August 25, 2021 | Jessica Zeff

11 min read

FY 2022 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and Long -Term Care Hospital (LTCH) PPS Final Rule

Executive Summary

The FY 2022 IPPS and LTCH-PPS Final Rule, released on August 2, 2021, updates Medicare programs, payment, and policies for acute care hospitals, long-term care hospitals, and other hospitals that may be excluded from the IPPS.

With the finalized rule, CMS estimates inpatient hospital payments will increase by $2.3 billion for FY 2022, while long-term care hospital payments will increase by approximately 1.1 percent or $42 million. Technology add-on payments for FY 2022 are expected to increase 77% from FY 2021, resulting in an additional $1.5 billion in payments.

In alignment with other CMS quality programs, the hospital quality program updates include information on suppressed measures, newly added measures and other changes which affect reporting and payment.  Some of the changes made to quality programs are in response to the PHE COVID-19.

Additionally, CMS states it will consider the feedback that was received related to programs to further promote interoperability and address health equity gaps.  There were no policy changes related to these matters in this final rule.  Future rulemaking is expected to address these items. 

The final rules are effective October 1, 2021.

Summary of Final Rules

Standard Updates

FY 2019 data from prior to the COVID-19 PHE will be used for FY 2022 rate setting where FY 2020 data has been significantly impacted by the PHE.


The standardized amount will be increased by 0.5% for FY 2022.  The standardized amount is a dollar-based unit that is used to determine payment to hospitals for services provided to Medicare beneficiaries.  The actual amount depends on participation in quality programs.

Requests for changes to MS-DRG classifications will continue to have a deadline of November 1 for FY 2023.  CMS will continue to consider changing the deadline in the future to allow for additional time to review requests.

CMS is finalizing their proposal to delay the NonCC (complication or comorbidity) subgroup criteria split until FY 2023 or later.  CMS plans to provide more information on the future proposed changes.  The current structure of the 32 MS-DRGs will be maintained for FY 2022.

Tables have been developed that outline new, revised, and deleted ICD-10 and procedure codes. See the Resources section of this assessment for a link to the tables on the CMS website.

Market Basket Updates

CMS finalized their proposal to rebase and revise market basket to reflect a 2018 base year. The national labor-related and nonlabor-related shares are also being rebased and revised based on the 2018-based IPPS market basket. A hospital market basket update of 2.7% was finalized for FY 2022. Hospitals who meet quality reporting requirements can receive up to an additional 2% reimbursement. The labor-related share was finalized at 67.6% as proposed.

In FY 2021, CMS finalized a new market-based methodology to estimate the MS-DRG relative weights that was based on median payer-specific negotiated charges.  This new methodology was to be effective for FY 2024 without a phase-in period.  In the FY 2022 IPPS final rule, CMS has repealed this policy and has finalized that it will maintain the current methodology for determining MS-DRG weights for FY 2024 and subsequent years.  Additionally, hospitals are no longer required to report the median payer-specific negotiated charge for their Medicare Advantage payers, by MS-DRG, for cost reporting periods ending on or after January 1, 2021.

Wage Index Updates

Imputed floor wage index policy established by the American Rescue Plan Act of 2021 is finalized.  This policy establishes a minimum area wage index for hospitals in all-urban states effective for discharges on or after October 1, 2021.  This policy is not budget neutral.

The low wage index hospital policy that began in FY 2020 will continue with standard adjustments.  The finalized 25th percentile wage index value is 0.8437. Finalized Unadjusted National Average Hourly Wage – $46.52. Finalized Occupational Mix Adjusted National Average Hourly Wage – $46.47.

CMS is adopting the OMB Bulleting No 20-01 for FY 2022 but indicates the adoption will not affect Core-Based Statistical Area (CBSA) classification for FY 2022.  In addition, CMS is extending the wage index transition period for hospitals.  A 5% cap will be applied on any decrease in a hospital’s wage index for FY 2022 compared to FY 2021.  This transitional policy applies only to those hospitals that received a transition adjustment in FY 2021.

New Technology and New Treatment Add-on Payments

CMS is extending the New COVID-19 Treatments Add-on Payments (NCTAP) through the end of the fiscal year in which the PHE ends for all eligible products, including those approved for FY 2022. Hospitals will be eligible to receive both NCTAP and the traditional new technology add-on payment for qualifying patient stays. In this case, the NCTAP would be reduced.

For FY 2022, in connection with CMS’s decision to use FY 2019 instead of FY 2020 data for FY 2022 IPPS rate setting, CMS is finalizing a one-year extension of new technology add-on payments for 13 technologies for which the new technology add-on payment would otherwise be discontinued beginning FY 2022. There are 19 new technologies that were approved for new technology add-on payments for FY 2022.  A total of 42 technologies are eligible for add-on payments for FY 2022.  This may lead to payments of approximately $1.5 billion.

Disproportionate Share Hospitals (DSH) and Uncompensated Care

CMS will distribute roughly $7.2 billion in uncompensated care payments for FY 2022, a decrease of approximately $1.1 billion from FY 2021.  Information specific to DSH will be address in subsequent parts of regulation.

Hospital Quality Programs

CMS finalized a measure suppression policy that allows them to suppress the use of measure data if it is determined that circumstances related to the PHE COVID-19 have significantly affected the measures and scoring. The policy applies to the Hospital Readmissions Reduction Program (HRRP), the Hospital-Acquired Condition (HAC) Reduction Program, and the Hospital Value-Based Purchasing (VPB) Program.

Hospital Readmissions Reduction Program (HRRP)

CMS has finalized the suppression of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate following Pneumonia Hospitalization measure.  They have also finalized the exclusion of COVID-19 diagnosed patients from the measure denominators of the other five readmission measures.  Both changes begin with the FY 2023 program year.

Additionally, claims data will be excluded from measure performance calculations when an Extraordinary Circumstances Exception (ECE) has been approved. To clarify, hospitals must still submit data and claims to be paid.

Medicare Promoting Interoperability Program

Several changes have been finalized in the FY 2022 Final Rule to include:

  • An increase of the EHR reporting period to a minimum of any continuous 180-day period beginning CY 2024. The 90-pay reporting period will continue through CY 2023.
  • Continuing the Electronic Prescribing Objective’s Query of PDMP as an optional measure, but the bonus points available will increase from five to 10.  Total point maximum available for the Electronic Prescribing Objective will increase to 20 points.
  • Requiring reporting on four Public Health and Clinical Data Exchange Objective measures (Syndromic Surveillance Reporting; Immunization Registry Reporting; Electronic Case Reporting: and Electronic Reportable Laboratory Result Reporting) for CY 2022.
  • The addition of a new SAFER Guide will be added to the Protect Patient Health Information objective. Attestation on the completion of an annual assessment of all nine guides in the SAFER Guides measure is required. This attestation will not be scored.
  • The removal of two of the three attestation statements from the information blocking attestation requirement.
  • Increasing the scoring threshold to 60 points.

New Measures:

  • Health Information Exchange (HIE) Bi-Directional Exchange measure worth 40 points.  This is an optional measure that can be used instead of the two existing measures beginning CY 2022.
  • Hospital Harm – Severe Hypoglycemia eCQM beginning CY 2023.
  • Hospital Harm – Server Hyperglycemia eCQM beginning CY 2023.

Measures removed beginning CY 2024 reporting:

  • Discharged on Statin Medication eCQM
  • Exclusive Breast Milk Feeding eCQM
  • Admit Decision Time to ED Departure Time for Admitted Patients eCQM

Hospital Value Based Purchasing (VBP) Program

The Hospital VBP Program reduces based DRG rates by 2% and redistributes the amount back as value-based incentive payments in a budget-neutral manner based on performance.

A total performance score (TPS) for hospitals will not be calculated using only the remaining measures for FY 2022.  Hospitals will receive a net neutral payment adjustment that is equal to the amount withheld for the fiscal year (2%).

Measures suppressed:

  • Hospital Consumer Assessment of Healthcare Providers and Systems survey for FY 2022
  • Medicare Spending Per Beneficiary measure for FY 2022
  • Five Healthcare-Associated Infection measures for FY 2022
  • Pneumonia (PN) 30-Day Morality Rate measure for FY 2023

Measures removed:

  • Patient Safety and Adverse Events Composite (CMS PSI 90) measure beginning FY 2023

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR program is a pay-for-reporting quality program that reduces payment to hospitals that fail to meet program requirements.  A one-fourth reduction in their annual payment rate under IPPS will result if the hospital does not submit quality data or fails to meet program requirements.

In the FY 2022 Final Rule, CMS has finalized the following:

New Measures:

  • Maternal Morbidity Structural Measure – reporting to begin October 1, 2021
  • COVID-19 Vaccination Coverage Among Health Care Personnel Measure – reporting to begin October 1, 2021
  • Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measure – voluntary reporting begins July 1, 2022; mandatory reporting beginning July 1, 2023
  • Hospital Harm-Severe Hypoglycemia eCQM – reporting beginning CY 2023
  • Hospital Harm-Severe Hyperglycemia eCQM – reporting beginning CY 2023

Measures removed beginning CY 2024 reporting:

  • Exclusive Breast Milk Feeding
  • Admit Decision Time to Emergency Department Departure Time for Admitted Patients
  • Discharged on Statin Medication eCQM

Measures that will exclude patients with primary or secondary COVID-19 diagnosis:

  • Hospital 30-Day, All-Cause, Risk Standardized Mortality Rate following: Acute MI; CABG Surgery; COPD Hospitalization; or Heart Failure Hospitalization
  • Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA and/or TKA

All hospitals must use certified EHR technology that has been updated to the 2015 Edition Cures Updated beginning CY 2023.  The certified technology must support all available eCQMs.

Hospital-Acquired Condition (HAC) Reduction Program

The HAC Reduction Program applies a 1% reduction in payment to hospitals that rank the worst in performance on certain measures of hospital-acquired conditions.

For the FY 2022 and 2023 program years, CMS is suppressing data from quarters three and four from the CY 2020 CDC NHSN HAI and CMS PSI 90.

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

The PCHQR Program is designed to encourage hospitals and clinicians to improve the quality of care provided by ensuring providers are aware of and reporting on best practices. There is no financial impact to PCH Medicare payment if a PCH does not participate in quality reporting.

New measures:

  • COVID-19 Vaccination Coverage Among Health Care Personnel Measure beginning FY 2023

Measures removed:

  • Oncology Plan of Care for Pain – Medical Oncology and Radiation Oncology measure beginning FY 2024

Long-Term Care Hospital (LTCH) Quality Reporting Program (QRP)

The LTCH QRP is a pay-for-reporting program that.  LTCHs that do not meet the reporting requirements of the program are subject to a 2% reduction in their annual percentage unit.

New Measures:

  • COVID-19 Vaccination Coverage Among Healthcare Personnel Measure for FY 2023

Modified Measures:

  • Transfer of Health Information measure will exclude patients from the denominator who have discharged home with home health or hospice (FY 2023)

Other Regulatory Items

Graduate Medical Education (GME)

Due to the number of comments received on this subject, information specific to GME policies will be addressed in future rulemaking.

Medicare Shared Savings Program

CMS finalized ACOs participating in the BASIC track’s glide path to defer automatic advancement to the next level for 2022 due to the PHE.

Rural Reclassifications

Due to comments received on proposed policies related to requests to cancel rural reclassifications, CMS is delaying and possibly revising their proposed cancellation policy.  Rather than finalizing their proposal, CMS will continue to monitor rural reclassification and cancellation requests and will address the issue in future rulemaking.

Interoperability and FHIR HL7 Standards

Numerous initiatives are in place that are designed to encourage and support the adoption of interoperable health information technology and promote national health information exchange.  Some of these initiatives are briefly described in this final rule and summarized below.

  • CMS is participating in the Post-Acute Care Interoperability Workgroup (PACIO) to collaborate with stakeholders to develop FHIR standards that could support the exchange and use of patient data from assessments such as the MDS, IRF-PAI, and OASIS.  FHIR implementation guides are currently available for functional status and cognitive status from the PACIO project. Health IT vendors and post-acute care provider participation in this workgroup is encouraged.
  • The Data Element Library (DEL) continues to be updated to allow for automation of assessments and mapping to reduce provider burden and improve exchange of healthcare data.  This library supports data standardization and interoperability.
  • 21st Century Cures Act includes the trusted exchange framework and common agreement (TECFA) to improve bi-directional health information exchange in the future.
  • The ONC Cures Act Final Rule has implemented policies related to information blocking to deter healthcare providers, health IT vendors, certified health IT developers, and health information exchanges and networks from interfering with the access, exchange and use of electronic health information.  This includes disincentives for healthcare providers and civil monetary penalties for other actors who participate in information blocking practices.

References and Resources:

FY 2022 IPPS Final Rule Fact Sheet

FY 2022 IPPS Final Rule Press Release

FY 2022 IPPS Final Rule

Acute Inpatient PPS webpage with file links

PACIO Project

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