payment (NCTAP)

In response to the COVID-19 pandemic, CMS established the NCTAP for eligible discharges during the public health emergency (PHE) in the FY 2021 IPPS final rule.  As part of the NCTAP, CMS provides enhanced payments for eligible inpatient cases that involve the use of certain new products authorized or approved to treat COVID-19 (i.e., therapeutics).  CMS anticipates that there might be inpatient cases of COVID-19 beyond the end of the PHE, for which payment based on the assigned MS-DRG may not adequately reflect the additional cost of new COVID-19 treatments.  To mitigate potential financial disincentives for hospitals to provide these new treatments, and to minimize any potential payment disruption immediately following the end of the PHE, CMS is extending the NCTAP through the end of the fiscal year in which the PHE ends.

Of note, CMS is not finalizing the proposal to discontinue the NCTAP for discharges on or after October 1, 2021 for a product approved for new technology add-on payments beginning FY 2022.  Instead, CMS is extending the NCTAP through the end of the fiscal year in which the PHE ends for all eligible products, including those approved for new technology add-on payments for FY 2022, with any new technology add-on payment reducing the amount of the NCTAP.

Repeal of the Market-Based MS-DRG Relative Weight Policy

In the FY 2021 IPPS final rule, CMS finalized a policy that required hospitals to report their median payer-specific negotiated charges for Medicare Advantage (MA) organizations by MS-DRG in cost reports for periods beginning on or after January 1, 2021.  CMS stated at the time that it would use that data in the rate setting process starting in FY 2024.  In the FY 2022 IPPS proposed rule, CMS proposed to repeal this policy.

In the FY 2022 IPPS final rule, CMS finalized its proposal to repeal the requirement that hospitals report their median payer-specific negotiated charges for Medicare Advantage (MA) organizations in the Medicare cost report.  The agency explained that this data would not be particularly helpful in bringing true market-based payment rates into the rate setting process because MA plans invariably use Medicare FFS relative weights.  Some commenters opposed CMS’s proposal to repeal the policy because they believed it improved hospital transparency.  CMS countered that the purpose of this policy was to improve the rate setting process—not to promote price transparency. 

Finalization of Revisions to MGCRB Rules

On April 27, 2021—the same day that the FY 2022 IPPS proposed rule was published—CMS issued an interim final rule that made changes to the rules for applying to the Medicare Geographic Classification Review Board (the MGCRB) for geographic reclassification. 

Hospitals applying to the MGCRB are required to demonstrate that their average hourly wages (AHW) are a certain percentage greater than the wages of the other hospitals in their home area.  Hospitals are also prohibited from applying to the MGCRB to reclassify to areas that have a pre-reclassified AHW that is lower than the pre-reclassified AHW of their home area. 

Prior to the interim final rule, CMS considered a hospital’s home area to be the area in which it was physically located, even if the hospital had elected to be treated as rural under 42 C.F.R. § 412.103.  However, hospitals successfully challenged this policy in Bates County Memorial Hospital v. Azar, 464 F. Supp. 3d 43 (D.D.C. 2020).  The interim final rule acquiesced to the Bates decision, providing that if a hospital reclassifies as rural, it will be treated as if it were located in the rural area of the state for the purposes of the MGCRB rules.

In the FY 2022 IPPS final rule, CMS finalized all the changes made in the interim rule.  CMS further clarified that hospitals applying to the MGCRB need not account for other hospitals that have reclassified as rural in comparing their AHW to their home area or their target area.  

Bad Debt Changes

In the FY 2022 IPPS final rule, CMS finalized its proposal to require state Medicaid programs to accept enrollment of all Medicare-enrolled providers and suppliers for the limited purpose of determining Medicare cost-sharing obligations.

Under current CMS policy, providers are permitted to claim reimbursement from Medicare for the bad debt of Medicare beneficiaries.  For patients who are dually-eligible for Medicare and Medicaid, hospitals must first attempt to collect any unpaid balance from Medicaid before claiming reimbursement for the balance from Medicare.  This is commonly referred to as the “must-bill” policy. 

Many states do not permit certain classes of providers to enroll in Medicaid.  This has prevented many hospitals from complying with Medicare’s must-bill policy because they cannot attempt collection from Medicaid before claiming the balance from Medicare.  CMS is requiring Medicaid programs to accept enrollment of all Medicare-enrolled providers and suppliers so that all classes of Medicare providers will be able to comply with the must-bill requirement.  

Medicare Shared Savings Program

In the December 2018 final rule, CMS established the BASIC track, which includes an option for eligible ACOs to begin participation under a one-sided model and incrementally phase-in risk and potential reward over the course of a single agreement period, referred to as the glide path.  Due to the uncertainty of the COVID-19 pandemic, CMS is allowing eligible ACOs participating in the BASIC track’s glide path the option to elect to forgo automatic advancement and “freeze” their participation for PY 2022 at their PY 2021 level.  Thus, an eligible ACO may elect to remain in the same level of the BASIC track's glide path in which it participated during PY 2021.

For PY 2023, an ACO that elects this advancement deferral option will be automatically advanced to the level of the BASIC track's glide path in which it would have participated during PY 2023 if it had advanced automatically to the required level for PY 2022 (unless the ACO elects to advance more quickly before the start of PY 2023).  For an ACO that elected to defer advancement for both PY 2021 and PY 2022, the ACO will automatically advance for PY 2023 to the level in which it would have participated for that performance year, absent both deferral elections (unless it elects to advance more quickly).  ACOs will have the opportunity to make this election via ACO-Management System (ACO-MS) during the application cycle and must do so no later than September 10, 2021.

The IPPS FY 2022 final rule is expected to be published in the Federal Register on August 13, 2021.  A copy of the final rule is available here, and a CMS fact sheet is available here

Reporters, Dennis Mkrtchian, Austin, +1 512 457 2068,, and Alek Pivec, Washington D.C., +1 202 626 2914,

OIG Issues Favorable Advisory Opinion Regarding the Provision of Free Dental Services – On August 3, 2021, OIG issued an advisory opinion, Advisory Opinion No. 21-10, allowing for a dentist to provide free routine and emergency dental services to indigent Medicaid beneficiaries who are residents of nursing facilities.  Under the arrangement, the dentist currently provides dental services to residents of nursing facilities as a preferred provider of a commercial dental insurance company in exchange for a per-member, per-month fee for all dental services provided.  The dentist requested permission to provide free routine and emergency dental services to indigent Medicaid beneficiaries who reside at the facilities but do not participate in the commercial insurance provider’s program.  After careful consideration of the facts, OIG determined that the proposed arrangement would not implicate the federal Anti-Kickback Statute (AKS) or Beneficiary Inducements CMP.

OIG considered the following factors in deciding that the federal AKS was not implicated:

  • The provision of free services did not result in referrals being made for services reimbursable by a federal health care program;

  • The dentist did not have an ownership interest or investment interest in any other entity that provides a service reimbursable by a Federal health care program; and

  • There was no nexus between the renumeration (free service) and referrals for services payable by a federal health care program (note that other referrals for services covered by private insurance are not prohibited).

OIG considered the following factors in deciding that the Beneficiary Inducements CMP was not implicated:

  • The benefit was unlikely to influence a beneficiary’s decision to select a facility just for the free services being provided;

  • The free dental services would not be promoted; and

  • The services would only be available at facilities that provide the dental services to at least one enrollee of the commercial insurance provider.

The full text of OIG Advisory Opinion No. 21-10 is available here.

Reporter, Kimberly Rai, New York, +1 212 556 2198,