FY 2024 Hospital Inpatient Prospective Payment System (IPPS) and Long

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On April 10, 2023, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2024 Medicare hospital inpatient prospective payment system (IPPS) and long-term care hospital prospective payment system (LTCH PPS) proposed rule.

The proposed rule would update Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for fiscal year (FY) 2024. CMS is publishing this proposed rule to meet the legal requirements to update Medicare payment policies for IPPS hospitals and LTCHs on an annual basis. This fact sheet discusses major provisions of the proposed rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/public-inspection/2023-07389/medicare-program-proposed-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals

Background on the IPPS and LTCH PPS

CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays generally based on the patient’s diagnosis, the services or treatment provided, and severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are: IPPS: Medicare Severity Diagnosis-Related Groups (MS-DRGs) and LTCH PPS: Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).

The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services used by these hospitals in treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. CMS updates LTCHs’ payment rates annually according to a separate market basket based on LTCH-specific goods and services.

Changes to Payment Rates under IPPS

The proposed increase in operating payment rates for general acute care hospitals paid under the IPPS, that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users is projected to be 2.8%. This reflects a projected FY 2024 hospital market basket percentage increase of 3.0%, reduced by a 0.2 percentage point productivity adjustment.

Hospitals may be subject to other payment adjustments under the IPPS, including:

The proposed increase in operating and capital IPPS payment rates will generally increase hospital payments in FY 2024 by $3.3 billion. In addition, CMS projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $115 million. Subject to determinations on applications for additional payments for inpatient cases involving new medical technologies following a review of public comments on the proposed rule, CMS also estimates that additional payments for inpatient cases involving new medical technologies will decrease by $460 million in FY 2024, primarily driven by the expiration of new technology add-on payments for several technologies.

Changes to Payment Rates under LTCH PPS

For FY 2024, CMS expects the LTCH standard payment rate to increase by 2.9% and LTCH PPS payments for discharges paid the LTCH standard payment rate to decrease by approximately 2.5% or $59 million due primarily to a projected 4.7% decrease in high-cost outlier payments as a percentage of total LTCH PPS standard Federal payment rate payments. CMS is seeking comment on the methodology used to determine the LTCH PPS outlier threshold for discharges paid the LTCH standard Federal payment rate.

Safety-Net Hospital Request for Information

CMS is working to advance health equity in the proposed rule through a focus on safety-net hospitals. Safety-net hospitals play a crucial role in the advancement of health equity by making essential services available to the uninsured, underinsured, and other populations that face barriers to accessing health care, including people from racial and ethnic minority groups, the LGBTQ+ community, rural communities, and members of other historically underserved groups. CMS is seeking public input on the unique challenges faced by safety-net hospitals and the patients they serve, and potential approaches to help safety-net hospitals meet those challenges.

Continuation of the Low-Wage Hospital Policy

CMS proposes to continue temporary policies finalized in the FY 2020 IPPS/LTCH PPS final rule to address wage index disparities affecting low-wage index hospitals, which includes many rural hospitals. As CMS only has limited data from the time period this policy has been in effect, we believe it is appropriate to propose continuing the policy while we obtain and review additional data.

Rural Emergency Hospitals (REHs) and Graduate Medical Education (GME)

This rule also includes proposed changes to GME payments for training in the new Medicare provider type, REH, which was established by the Consolidated Appropriations Act, 2021, to address the growing concern over closures of rural hospitals. These changes, if finalized, would help support graduate medical training in rural areas by allowing these rural hospitals to serve as training sites for Medicare GME payment purposes after they become REHs.

Health Equity Impacts

The rule also advances one of the goals of the CMS Framework for Health Equity 2022-2032 to more explicitly measure the impact of our policies on health equity. As part of our growing capabilities in this area, we are proposing to add 15 new health equity hospital categorizations for the FY 2024 IPPS payment impacts. Moving forward, one of the priorities of the CMS Framework for Health Equity 2022-2032 is to expand the collection, reporting, and analysis of standardized health equity data. As additional data become available, we plan to incorporate it on an ongoing basis into our impact analyses.

Social Determinants of Health Diagnosis (SDOH) Codes

IPPS payment is made based on the use of hospital resources in the treatment of a patient’s severity of illness, complexity of service, and/or consumption of resources. Generally, a higher severity level designation of a diagnosis code results in a higher payment to reflect the increased hospital resource use. After review of our data analysis of the impact on resource use generated using claims data, CMS is proposing to change the severity designation of the three ICD-10-CM diagnosis codes describing homelessness (e.g., unspecified, sheltered, and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes.

Changes to the New COVID-19 Treatments Add-on Payment (NCTAP)

In response to the COVID-19 Public Health Emergency (PHE), CMS established the New COVID-19 Treatments Add-on Payment (NCTAP) for eligible discharges during the PHE. In the FY 2022 IPPS/LTCH PPS final rule, we finalized a change to our policy to extend NCTAP through the end of the FY in which the PHE ends for all eligible products to continue to mitigate potential financial disincentives for hospitals to provide these new treatments and to minimize any potential payment disruption immediately following the end of the PHE. If the PHE ends in May of 2023, as planned by the Department of Health and Human Services (HHS), discharges involving eligible products would continue to be eligible for the NCTAP through September 30, 2023 (that is, through the end of FY 2023). The NCTAP would expire at the end of FY 2023, and no NCTAP would be made beginning in FY 2024 (that is, for discharges on or after October 1, 2023).

Changes to NTAP Policies for FY 2024

To increase transparency and improve the efficiency of the NTAP program and application process, CMS is proposing to require NTAP applicants for technologies that are not already FDA market authorized to have a complete and active FDA market authorization application request at the time of submission of NTAP application submission, and to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025. CMS believes these policy changes would improve the completeness of submitted NTAP applications, allow for a fuller analysis and improved ability for CMS to identify eligibility concerns for the proposed rule, and allow the agency and the public to more knowledgeably analyze applications and supporting data to inform a final decision.

Changes to the Rural Wage Index Calculation Methodology

CMS has taken into consideration recent public comments that have urged it to change its wage index policies involving the treatment of hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Social Security Act (implemented in the regulations at §412.103). After revisiting the statute and relevant court decisions, CMS is proposing to interpret section 1886(d)(8)(E) of the Social Security Act as instructing CMS to treat rural reclassified hospitals the same as geographically rural hospitals for purposes of calculating the wage index. Specifically, we are proposing to include hospitals with §412.103 reclassification along with geographically rural hospitals in rural wage index calculations beginning with FY 2024. That is, we are proposing to include the data of all §412.103 reclassified hospitals in the calculation of the wage index for the rural area of the state and the calculation of the wage index floor for urban hospitals in the state. (Under the law, the area wage index applicable for any hospital that is located in an urban area of a state may not be less than the area wage index applicable to hospitals located in rural areas in that state. This provision is referred to as the rural floor.)

Physician-Owned Hospitals

For a hospital to submit claims and receive Medicare payment for services referred by a physician owner or investor (or a physician whose family member is an owner or investor), the hospital must satisfy all of the requirements of either the whole hospital exception or the rural provider exception to the physician self-referral law, commonly referred to as the “Stark Law.”

To use the rural provider or whole hospital exception, a hospital may not increase the aggregate number of operating rooms, procedure rooms, and beds above that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such agreement), unless CMS has granted an exception to the prohibition on expansion. A hospital may request an exception to the prohibition on expansion of facility capacity using the process established in the calendar year (CY) 2012 hospital outpatient prospective payment system (OPPS) and ambulatory surgical center (ASC) payment system final rule.

In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is:

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR Program is a pay-for-reporting quality program. Hospitals that do not submit quality measure data or fail to meet all Hospital IQR Program requirements are subject to a one-fourth reduction in their Annual Payment Update under the IPPS.

In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is proposing to adopt three new quality measures, remove three existing quality measures, and modify three current quality measures. CMS is also proposing two changes to current policies related to data submission, reporting, and validation, as well as requesting comment on the potential future inclusion of geriatric measures and a potential future public-facing geriatric hospital designation.

Specifically, CMS is proposing to adopt three new electronic clinical quality measures (eCQMs) to the list of eCQMs from which hospitals can self-select to meet the eCQM reporting requirements for a given year:

CMS is proposing to modify three current measures:

CMS is proposing to remove three measures:

CMS is proposing modification of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey measure beginning with the CY 2025 reporting period/FY 2027 payment determination. These updates include three new web-first modes of survey implementation, removing the survey’s prohibition on proxy respondents, extending the data collection period from 42 to 49 days, limiting the number of supplemental survey items to 12, requiring the official Spanish translation for Spanish language-preferring patients, and removing two administration methods that are not used by participating hospitals.

In addition, CMS is requesting comment from stakeholders on the potential future inclusion of two geriatric measures: the geriatric hospital and geriatric surgical structural measures. CMS is also requesting comments regarding the potential future establishment of a publicly reporting hospital designation to capture the quality and safety of patient-centered geriatric care.

Medicare Promoting Interoperability Program

In 2011, CMS established the Medicare and Medicaid EHR Incentive Programs (now known as the Medicare Promoting Interoperability Program and the Promoting Interoperability performance category in the Merit-based Incentive Payment System) to encourage eligible professionals, eligible hospitals, and critical access hospitals (CAHs) to adopt, implement, upgrade, and demonstrate meaningful use of certified EHR technology (CEHRT).

CMS is proposing the following changes to the Medicare Promoting Interoperability Program for eligible hospitals and CAHs:

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

The PCHQR Program is a quality reporting program for the eleven cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is proposing the following:

Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program is a value-based purchasing program that reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving health care for patients by linking payment to the quality of hospital care. CMS is not proposing any changes to the Hospital Readmissions Reduction Program. We note that all previously finalized policies under this program will continue to apply and refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49081 through 49094) for information on these policies.

Hospital-Acquired Condition (HAC) Reduction Program

The HAC Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions by reducing payment by 1% for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions. In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is proposing to:

In addition, CMS is requesting comment from stakeholders on potential future measures that would advance patient safety and reduce health disparities.

Hospital Value-Based Purchasing (VBP) Program

The Hospital VBP Program is a budget-neutral program funded by reducing participating hospitals’ base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments. In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is proposing to:

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

The LTCH QRP is a pay-for-reporting program. LTCHs that do not meet reporting requirements are subject to a two percentage point reduction in their Annual Payment Update. In the FY 2024 IPPS/LTCH PPS proposed rule, CMS is proposing the following:

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CMS News and Media GroupCatherine Howden, DirectorMedia Inquiries Form202-690-6145