CMS Releases FY23 IPPS Rule, Boosts Hospital Reimbursement by 4.3%

August 02, 2022 - CMS has released the Inpatient Prospective Payment System (IPPS) rule for fiscal year (FY) 2023, increasing hospital reimbursement by 4.3 percent and making good on promises to advance health equity. In total, the rule would boost reimbursement by $2.6 billion next year.

“CMS is taking action to support hospitals, including updating payments to hospitals by a significantly higher rate than in the proposed IPPS rule. This final rule aligns hospital payments with CMS’ vision of ensuring access to health care for all people with Medicare and maintaining incentives for our hospital partners to operate efficiently,” CMS Administrator Chiquita Brooks-LaSure said in an announcement earlier today. “It also takes important steps to advance health equity by encouraging hospitals to implement practices that reduce maternal morbidity and mortality.” 

CMS has been working to advance health equity across its programs to ensure access to care for all individuals covered by public health insurance. Just recently, the CMS Innovation Center refreshed its strategy for shifting more dollars and providers to value-based care. Advancing health equity is one of the main pillars of the new strategy.

The FY 2023 IPPS rule will carry on CMS health equity efforts by including three health equity-focused measures in hospital quality programs, including the Hospital Inpatient Quality Reporting (IQR) Program.

The first measure assesses a hospital’s commitment to building a culture of equity and delivering more equitable healthcare. The measure will capture concrete activities across five key domains, including strategic planning, data collection, data analysis, quality improvement, and leadership engagement. The second and third measures capture screening and identification of patient-level, health-related social needs, including food insecurity, housing instability, transportation needs, utility difficulties, and interpersonal safety.

READ MORE: Hospitals Press CMS to Rethink Proposed FY23 Medicare IPPS Rates

CMS said in the announcement that by “screening for and identifying such unmet needs, hospitals will be in a better position to serve patients holistically by addressing and monitoring what are often key contributors to poor physical and mental health outcomes.”

The rule also finalized the adoption of seven other measures to the IQR Program, refinement of two measures, and changes to existing electronic clinical quality measure (eCQM) reporting and submission requirements, including an increased submission requirement of 100 percent of requested medical records to successfully complete eCQM validation and reporting of six eCQMs starting in 2024.

Other changes to the IQR program include the removal of the zero-denominator declaration and case threshold exemptions for hybrid measures, updated eCQM validation requirements for medical record requests, and new reporting and submission requirements for patient-reported outcome-based performance measures. 

Hospitals that successfully participate in the IQR program in FY 2023 and are meaningful EHR users will be eligible for the full 4.3 percent increase in hospital reimbursement next year. The update includes an FY 2023 hospital market basket update of 4.1 percent, less a 0.3 percentage point productivity adjustment and plus a 0.5 percentage point statutory ajdustment.

CMS noted that the updated operating hospital reimbursement rates are higher than in the proposed rule because of the “revised outlook regarding the U.S. economy.”

READ MORE: CMS Proposes $1.6B Increase in IPPS Payment Rates for FY23

“This is the highest market basket update in the last 25 years and is primarily due to higher expected growth in compensation prices for hospital workers,” CMS added.

Hospitals may face some other adjustments though, including payment reductions for excess readmissions under the Hospital Readmissions Reduction Program (HRRP) and hospital-acquired conditions (HACs) under the HAC Reduction Program. Hospitals are also subject to positive and negative adjustments under the Hospital Value-Based Purchasing Program.

In addition to payment updates, the FY 2023 IPPS rule also:

• Creates a “Birthing Friendly” hospital designation
• Continues COVID-19 reporting requirements for hospitals and critical access hospitals
• Approves eight technologies for add-on payments, which will be determined using historical practices starting in FY 2023
• Decrease uncompensated care payments by about $318 million and discontinue the use of low-income insured days as a proxy for uncompensated care

To view all the finalized policies in the FY 2023 IPPS rule, click here.

Hospitals react to final payment rule

Hospitals now face an increase in Medicare inpatient reimbursement in FY 2023 rather than a planned cut. CMS had originally proposed to increase IPPS operating rates by just 3.2 percent based on a 3.1 percent hospital market basket update, a 0.4 percentage point reduction for productivity adjustment, and a 0.5 percentage point increase for a documentation and coding adjustment.

READ MORE: OIG: CMS Should Remove IPPS New Hospital Capital Cost Exemption

Hospital groups criticized the proposed rule and its modest update to IPPS operating rates, citing inflation and persistently high expenses as reasons why CMS should not follow through with the proposed update.

The American Hospital Association (AHA) recently applauded CMS for using updated data to determine the payment rate increase in the FY 2023 IPPS final rule.

“As we urged, CMS will use more recent data to calculate the market basket and disproportionate share hospital (DSH) payments, which yields far more accurate figures that better reflect the historic inflation and tremendous labor and supply cost pressures hospitals and health systems face,” Stacey Hughes, executive vice president of the AHA, said in a statement late yesterday.

However, the final rate increase “still falls short of what hospitals and health systems need to continue to overcome the many challenges that threaten their ability to care for patients and provide essential services for their communities,” Hughes added.

“This includes the extraordinary inflationary expenses in the cost of caring hospitals are being forced to absorb, particularly related to supporting their workforce while experiencing severe staff shortages. We will continue to urge Congress to take action to support the hospital field, including by extending the low-volume adjustment and Medicare-dependent hospital programs.”

The AHA also commended CMS for not penalizing hospitals under the HAC Reduction Program and Value-Based Purchasing Program next year because of the ongoing pandemic, adding health equity measures to quality reporting programs, and nixing a policy that would change how 1115 waiver days are counted for Medicare supplemental payments.

This article was originally published on August 1, 2022.