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CMS Issues FY 2023 IPPS Final Rule

Shahid Zaman
August 2, 2022

On Aug. 1, the Centers for Medicare & Medicaid Services (CMS) released its final fiscal year (FY) 2023 Inpatient Prospective Payment System (IPPS) rule, which contains payment and quality reporting provisions, including three equity measures, and a new designation to identify “birthing-friendly” hospitals.

Payment Rates

CMS will increase operating payment rates for general acute-care hospitals by 4.3 percent, compared with the proposed 3.2 percent payment update. The finalized payment update is a result of a market basket increase of 4.1 percent reduced by a 0.3 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by legislation.

CMS will use the most recently available data — FY 2021 claims and FY 2020 cost reports — to set IPPS payment rates and Medicare severity diagnosis related group (MS-DRG) weights. For FY 2023, CMS finalized its proposal to account for the effect of COVID-19 cases on utilization by calculating MS-DRG weights using the average of two sets of weights — one including and one excluding COVID-19 claims.

Medicare DSH Payments

For FY 2023, CMS estimates total Medicare disproportionate share hospital (DSH) payments will be $10.36 billion — $340 million less than FY 2022 but about $500 million higher than the proposed rule estimate. Of these payments, $6.87 billion will be uncompensated care (UC)–based payments.

CMS finalized its proposal to use the average of two years of UC data from worksheet S-10 of the Medicare cost report to calculate each hospital’s share of UC in the DSH calculation. For FY 2023 UC-based DSH payments, CMS will use the average of UC costs reported on FY 2018 and FY 2019 cost reports, which the agency says have been audited. Beginning in FY 2024, CMS will use three years of UC data from audited cost reports to calculate UC-based DSH payments.

As America’s Essential Hospitals urged the agency to do, CMS withdrew a proposal to change the definition of patients who are deemed Medicaid-eligible for inclusion in the Medicaid fraction of a hospital’s disproportionate patient percentage (DPP), which is a hospital’s number of Medicaid-eligible days over total patient days. The DPP is used to determine eligibility for Medicare DSH payments and calculate a hospital’s empirically justified payment.

CMS had proposed to limit the types of Medicaid Section 1115 waiver days that can be included in the Medicaid fraction. The proposal would have limited included waiver days to days for which a patient receives health insurance authorized by a Section 1115 demonstration or purchases insurance that provides essential health benefits using Section 1115–authorized premium assistance that equals at least 90 percent of the plan’s cost. This change explicitly would have excluded from the Medicaid fraction patient days for which hospitals received a payment from a Section 1115–based UC pool. Citing the nature and number of comments it received, CMS says it withdrew this proposal but will consider it in future rulemaking.

Wage Index

CMS will continue the FY 2020 IPPS rule policy to reduce wage index disparities affecting low–wage index hospitals and will institute a permanent policy to cap year-over-year wage index decreases for a hospital at 5 percent.

Quality Reporting

CMS made updates to the Hospital Value-Based Purchasing (VBP) Program, Hospital Readmissions Reduction Program (HRRP), Hospital-Acquired Condition (HAC) Reduction Program, and Hospital Inpatient Quality Reporting (IQR) Program.

CMS acknowledges that the effects of the COVID-19 pandemic continue to accelerate in 2021. As such, the agency will continue its cross-program measure suppression policy, adopted last year, for program data affected by the COVID-19 public health emergency (PHE).

Further, in the Hospital VBP Program, the agency will not award a total performance score to any hospital for the FY 2023 program year but, rather, award each hospital a value-based incentive payment equal to the amount withheld for the fiscal year (i.e., 2 percent). Similarly, CMS will not assign a measure score, total HAC score, or penalty for hospitals participating in the HAC Reduction Program. However, after further consideration, CMS decided to calculate and publicly report the CMS patient-safety indicator (PSI 90) measure results. Although publicly reported, the PSI 90 measure will not be used in payment calculations in the HAC Reduction Program.

CMS sought comment on promoting health equity through possible future incorporation of hospital performance for socially at-risk populations into the HRRP, e.g., incorporating variables of social risk, in addition to dual eligibility, into the current peer-grouping methodology. CMS will consider the input received as it develops and expands its future health equity efforts. The agency also will modify the measure specifications of the readmission measures to include an adjustment for patient history of COVID-19, recognizing that the lasting effects of COVID-19 (also known as long COVID) could affect a patient’s risk factors for readmission.

CMS finalized as proposed 10 measures in the Hospital IQR Program, including three health equity measures — one measure on hospital leadership commitment to equity and two measures related to screening for social drivers of health — and a malnutrition measure to target food insecurity. The Hospital Commitment to Equity will be mandatory beginning with the calendar year (CY) 2023 reporting period. The two screening measures will have a year of voluntary reporting in 2023 before required reporting in 2024. CMS noted that, in the future, it will be interested in using measures focused on connecting patients with identified social needs to community resources or services.

The final rule also includes changes to electronic clinical quality measure (eCQM) reporting in the IQR Program.

Reporting beyond COVID-19 PHE

CMS finalized its proposal to revise the hospital infection prevention and control Conditions of Participation to require continued COVID-19 reporting from the end of the current COVID-19 PHE declaration through April 30, 2024. During this period, hospitals will be required to report information about COVID-19 and seasonal influenza electronically in a standardized format.

In response to stakeholder concerns, CMS withdrew its proposal to require future infectious disease reporting in the event of a declared PHE. The agency acknowledged that additional consideration is necessary to fully establish a long-term solution for ensuring hospital preparedness for another PHE.

Hospital Designation on Maternity Care

CMS finalized as proposed a first-ever publicly reported hospital designation to capture the quality and safety of maternal care. CMS will award the “birthing-friendly” designation to hospitals that attest yes to both questions under the maternal morbidity structural measures previously finalized in the IQR Program. In future rulemaking, CMS intends to propose a more robust set of criteria for awarding the designation that might include other maternal health–related measures that might be finalized for the Hospital IQR Program measure set.

Promoting Interoperability Program

CMS included several finalized policies for the Medicare Promoting Interoperability (PI) Program, including:

  • making mandatory the measure requiring a hospital to query a prescription drug monitoring program;
  • adding a new Enabling Exchange under the Trusted Exchange Framework and Common Agreement measure under the Health Information Exchange (HIE) Objective as a yes/no attestation, beginning with the CY 2023 reporting period, as an option to the three existing measures under the HIE Objective;
  • adding a new antimicrobial use and resistance surveillance measure and requiring its reporting under the Public Health and Clinical Data Exchange Objective, beginning with the CY 2024 electronic health record reporting period;
  • publicly reporting certain PI Program data, beginning with the CY 2023 reporting period;
  • adopting two new eCQMs in CY 2023 and two new eCQMs in 2024; and
  • increasing required eCQM reporting from four to six eCQMs, beginning with the CY 2024 reporting period.

Requests for Information 

In the final rule, CMS acknowledged feedback it received on requests for information on health impacts due to climate change, overarching principles in measuring health care quality disparities, and advancing the Trusted Exchange Framework and Common Agreement (TEFCA).

Contact Director of Policy Rob Nelb, MPH, at or 202.585.0127 with questions.

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