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CMS Issues FY 2024 IPPS Final Rule

Shahid Zaman
August 3, 2023

On Aug. 1, the Centers for Medicare & Medicaid Services (CMS) released its fiscal year (FY) 2024 Inpatient Prospective Payment System (IPPS) final rule, which includes changes to the calculation of Medicare disproportionate share hospital (DSH) payments, payment and quality reporting provisions, health equity–related policies, and an acknowledgement of feedback received on defining safety net hospitals.

In a statement, America’s Essential Hospitals expressed disappointment in the finalized Medicare DSH proposals, which will reduce substantially Medicare DSH payments to essential hospitals and hamper their health equity efforts.

Payment Rates

CMS finalized a 3.1 percent increase in operating payment rates for general acute-care hospitals, a slight increase compared with the proposed 2.8 percent update. This payment update results from a market basket increase of 3.3 percent reduced by a 0.2 percentage point productivity adjustment.

CMS will use the most recently available data — FY 2022 claims and FY 2021 cost reports — to set IPPS payment rates and Medicare severity diagnosis related group weights. Unlike in recent years, CMS will not adjust for the effect of COVID-19 cases on utilization for FY 2024.

Medicare DSH Payments

For FY 2024, CMS estimates total Medicare DSH payments will be $9.28 billion — more than $800 million less than the proposed $10.12 billion. Of these payments, $5.94 billion will be uncompensated care (UC)–based payments.

CMS will use the average of three 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 2024 UC-based DSH payments, CMS finalized a proposal to use the average of UC costs reported on FY 2018 through FY 2020 cost reports, which the agency says have been audited.

CMS also finalized a proposal to limit the types of Medicaid Section 1115 waiver days that can be included in the Medicare DSH calculation. In a February proposed rule, CMS proposed to restrict the types of Medicaid days that can be included in the Medicaid fraction of a hospital’s disproportionate patient percentage (DPP). The IPPS rule finalizes this proposal, which restricts days that can be included in the DPP to those days for which:

  • Patients receive health insurance through a Section 1115 demonstration itself or by purchasing health insurance with premium assistance provided by a Section 1115 demonstration.
  • State expenditures to provide the insurance or premium assistance may be matched with federal Medicaid funds.

For Section 1115 waiver days to be included in the Medicaid fraction, either the insurance provided through the waiver must cover inpatient hospital services or the premium assistance must cover 100 percent of the premium to buy insurance to cover inpatient hospital services. CMS is amending the regulations to exclude explicitly from the Medicaid fraction patient days for which hospitals received a payment from a Section 1115–based UC pool.

Safety Net Hospital Request for Information

In the proposed IPPS rule, CMS requested information on defining safety net hospitals and the challenges these hospitals face, citing the importance of safety net hospitals in advancing health equity and their unique financial challenges. Specifically, CMS sought comments on two approaches to defining safety net hospitals: the Medicare safety net index and using area-level indices like the area deprivation index. America’s Essential Hospitals provided detailed feedback to CMS on a definition of essential hospitals.

In the final rule, the agency thanked commenters for their feedback and reemphasized its goal of helping safety net hospitals meet the unique challenges they face. The agency states that it is reviewing the comments it received and will use these comments to guide future policymaking in this area.

Wage Index

CMS finalized its proposal to continue for an additional year the policy finalized in the FY 2020 IPPS rule to reduce wage index disparities affecting low–wage index hospitals and to continue a permanent policy to cap year-over-year wage index decreases for a hospital at five percent.

Graduate Medical Education (GME) at Rural Emergency Hospitals

The Consolidated Appropriations Act, 2021 established a new provider type, the rural emergency hospital (REH), effective Jan. 1, 2023. These hospitals provide exclusively emergency department services and observation care, as well as other outpatient services.

CMS finalized a proposal to allow REHs as an approved nonprovider training site for GME purposes. For cost report periods beginning on or after Oct. 1, teaching hospitals can include residents training at REHs in their direct GME and indirect medical education (IME) full-time equivalent (FTE) counts. Alternatively, REHs may claim the direct training costs of training residents and be paid at 100 percent of the reasonable costs for training those residents, in which case a teaching hospital would not be able to include training occurring at the REH in its direct GME and IME FTE counts.

Quality Reporting

CMS updated the Hospital Inpatient Quality Reporting (IQR) Program, Hospital-Acquired Condition (HAC) Reduction Program, and Hospital Value-Based Purchasing (VBP) Program. CMS did not change the Hospital Readmissions Reduction Program.

Hospital IQR Program

CMS finalized its plan to add three electronic clinical quality measures (eCQMs) to the IQR Program:

  • Hospital Harm — Pressure Injury eCQM.
  • Hospital Harm — Acute Kidney Injury eCQM.
  • Excessive Radiation Dose or Inadequate Image Quality for Diagnostic CT in Adults (Hospital Level — Inpatient) eCQM.

The measures faced opposition from commenters due to implementation difficulties, costs, and the additional time burden they presented for hospitals with the introduction of new eCQMs. CMS noted that eCQMs aid in achieving a fully digital quality measurement landscape, which potentially could reduce burden in the long term. CMS further explicated that the three measures are not compulsory but are part of an array of eCQMs from which hospitals can choose voluntarily for reporting, starting with the calendar year (CY) 2025 reporting period/FY 2027 payment determination.

COVID-19 Up to Date Measure

Notable among the revisions to existing measures, CMS finalized its proposal to update the COVID-19 vaccination among health care personnel measure beginning with the fourth quarter reporting period of CY 2023 (FY 2025 payment determination). CMS now will include the bivalent COVID-19 booster vaccination when collecting data on the number of health care personnel who are up to date with recommended COVID-19 vaccinations. Previously, the data included only the primary vaccination series.

Commenters on the proposal to update the COVID-19 Vaccination Coverage among Healthcare Personnel measure raised concerns about increased data collection and reporting burdens, particularly after the public health emergency (PHE). Commenters also expressed concerns with frequent changes to the Centers for Disease Control and Prevention’s definition of being “up to date” on vaccinations and uncertainty about future vaccination schedules.

CMS approved the proposal, citing alignment with wellness, disease prevention, and national quality strategy goals. CMS also maintained that the measure was appropriate given the ongoing circulation of SARS–CoV–2, the virus that causes COVID-19, and noted the measure does not mandate vaccines but only requires vaccination rate reporting.

HAC Reduction Program

For the HAC Reduction Program, CMS finalized its proposal to create a validation reconsideration process for hospitals that fail to meet data validation requirements, beginning with the FY 2025 program year (for CY 2022 discharges).

Hospital VBP Program

CMS finalized several changes to the VBP Program, including the use of a health equity adjustment in a hospital’s total performance score (TPS). The adjustment would be based on the hospital’s performance across the four measure domains in the VBP program and the proportion of the hospital’s patients dually eligible for Medicare and Medicaid.

CMS will adopt modified versions of two existing VBP measures: the Medicare Spending Per Beneficiary (MSPB) measure, in FY 2028, and the Hospital-level Risk-Standardized Complication Rate following elective primary total hip arthroplasty and/or total knee arthroplasty measure, in FY 2030.

Additionally, CMS will add a new measure of Severe Sepsis and Septic Shock Management to the VBP Program’s Safety Domain beginning in FY 2026. This measure will assess hospitals’ adherence to evidence-based guidelines for managing severe sepsis and septic shock.

Promoting Interoperability (PI) Program

CMS finalized several proposals for the Medicare PI Program, including establishing a 180-day reporting period for CY 2025. CMS also will adopt the three new eCQMs added to the IQR Program, beginning with the CY 2025 reporting period. Additionally, CMS finalizes various changes to existing measures and other technical changes to the program.

Social Determinants of Health Codes

CMS finalized its proposal to change the severity level of three ICD-10 Z codes for homelessness from noncomplication or comorbidity (nonCC) to complication or comorbidity (CC). This would mean that reporting these three Z codes as secondary diagnoses on inpatient claims could result in higher payment.

New COVID-19 Treatments Add-on Payment (NCTAP)

CMS will discontinue add-on payments for new COVID-19 treatments. The NCTAP provides a 20 percent add-on for COVID-19related discharges that include the use of certain new products with current Food and Drug Administration approval or emergency use authorization to treat COVID-19. Due to the May 11 expiration of the COVID-19 PHE, the NCTAP policy will sunset at the end of this fiscal year, on Sept. 30.

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

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