CMS Releases FY24 IPPS Proposed Rule, Seeks to Boost Rates by 2.8%

April 11, 2023 - CMS has released a proposed rule for the fiscal year (FY) 2024 Inpatient Prospective Payment System (IPPS). The proposed rule would update hospital payment rates by 2.8 percent next fiscal year and adopt policies aimed at advancing health equity.

Under the rule, CMS has proposed an FY 2024 hospital market basket update of 3.0 percent, less a projected 0.2 percentage point productivity adjustment, for hospitals that successfully participate in the Hospital Inpatient Quality Reporting program and are meaningful EHR users. Hospitals will still be subject to IPPS payment adjustments, including for excess readmissions under the Hospital Readmission Reduction Program.

In total, CMS expects the proposed increase in operating and capital IPPS payment rates to generally increase acute care hospital payments by $3.3 billion. Although, the federal agency also projected a $115 million decrease in Medicare disproportionate share hospital payments and Medicare uncompensated care payments next fiscal year.

Hospitals may also see higher payments under a proposal to recognize homelessness as an indicator of increased resource utilization in the acute inpatient hospital setting. CMS said in the rule that this might lead to higher payments for certain hospital stays when hospitals report social determinants of health on claims. The proposal is also part of the Biden Administration’s efforts to advance health equity.

“With this proposed rule, CMS is more accurately paying hospitals and recognizing for the first time that homelessness, as a social determinant of health, also impacts resource utilization,” CMS Deputy Administrator Meena Seshamani, MD, said in a statement.

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

“Creating incentives for hospitals to provide excellent care for underserved populations lays the foundation for a health system that delivers higher-quality, more equitable, and safer care for everyone,” continued Seshamani.

Under the FY 2024 IPPS, CMS is also seeking to make health equity adjustments under the Hospital Value-Based Purchasing Program, which adjusts IPPS payments to acute care hospitals depending on their quality performance in the inpatient hospital setting.

The proposed rule would add incentives to hospitals that perform well on existing measures and to those who care for high proportions of underserved individuals. CMS plans to define “underserved” by dual eligibility status. Similar adjustments have been added to the Medicare Shared Savings Program and in Medicare Advantage and Part D Star Ratings Programs.

If finalized, the proposed rule would also modify several measures under the Hosptial Value-Based Purchasing Program, including the MSPB Hospital measure and Hospital-level Risk-standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure. It would also adopt measures, including a health equity scoring change for rewarding excellent care in underserved populations.

To advance health equity, the IPPS proposed rule also would add 15 new health equity hospital categorizations for the FY 2024 IPPS payment impacts as part of the CMS Framework for Health Equity 2022-2032.

READ MORE: Health Inequity Leads to $320B in Unnecessary Healthcare Spending

CMS has also proposed to allow rural emergency hospitals to be designated as graduate medical education training sites. The federal agency said this would enable more medical residents to train in rural settings amid worsening clinician shortages, especially in rural communities.

In light of the COVID-19 public health emergency ending, CMS also included an update to the new COVID-19 treatments add-on payment. The agency said in the proposed rule that discharges involving eligible products would continue to get the add-on payment through Sept. 30, 2023. After FY 2023, the add-on payment will expire.

Other key policies in the proposed rule include:

• Treating rural reclassified hospitals the same as geographically rural hospitals for purposes of calculating the wage index, meaning CMS will include hospitals with §412.103 reclassifications for FY 2024 calculations
• Revising the Stark Law requirements to clarify expansion exception requests and reinstating program integrity restrictions on the frequency of expansion exception requests
• Adopting three new electronic quality measures under the Hospital Quality Reporting Program (Hospital Harm — Pressure Injury eCQM, Hospital Harm — Acute Kidney Injury eCQM, and Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level — Inpatient) eCQM)

Hospitals Decry 2.8% payment rate update 

The American Hospital Association (AHA) is upset with the proposed 2.8 percent IPPS rate increase for FY 2024. The trade association representing nearly 5,000 hospitals, health systems, and other healthcare providers said in a statement last night that the update is “woefully inadequate” given high inflation and costs of labor and supplies. 

Medicare already pays less than the actual costs of hospital care, AHA pointed out. 

READ MORE: Lawmakers Want to Tie Physician Payment Updates to Inflation

“Layering these inadequate inflationary adjustments on top of Medicare’s existing underpayments to hospitals does not reflect the reality of the world hospitals are providing care in,” the statement said. “Without more substantial updates in the final rule, hospitals’ ability to continue caring for patients and providing essential services for their communities will be threatened.” 

About half of US hospitals finished in the red in 2022, making last year the worst financially for hospitals and health systems. Rising expenses across the board directly contributed to negative margins as hospitals struggled to keep up revenue, the report from healthcare consulting firm Kaufman Hall added. 

Hospitals and health systems are largely still in the negative although financial performance is starting to stabilize this year, Kaufman Hall recently reported. 

However, industry leaders have questioned whether hospitals’ financial situations are dire enough to merit larger increases in IPPS rates. Last month, the Medicare Payment Advisory Committee (MedPAC) did not recommend any significant updates to IPPS rates beyond the current law of plus 1 percent. 

MedPAC said hospitals would be able to maintain access to care without a larger rate hike. 

AHA has refuted MedPAC’s claim, contending the group uses older data and that it cherrypicked data points to support its recommendation. 

Editor's Note: Article was updated on April 11, 2023, to include reactions from hospital groups. The original version of this article was published on April 10, 2023.