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CMS Releases FY 2025 IPPS Proposed Rule

Faridat Animashaun
April 16, 2024

On April 10, the Centers for Medicare & Medicaid Services (CMS) released its proposed fiscal year (FY) 2025 Inpatient Prospective Payment System (IPPS) rule, which includes payment and quality reporting provisions, a mandatory episode-based model proposal, and requests for feedback on maternity care and data reporting.

In a statement, America’s Essential Hospitals expressed concern that CMS’s proposed approach to identify safety net hospitals for the purpose of care improvement initiatives would not fully capture hospitals at the core of the nation’s safety net.

Payment Rates and Medicare DSH Payments

CMS proposes to increase operating payment rates for general acute care hospitals by 2.6 percent. This payment update results from a market basket increase of 3 percent reduced by a 0.4 percent point productivity adjustment.

For FY 2025, CMS estimates total Medicare disproportionate hospital (DSH) payments will increase to $9.98 billion, including a $560 million increase to uncompensated care–based DSH payments. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $94 million in FY 2025.

Wage Index

CMS proposes to continue for at least three more years the policy finalized in the FY 2020 IPPS rule to reduce wage index disparities affecting low–wage index hospitals. CMS also proposes to continue a permanent policy to cap year-over-year wage index decreases for a hospital at 5 percent.

Graduate Medical Education (GME)

CMS proposes an application process to distribute $74 million of additional funding to support 200 additional GME residency slots required under Section 4122 of the Consolidated Appropriations Act, 2023, half of which must be used to support psychiatric training. The proposed methodology is similar to the methodology CMS is using to distribute 1,000 new residency slots Congress added in 2021, with an emphasis on supporting training in health professional shortage areas to help bolster the health care workforce in rural and underserved areas.

Maternity Care Request for Information

Citing the Biden-Harris administration’s commitment to equity in maternal health, CMS requests information on the differences between hospital resources required to provide inpatient pregnancy and childbirth services to Medicare patients compared with non-Medicare patients. Additionally, CMS seeks comment on potential ways to leverage hospital conditions of participation to implement solutions to maternal morbidity, mortality, disparities, and maternity care access in the United States without compromising access to care.

Transforming Episode Accountability Model (TEAM)

CMS proposes a five-year, mandatory episode-based payment model in which acute-care hospitals in selected geographic regions would coordinate care for people with traditional Medicare who undergo one of five surgical procedures. Participating hospitals would assume responsibility for the cost and quality of care from surgery through the first 30 days after the Medicare beneficiary leaves the hospital. The model would launch Jan. 1, 2026, and run for five years, ending Dec. 31, 2030.

The proposed model would offer three participation tracks and certain flexibility to help hospitals that care for a higher proportion of underserved individuals, such as safety net hospitals, by reducing the financial burden sometimes associated with value-based model participation. CMS proposes to define safety net hospitals as short-term hospitals and critical access hospitals (CAHs) that serve above a baseline threshold of beneficiaries with dual eligibility or Part D Low-Income Subsidy, as a proxy for low-income status.

The proposed rule seeks feedback on how best to identify safety net hospitals.

Social Determinants of Health Diagnosis (SDOH) Codes

CMS proposes to change the severity designation of the seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability 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 with similar cases without these codes. This would mean that reporting these Z codes as secondary diagnoses on inpatient claims could result in higher payment.

Quality Reporting

CMS proposes updates to the Hospital Inpatient Quality Reporting (IQR) Program and the Hospital Value-Based Purchasing (VBP) Program. CMS does not propose any changes to the Hospital-Acquired Condition Reduction Program and the Hospital Readmissions Reduction Program.

Hospital IQR Program

CMS proposes to add seven measures, remove five measures, and revise one electronic clinical quality measure (eCQM) in the IQR program.

The seven measures CMS proposes to add include two new eCQMs, one claims-based measure, two structural measures, and two health care–associated infection measures.

Hospital VBP Program

CMS proposes to:

  • Adopt the Patient Safety Structural measure beginning with the calendar year (CY) 2025 reporting period/FY 2027 program year.
  • Modify the Hospital Consumer Assessment of Healthcare Providers and Systems Survey measure under the Hospital VBP Program beginning with the CY 2025 reporting period/FY 2027 program year.
  • Move up the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure to January 2026 or as soon as feasible thereafter.

Request for Information to Advance Patient Safety and Outcomes across the Hospital Quality Programs

To encourage hospitals to improve discharge processes, CMS requests public comment on suggestions to improve quality reporting programs that account for unplanned patient hospital visits. The agency expresses concern that current measures do not fully capture unplanned patient returns to inpatient or outpatient care after discharge.

Medicare Promoting Interoperability Program

CMS proposes to:

  • Separate one existing measure into two distinct measures.
  • Adopt two new eCQMs.
  • Modify one current eCQM.
  • Increase the performance-based scoring threshold.
  • Increase the total number of mandatory eCQMs reported by hospitals over two years.

CMS also proposes to increase the performance-based scoring threshold for eligible hospitals and CAHs reporting to the Medicare Promoting Interoperability Program from 60 to 80 points beginning with the electronic health record reporting period in CY 2025.

Hospital and CAH Data Reporting

CMS proposes to replace the COVID-19 and seasonal influenza reporting standards for hospitals and CAHs with a new standard that will target acute respiratory illnesses. Beginning Oct. 1, 2024, hospitals and CAHs would have to electronically report certain data elements about COVID-19, influenza, and respiratory syncytial virus (RSV), including:

  • Confirmed infections of respiratory illnesses, including COVID-19, influenza, and RSV, among hospitalized patients.
  • Hospital bed census and capacity.
  • Limited patient demographic information, including age.

CMS proposes that hospitals and CAHs must report these data on a weekly basis, barring a public health emergency (PHE). The agency might require additional categories of reporting in the event of a declared national PHE for an acute respiratory illness.

CMS seeks public comment on ways to minimize the reporting burden while still providing adequate data. The agency also issued an RFI to better understand actions the agency can take to strengthen hospital and CAH participation in and timely, complete data reporting through CDC’s National Syndromic Surveillance Program (NSSP).

America’s Essential Hospitals is analyzing the proposed rule for comment and will send members a detailed Action Update in the coming days. CMS will accept comments on the proposed rule until June 10.

Contact Director of Policy Rob Nelb at or 202-585-0127 with questions.

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