On September 2, 2020, CMS published the delayed Final Rule for the FFY 2021 Inpatient Prospective Payment System (“PPS”). This Final Rule will appear in the Federal Register on September 18, 2020 and will still become effective on October 1, 2020, despite its delays.

Payments for inpatient hospital services for hospitals that are EHR Meaningful users and submitting quality data will increase by $3.5 billion, or 2.7%, in FFY 2021. This is more than the $2.1 billion/1.6% increase in the proposed rule.


  • Inpatient PPS reimbursement will increase 2.7% in FFY 2021.
  • For cost reporting periods ending on or after January 1, 2020, hospitals must report the median payer-specific charge for all Medicare Advantage plans.
  • Reimbursement for CAR-T therapies is moving to a separate MS-DRG
  • Antimicrobial Products approved for the FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs will be eligible for a new technology add-on payment
  • The Provider Reimbursement Review Board is moving towards mandatory electronic filing.
  • The DSH Uncompensated Care Pool is $8.3 Billion, an increase of $500 Million from the proposed rule based on more recent data to account for COVID-19.
  • CMS finalized (as proposed) updated labor market area delineation, which would change the urban or rural status of approximately 100 counties.
  • Multiple Medicare Bad Debt changes were enacted, some retroactively.


CMS is finalizing its proposal requiring hospitals to provide the median payer-specific negotiated charge that a hospital has with all of its contracted Medicare Advantage (“MA”) plan. This cost reporting requirement will become effective for cost reports ending on or after January 1, 2021. However, CMS declined to extend that reporting requirement for all of a hospital’s third-party payers, as it initially planned in the Proposed Rule, for two primary reasons: 1) CMS acknowledged the difference in charge negotiation among the third-party payers; and 2) there seems to be relative consensus that MA rates and Medicare rates are similar.


CMS plans to use the data reported on the Medicare cost report to transition to a market basket-based MS-DRG weight methodology. While it declined to provide a transition timeline in the Final Rule, CMS remains committed to this MS-DRG weighting change to become effective in FFY 2024.

Additionally, the planned positive 0.5% adjustment to the standardized amount resulting from Section 414 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114–10) remains intact. This positive adjustment gradually restores an $11B reduction CMS made between 2014-2017 pursuant to Section 631 of the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112–240). The ATRA reduction was created “to account for changes in MS– DRG documentation and coding that do not reflect real changes in case-mix.” While MACRA was supposed to completely restore the $11B back to hospitals, the formula in place between 2018-2023 is 0.7% short of that complete restoration. Hospitals continue to challenge that shortfall.


The Provider Reimbursement Review Board (“PRRB”) is moving to a mandatory electronic filing requirement. CMS notes that since the PRRB’s electronic portal began in 2018, the majority of new appeals are being filed electronically. The PRRB will provide 120 days notice before the mandatory electronic filing requirement takes place. The Final Rule states the regulatory 5-day presumption on delivery of notices to providers will remain in place, even though most occur electronically. Additionally, the Final Rule states the PRRB’s electronic portal will still only allow for notices/communications to be sent to one email address and notes it is a provider’s responsibility to inform the PRRB of changes to contact information.


CMS finalized its proposal to provide for new technology add-on payments for new antimicrobial products. If the new product receives approval through FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (“LPAD pathway”), it will be considered new and eligible for the new technology add-on payment without additional justification. Additionally, there will be a conditional new technology add-on payment approval for products designated as Qualified Infectious Disease Products (“QIDPs”) that do not receive FDA approval by July 1, and products that do not receive approval through FDA’s LPAD pathway by July 1 but otherwise meet the applicable add-on payment criteria. Under this policy, cases involving eligible antimicrobial products would begin receiving the new technology add-on payment sooner, effective for discharges the quarter after the date of FDA marketing authorization provided that the technology receives FDA marketing authorization by July 1 of the same year the applicant applied for new technology add-on payments. There has yet to be any products approved under the FDA’s LPAD pathway, so this area of reimbursement will likely evolve as products receive that approval.


CMS finalized its proposal to create MS-DRG 018 for Chimeric Antigen Receptor (“CAR”) T-cell Immunotherapy. ICD-10- procedure codes XW033C3 or XW043C3 will be assigned to this new MS-DRG 018 for FFY 2021. MS-DRG 016 will be changed from “Autologous Bone Marrow Transplant with CC/MCC or T-cell Immunotherapy” to “Autologous Bone Marrow Transplant with CC/MCC”. This new DRG is timely as two of the initially approved CAR-T therapies, KYMRIAH® and YESCARTA®, lost their new technology add-on payments in FFY 2021.


For both the Hospital Readmissions Reduction Program (“HRPP”) and the Hospital-Acquire Conditions Reduction Program (“HAC”), CMS finalized the regulatory implementation of performance periods for measures used in the Programs beginning with the FFY 2023 program year and all subsequent program years. Those updates will be made to 42 CFR 412.152 (for HRPP) and 42 CFR 412.170 (for HAC). This Final Rule also refers back to the agency’s August 25, 2020 Interim Final Rule in which it determined the FFY 2022 program will excerpt claims data from January 1, 2020 – June 30, 2020 due to the public health emergency.


Disproportionate Share Hospitals’ (“DSH”) Uncompensated Care (“UC”) Payments for FFY 2021 will be $8.3 billion, up almost $500 million or 6% from the proposed rule but still $60 million less than FFY 2020. In response to numerous comments by stakeholders, CMS responded by using more recently available unemployment data given the unprecedented effects on health insurance due to the COVID-19 pandemic. This increased the estimated 2021 uninsured rate CMS used in Factor 2 from 9.5% as originally proposed to 10.2%, which while less than what providers believe is needed, is still welcome news. At the same time using more recent data that accounts for COVID-19, CMS decreased Factor 1, the starting point for calculating the UC Pool size which is 75% of the estimated DSH payments for FFY 2021, to $11.378 billion, a decrease of $141 million from the proposed rule, which in part was based on an estimated decrease in discharges in 2020.

As proposed, a single year of data from hospitals’ FY 2017 Worksheet S-10 UC Costs was used to compute the FFY 2021 UC Payments. For FFY 2022 and all subsequent fiscal years, CMS indicates they will use the most recent available single year of audited Worksheet S-10 data. As anticipated, for now at least, the FY 2018 S-10 audits that have already been underway for what appears to be most DSH hospitals will be used for next year’s 2022 UC Payments.


CMS is adopting updated labor market area delineations based on OMB Bulletin No. 18-03, which contains material changes to labor market delineations, including 34 counties converting from urban to rural and 47 counties converting from rural to urban. We wrote in detail about these changes in the proposed rule in a previous article available here. Hospitals should review whether they are in a county that is affected by the updated delineations and what effect, if any, it will have on their Medicare reimbursement, especially if the provider is required to be located in a rural area (e.g., Sole Community Hospitals, Critical Access Hospitals, Rural Referral Centers and Medicare-Dependent Small Rural Hospitals). Because these changes can have huge financial consequences to hospitals, CMS adopted a limit on the decrease in a hospital’s wage index of 5% from FFY 2020 to FFY 2021.

Revisions to Medicare Bad Debt Policy

CMS has finalized changes to bad debt reimbursement by codifying provisions from the Provider Reimbursement Manual (“PRM”) in the 2021 Final Rule in an interest to “clarify certain Medicare bad debt policies that have been the subject of litigation.” Some of CMS’s revisions to these long-standing Medicare bad debt principals under 42 C.F.R. 413.89 have a retroactive effect, and the legality of these retroactive changes remains to be seen. CMS believes that there is significant public interest served by applying some of these provisions retroactively because it would provide guidance with certainty and clarity for appeals before the PRRB. Therefore, hospitals should not only review their bad debt policies for compliance with these rules but should also review their current appeals before the PRRB to determine this Final Rule’s impact.

  • Revisions that will be Retroactive:
    • Reasonable Collection Effort: PRM § 310’s description of “reasonable collection effort” and its application must apply to both non-indigent (as now defined under 42 C.F.R. 413.89(e)(2)(i)) and indigent beneficiaries. Providers’ efforts to collect Medicare deductibles must be similar to non-Medicare patients, and providers must keep verifiable documentation of its efforts.
    • Issuance of a Bill: Reasonable collection efforts for non-indigent beneficiaries must be similar to non-Medicare patients, but for cost report periods before October 1, 2020, the efforts must involve issuance of a bill on or shortly after discharge.
    • Writing off Bad Debts: There is a 120-day collection effort for non-indigent beneficiaries.
    • QMB Dual Eligible Beneficiaries: The State Medicaid program must be billed. If your State does not provide a Medicaid Remittance Advice, CMS has laid out three criteria that documents another reasonable collection effort.
    • Topic 606 and Accounting: Bad debts, charity and courtesy allowances represent reductions in revenue.
    • Expense vs. Contractual Account: Medicare bad debts must be charged to an expense account for uncollectable accounts. There is a question as to whether this “zero balance” bad debt policy conforms with other Medicare regulations and GAAP principles.
  • Revisions that will be in effect on or after October 1, 2020:
    • Issuance of a Bill: Reasonable collection efforts for non-indigent beneficiaries must be similar to non-Medicare patients, but for cost report periods after October 1, 2020, the efforts must involve issuance of a bill on before 120 days after:
      • Date of Medicare Remittance that furnishes the beneficiary’s cost sharing amount
      • Date of Remittance Advice from the beneficiary’s secondary payor, or
      • Date of notice that the secondary payor does not cover the services.
    • Writing off Bad Debts: The is a 120-day collection effort for non-indigent beneficiaries, and providers must start a new 120-day collection period each time a payment is received, even if the debt is at the collection agency.
  • Indigence Determination under PRM-I § 312: In order to determine whether a beneficiary is indigent, the Provider, in addition to keeping records of the following:
    • Must consider assets, liabilities, income, and expenses
    • Provider may consider any extenuating circumstance
    • Must determine that no other source would be legally responsible for the beneficiary’s medical bill
    • A beneficiary’s signed declaration of their inability to pay their medical bills will not be considered proof of indigence
    • Topic 606 and Accounting: Bad debts (also known as “implicit price concessions”), charity, and courtesy allowances represent reductions in revenue.
    • Expense vs. Contractual Account: Medicare bad debts must not be written off to a contractual account, but must be charged to an uncollectable receivables account that results in a reduction in revenue. There is a question as to whether this “zero balance” bad debt policy conforms with other Medicare regulations and GAAP principles.