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CMS Releases FY 2023 IPPS Proposed Rule

On April 18, the Centers for Medicare & Medicaid Services (CMS) released its proposed fiscal year (FY) 2023 Inpatient Prospective Payment System (IPPS) rule, which includes payment and quality reporting provisions, in addition to requests for feedback on advancing health care equity, mitigating climate change, and improving maternal care.

In a statement, America’s Essential Hospitals applauded CMS for its focus on health care equity but cautioned about the effect of reduced Medicare disproportionate share hospital payments on essential hospitals.

Payment Rates

CMS proposes to increase operating payment rates for general acute care hospitals by 3.2 percent. This payment update is a result of a market basket increase of 3.1 percent reduced by a 0.4 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by legislation.

CMS proposes to 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 proposes 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 $9.85 billion — $850 million less than FY 2022. Of these payments, $6.5 billion will be uncompensated care (UC)–based payments — $650 million less than UC payments in FY 2022.

CMS proposes 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 proposes to 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 proposes to use three years of UC data from audited cost reports to calculate UC-based DSH payments.

CMS also proposes 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.

Specifically, CMS proposes to limit the types of Medicaid Section 1115 waiver days that can be included in the Medicaid fraction. Inclusions are restricted to days for which a patient receives health insurance authorized by a Section 1115 demonstration or purchases insurance that provides essential health benefits using premium assistance authorized by a Section 1115 demonstration that equals at least 90 percent of the health insurance’s cost. This change explicitly excludes from the Medicaid fraction patient days for which hospitals received a payment from a Section 1115–based UC pool.

Wage Index

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

Quality Reporting

CMS proposes updates for 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 continued to accelerate in 2021. As such, the agency proposes to continue its cross-program measure suppression policy, adopted last year, for program data affected by the COVID-19 public health emergency (PHE).

Further, the agency proposes the Hospital VBP Program 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 proposes not to assign a measure score, total HAC score, or penalty for hospitals participating in the HAC Reduction Program.

CMS seeks 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. Additionally, CMS proposes to 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

Among the 10 measures proposed for adoption in the Hospital IQR Program are 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 proposed rule also includes changes to electronic clinical quality measure (eCQM) reporting in the IQR Program.

Reporting beyond COVID-19 PHE

CMS proposes to revise the hospital infection prevention and control Conditions of Participation (CoPs) to require continued COVID-19 reporting beginning at the conclusion of the current COVID-19 PHE declaration until April 30, 2024. During this period, hospitals would be required to report information about COVID-19 and seasonal influenza electronically in a standardized format. CMS also proposes to establish hospital reporting requirements for future PHEs related to epidemics and pandemics.

Payment Adjustments for Wholly Domestically Made N95s

To improve hospital preparedness and readiness for future threats, CMS seeks comment on providing payment adjustments to hospitals to recognize the additional resource costs they incur to acquire National Institute for Occupational Safety and Health–approved surgical N95 respirators that are wholly domestically made.

Hospital Designation on Maternity Care

CMS proposes a publicly reported hospital designation to capture the quality and safety of maternal care. Specifically, CMS will award the 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.

CMS also solicits input through a request for information (RFI) on how the agency can address the U.S. maternal health crisis through policies and programs, including, but not limited to, CoPs and quality reporting program measures.

Promoting Interoperability Program

CMS includes several proposals 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 measure, beginning with the calendar year (CY) 2023 reporting period, as an optional alternative to the three existing measures under the HIE Objective;
  • adding a new antimicrobial use and resistance surveillance measure and require its reporting under the Public Health and Clinical Data Exchange Objective, beginning with the CY 2023 electronic health record reporting period;
  • publicly reporting certain PI Program data, beginning with the CY 2023 reporting period; and
  • increasing required eCQM reporting from four to six eCQMs beginning with the CY 2024 reporting period.

Overarching Principles for Measuring Disparities Across CMS Quality Programs

Through a RFI, CMS seeks feedback on overarching principles for measuring equity and health quality disparities across the agency’s quality programs. CMS believes five specific areas could inform its approach to measuring equity, including:

  • identification of goals and approaches for measuring health care disparities and using measure stratification;
  • guiding principles for selecting and prioritizing measures for disparity reporting;
  • principles for social risk factor and demographic data selection and use;
  • identification of meaningful performance differences; and
  • guiding principles for reporting disparity results.

Social Determinants of Health Codes

CMS seeks comment on the reporting and use of ICD-10 codes that describe social determinants of health, known as Z codes, including:

  • how the reporting of certain Z codes may improve the agency’s ability to recognize severity of illness, complexity of illness, and resource use under the MS-DRGs;
  • whether CMS should require the reporting of certain Z codes to be reported on hospital inpatient claims to strengthen data analysis;
  • the additional provider burden and potential benefits of documenting and reporting of certain Z codes, including potential benefits to beneficiaries; and
  • whether Z codes for homelessness have been underreported, and, if so, why.

Climate Change and Health Equity

CMS seeks feedback on climate change’s effect on outcomes, care, and health equity. The agency requests information from providers on how CMS can help mitigate:

  • the effect of climate change on patients;
  • the effect of and planning for climate-related emergencies; and
  • emissions tracking and reduction.

CMS solicits feedback on the degree to which hospital strategic plans mitigate climate change and the link between climate change and health equity.

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 17.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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