Medicare Hospital Inpatient Proposed Payment Rule Calls for Additional Price Transparency

The Centers for Medicare & Medicaid Services (CMS) released its annual proposal for the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System, which includes proposed policy changes and rates for the 2021 Fiscal Year (FY). In this rule, CMS lays out a long-term vision for injecting market pricing into Medicare reimbursement and proposes near-term requirements for disclosure of negotiated commercial rates to inform a new rate-setting paradigm. CMS seeks comment on a potential change to the methodology for calculating the Medicare Inpatient Prospective Payment System (IPPS) and Medicare Severity-Diagnosis Related Group (MS-DRG) relative weights to incorporate this market-based rate information, beginning in FY 2024. Comments on this proposed rule are due by July 10.

Proposal

Under the proposal, hospitals would be required to report the median payer-specific negotiated charge that the hospital has negotiated with all of its Medicare Advantage (MA) payers, by MS-DRG, and the median, payer-specific negotiated charge the hospital has negotiated with all of its third-party payers (including MA payers), by MS-DRG. CMS notes that these medians would be calculated using a subset of the payer-specific negotiated charges that, starting January 1, 2021, hospitals are required to make public. This information would be reported on the hospital cost report, for cost reporting periods ending on or after January 1, 2021, and would be used to adjust Medicare payment rates so that they reflect the relative market value for inpatient items and services.

CMS seeks comment on a new rate-setting methodology, which could apply as early as FY 2024, that would use the median payer-specific negotiated charge for each MS-DRG for payers that are MA organizations to determine the market-based relative weight estimation. This process would first involve standardizing these median charges in order to ease comparison between hospitals. The agency would also create a single weighted average across hospitals of the median charge and a single national weighted average across all MS-DRGs. The market-based relative weight would then be calculated as the ratio between these two numbers and normalized by an adjustment factor. CMS says it is focusing on MA payer negotiated charges because those are generally well-correlated with Medicare IPPS payment rates, though there may be instances where those negotiated charges may reflect the relative hospital resources used within an MS-DRG differently than the current cost-based methodology.

Commentary

As noted by the Advisory Board, this is one of the more controversial parts of the rule. As noted above, the proposal aims to collect a summary of data that hospitals are required to report under the Trump administration’s 2019 price transparency rule, including median payer-specific negotiated charges. They’re also seeking feedback on using the data to inform Medicare reimbursement rates for hospital procedures. This is likely to be met with resistance by hospitals, which are challenging the price transparency rule in court, where just last week, a U.S. federal district court in Washington, D.C., heard opening arguments in American Hospital Association et al. v. Azar.