Contact Your Lawmakers:

Protect Innovation at Essential Hospitals

CMS Terminates Low-Wage Index Hospital Payment for FY 2025

October 4, 2024
Evan Schweikert

In response to a July court ruling holding that the Centers for Medicare & Medicaid Services (CMS) low-wage index payment policy was illegal, CMS issued an interim final rule Sept. 30 that cancels the enhanced payment policy for the lowest quartile wage-index hospitals.

In the Bridgeport Hosp. v. Becerra ruling, the court found the Secretary of Health and Human Services lacked the discretionary authority to amend how the wage index is applied under the Inpatient Prospective Payment System (IPPS). The interim final rule is open for comment until Nov. 29.

The decision and the resulting Sept. 30 final rule dissolve a policy in place since 2020. CMS has offered a budget-neutral enhancement for the bottom quartile wage-index hospitals, intended to help those IPPS hospitals increase wages. The policy was intended to bridge a reporting lag between hospitals increasing a wage and that increased wage appearing in the wage index. CMS had found the lag was a significant barrier for lower-wage hospitals. The bottom quartile hospitals received $245 million through the policy, which was made budget neutral by decreasing Medicare payments for all hospitals.

The removal of the policy and the budget neutrality mechanism will result in slight changes for all hospitals. The calculation of the operating base rate, capital rate, and fixed loss outlier threshold are each adjusted slightly upward. For hospitals in the bottom quartile, consistent with existing wage index policy, any hospital wage index negatively affected by the change will experience no more than a 5 percent reduction from the fiscal year 2024 wage index.

Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.

Keep up with the pulse of America's Essential Hospitals

Members: Sign up for email updates.