Inpatient Psychiatric Facility PPS: Final Rule for FY 2021

Regulatory Advisory

August 3, 2020


The Centers for Medicare & Medicaid Services (CMS) July 31 published a final rule for the inpatient psychiatric facility (IPF) prospective payment system (PPS) for fiscal year (FY) 2021. The rule will be published in the Federal Register Aug. 4. In its proposed rule, the agency acknowledged that the entire health care system is focused on responding to the COVID-19 public health emergency, and thus the rule only includes proposals required by statute that affect Medicare payment to IPFs. Key takeaways from the rule follow.

Final IPF PPS Payment Provisions

  • CMS will increase IPF payments by a net 2.3%, equivalent to $95 million, in FY 2021.
  • The 2.3% payment update is a reflection of a 2.2% market basket update minus a productivity adjustment of 0.0 percentage points, and an additional 0.1 percentage point offset for the outlier fixed-dollar loss threshold amount.
  • Under these payment updates, the federal per diem base rate will be $815.22 (an increase from the previous rate of $798.55). The Electroconvulsive therapy (ECT) payment per treatment will be $350.97 (an increase from the previous rate of $343.79).
    • The 2.2% market basket update is significantly lower than the proposed 3.0% update; the agency explains that this decrease “is primarily driven by slower anticipated compensation growth for both health-related and other occupations” due to the national recession that started in February 2020.
  • The labor-related share for FY 2021 is 77.3%, based on the revised market basket, which is an increase from the previous labor-related share of 76.9%.

Final Wage Index Provisions

In the FY 2020 IPF PPS final rule, CMS finalized a methodology to align the IPF PPS wage data timeframe with that used by the inpatient PPS. Thus, for FY 2021, the IPF wage index will be based on the FY 2021 pre-floor, pre-reclassified inpatient PPS hospital wage index. CMS explained that this methodology would result in the most “up-to-date” wage data being used, and be consistent with the methodology used in other Medicare payment systems. In this rule, CMS finalizes a wage index budget-neutrality factor of 0.9989. A wage index is assigned to an IPF based on its labor market area; labor market areas are delineated based on Core Based Statistical Areas, or CBSAs, established by the Office of Management and Budget (OMB). In September 2018, OMB issued a bulletin that included some material changes (e.g. some urban counties becoming rural andvice versa) to the CBSAs that would be effective beginning with the FY 2021 IPF PPS wage index. As such, CMS will adopt these updates along with a two-year transition policy that will be applicable to all IPFs that may experience negative impacts due to these new delineations. Under this policy, CMS will apply a 5% cap on any decrease in an IPF’s wage index from the IPF’s final wave index from the prior fiscal year.

Removal of “Independent” from “Licensed Independent Practitioner(s)”

In the CMS interim final rule with comment period, “Medicare and Medicaid Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency,” the agency proposed to revise the conditions of participation for psychiatric hospitals to remove the word “independent” from the term “licensed independent practitioner(s).” In finalizing this change, CMS explains that this would allow advanced practice providers (including, but not limited to, physician assistants, nurse practitioners, psychologists and clinical nurse specialists) the authority to practice at the top of their licenses, including the authority to record progress notes for patients. In addition, the agency believes this term “may inadvertently exacerbate workforce shortage concerns and unnecessarily impose regulatory burden on hospitals.”