Proposed changes to Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System would improve quality, expand access

The Trump Administration proposed changes that build on the progress made over the last two years and further the agency's priority to transform the healthcare delivery system through competition and innovation while providing patients with better value and results. The proposed rule would update Medicare payment policies for hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) for fiscal year 2020 and advances two key CMS priorities, "Rethinking Rural Health" and "Unleashing Innovation," by proposing historic changes to the way Medicare pays hospitals.

"One in five Americans are living in rural areas and the hospitals that serve them are the backbone of our nation's healthcare system," said CMS Administrator Seema Verma. "Rural Americans face many obstacles as the result of our fragmented healthcare system, including living in communities with disproportionally higher poverty rates, more chronic conditions, and more uninsured or underinsured individuals. The Trump Administration is committed to addressing inequities in health care, which is why we are proposing historic Medicare payment changes that will help bring stability to rural hospitals and improve patients' access to quality healthcare."

The inpatient hospital wage index specifies how inpatient payment rates are adjusted to account for local differences in wages that hospitals face in their respective labor markets. It is intended to measure differences in hospital wage rates across geographic regions and is updated annually based on wage data reported by hospitals. Hospitals located in areas with wages less than the national average receive a lower Medicare payment rate than hospitals located in areas with wages higher than the national average. For example, a hospital in a rural community could receive a Medicare payment of about $4000 for treating a beneficiary admitted for pneumonia while a hospital in a high wage area (like many urban communities) could receive a Medicare payment of nearly $6000 for the same case, due to differences in their wage index.

In last year's proposed rule, CMS invited comments on changes to the Medicare inpatient hospital wage index. Many responses reflected a common concern that the current wage index system makes the disparities between high and low wage index hospitals worse. High wage index hospitals, by virtue of higher Medicare payments, can afford to pay their staff more, allowing the hospitals to continue operating as high wage index hospitals. Conversely, low wage index hospitals often cannot afford to pay wages that would allow them to climb to a higher wage index. Over time, this creates a downward spiral that increases the disparity in payments between high wage index hospitals and low wage index hospitals, and payment for rural hospitals and other low wage index hospitals declines.

To address these disparities, CMS is proposing to increase the wage index of low wage index hospitals. This change would ensure that people living in rural areas have access to high quality, affordable healthcare. CMS is considering several ways to implement this change, and the agency looks forward to comments on the different approaches.

The Trump Administration is also announcing proposals that would ensure Medicare beneficiaries have access to a world-class healthcare system by unleashing innovation in medical technology and removing potential barriers to innovation and competition in order to expedite access to novel medical technology.

"Transformative technologies are coming to the private market, but Medicare's antiquated payment systems have not contemplated these technologies," said CMS Administrator Seema Verma. "I am particularly concerned about cases that have been reported to the agency in which Medicare's inadequate payment has led hospitals to curtail access to needed therapies. We must continually update our policies in response to the rapid pace of advancement in medical science."

To ensure that Medicare payment supports broad access to transformative technologies, CMS is proposing several payment policy changes. These include proposing to increase the new technology add-on payment, which provides hospitals with additional payments for cases with high costs involving new technologies, including potentially new antimicrobial therapies. The increase would apply to all technologies receiving add-on payments starting on October 1, 2019, so that when a physician determines that a patient needs a qualifying new therapy, the hospital at which the therapy is administered would be able to more completely cover its costs. This change would promote patient access and reduce the uncertainty that innovators face regarding payment for new medical technologies for Medicare beneficiaries.

CMS is also proposing to modernize payment policies for medical devices that meet FDA's Breakthrough Devices designation. For devices granted this expedited FDA approval, real-world data regarding outcomes for the devices in different patient populations is often limited. At the time of approval, it can be challenging for innovators to meet the requirement for evidence demonstrating "substantial clinical improvement" in order to qualify for new technology add-on payments.

Therefore, CMS is proposing to waive for two years the requirement for evidence that these devices represent a "substantial clinical improvement." Waiving this requirement would provide additional Medicare payment for the technologies for a period of time while real-world evidence is emerging, so Medicare beneficiaries do not have to wait for access to the latest innovations.

In the proposed rule, CMS highlights the unique challenges associated with paying for CAR-T technology in particular. CAR-T is the first-ever gene therapy and is used to treat certain forms of cancer for which no other treatment options exist. The agency is considering several changes to payment policies for CAR-T for 2020, including additional changes to new technology add-on payments for CAR-T and changes to the formula that is used to calculate payments to hospitals for CAR-T. These changes may help ensure adequate payments to hospitals administering this groundbreaking therapy while CMS continues our work to ensure that we pay for innovative therapies appropriately.

The IPPS and LTCH PPS proposed rule is one of five Medicare payment rules released on a fiscal year cycle, to define payment and policy for inpatient hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, skilled nursing facilities, and hospice. Modernizing and strengthening Medicare through rulemaking is critical to achieving CMS's objectives, and the IPPS and LTCH PPS proposed rule is an opportunity to further advance its goals.

For a fact sheet on the proposed rule (CMS-1716-P), please visit: https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2020-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute

To view the proposed rule (CMS-1716-P), please visit: https://www.federalregister.gov/documents/2019/05/03/2019-08330/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the