If you’re not familiar with every section of the Social Security Act of 1935, you’re most likely not alone. It was signed into law by President Franklin D. Roosevelt on August 14, 1935, and it has undergone multiple amendments, with thousands of pages and sections added to it.

One of those sections, Section 1886(d), specifies that the Secretary of Health and Human Services (HHS) establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the Inpatient Prospective Payment System (IPPS) based on appropriate weighting factors assigned to each DRG. Through the IPPS, the Centers for Medicare & Medicaid Services (CMS) pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary’s stay is assigned.

Each Medicare Severity-Diagnosis Related Group (MS-DRG) relative weight represents the average resources required to care for cases in that particular MS-DRG. Another part of the Social Security Act, Section 1886(d)(4)(C), requires the HHS Secretary to adjust the DRG classifications and relative weights at least annually to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

Let’s explore more about the upcoming 2022 updates.

MS-DRG relative weight calculation

In August of this year, CMS released its fiscal year (FY) 2022 IPPS Final Rule. The rule doesn’t finalize provisions on new residency program slots, calculation of organ acquisition costs, or using Section 1115 waiver days to determine Medicare disproportionate share hospital (DSH) payments, but it increases inpatient PPS rates by a net of 2.5 percent in FY 2022 (compared to FY 2021).

The IPPS rule also repeals the requirement to report certain payer-negotiated rates and makes changes to quality measurement and value programs. According to the final rule, had hospitals been required to comply with this requirement, it would have resulted in approximately 64,000 hours of administrative burden.

A key implication of the IPPS final rule is that for FY2022, CMS will not implement the market-based MS-DRG relative weight methodology for calculating the MS-DRG relative weights that was to be effective in FY 2024. Instead, the agency will continue with the cost-based structure. This decision by the agency follows its somewhat controversial overhaul of MS-DRG rate-setting in the 2021 IPPS final rule, which was set to take effect in FY 2024.


One of the new policies under the 2022 IPPS final rule will impact the way future inpatient cell-based immunotherapies are paid by Medicare. CMS is adding additional procedure codes affecting pre-Major Diagnosis Category MS-DRG 018 and renaming the MS-DRG to Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies. The base payment for CAR-T cases in FY 2022 will increase by 2.9% to $246,598.

woman at doctor's office

Another change in the IPPS rule is the extension of the New COVID-19 Treatments Add-on Payment (NCTAP) through the end of the fiscal year in which the public health emergency (PHE) ends. According to the CMS, the NCTAP is designed to mitigate potential financial disincentives for hospitals to provide new COVID-19 treatments.

The other key takeaway on MS-DRG changes in the 2022 IPPS Final Rule is the CMS finalization of the use of FY 2019 Medicare Provider Analysis and Review (MedPAR) data and the FY 2018 Healthcare Cost Report Information System file for analyzing MS-DRG changes and determining MS-DRG relative weights for FY 2022. Because of the PHE, CMS believes that FY 2020 data would not accurately reflect utilization patterns.

Partnering to understand healthcare updates

The MS-DRG system is a major driver for many hospitals and health systems to invest in clinical documentation improvement (CDI) programs. Many organizations that have implemented an MS-DRG-focused review program have seen success and experienced benefits such as improved provider documentation and true Case Mix Index (CMI) capture.

At Harmony Healthcare, we recognize that putting changes from healthcare rules and regulations into practice can be both challenging and time-consuming. In addition to helping to guide you through this process, we’re able to:

  • partner with coders to assign the most accurate DRG on all DRG-reimbursed inpatient cases
  • secure physician review of charts after the coder has assigned the DRG but before the bill is dropped

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