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CMS Finalizes FY 2024 Inpatient Payment Policies for Hospitals, Changing Payment Rates, Limiting Physician-Owned Hospital Expansion Criteria, and Finalizing Quality Reporting Changes 08.04.2023

On August 1, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2024 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital (LTCH) Prospective Payment System and Counting Certain Days Associated with Section 1115 Demonstrations in the Medicaid Fraction final rules. See the press release here. CMS released a fact sheet accompanying the rules.

The rule finalizes the following:

  • increases hospital operating payment rates by 3.1 percent,[1]
  • continues the hospital low wage index policy and makes rural wage index changes,
  • calculates disproportionate share hospital payments (DSH) from three years of uncompensated care data and reduces DSH payments,
  • makes changes regarding Section 1115 disproportionate share hospital calculations,
  • adds restrictions to physician-owned hospital expansion criteria,
  • delays application of three-way severity split for Medicare Severity Diagnosis Related Groups (MS-DRGs),
  • amends the severity designation of three ICD-10-CM homelessness diagnosis codes,
  • permits medical residents to train in Rural Emergency Hospitals,
  • makes several changes to quality reporting, promoting interoperability, value-based purchasing programs,
  • makes changes to new technology add-on payment policies for FY 2025,
  • approves 20 new technologies for add-on payments for FY 2024,
  • increases Long-Term Care Hospital payments by $6 million, and
  • responds to a request for information on challenges faced by safety-net hospitals.

These final rules are scheduled to be published in the Federal Register on August 28, 2023, and will be effective October 1, 2023.

CMS FINALIZES $2.2 BILLION INCREASE IN HOSPITAL PAYMENTS FOR FY 2024

For FY 2024, CMS finalizes a 3.1 percent increase in operating payment rates for hospitals that submitted quality data and were meaningful electronic health record (EHR) users (see Tables 1 and 2). This increase is based on a 3.3 percent market basket update that is offset by a 0.2 percent multifactor productivity (MFP) adjustment.[2]  This is an increase from the 2.8 percent update the agency originally proposed for FY 2024.Overall, CMS estimates that hospital payments will increase by $2.2 billion in FY 2024.

Operating Payments

Table 1. Proposed Update Factors for Hospital Operating Payment Rates (FY 2024)[3]

Submitted Quality Data Meaningful EHR User Gross

FY 2024
Market Basket

 Adjustment for Failure to Submit Quality Data Adjustment for Failure to be Meaningful EHR User Multifactor Productivity Adjustment[4] Net Increase in Operating Payment Rates
Yes Yes +3.3 N/A N/A -0.2 +3.1
No Yes +3.3 -0.825 N/A -0.2 +2.275
Yes No +3.3 N/A -2.475 -0.2 +0.625
No No +3.3 -0.825 -2.475 -0.2 -0.2

Table 2. Resulting Standardized Operating Amounts (FY 2024)[5]

Submitted Quality Data Meaningful EHR User Standardized Operating Amounts
(Wage Index > 1)		 Standardized Operating Amounts
(Wage Index <= 1)
Labor Non-Labor Labor Non-Labor
Yes Yes $4,392.49 $2,105.28 $4,028.62 $2,469.15
No Yes $4,357.34 $2,088.43 $3,996.38 $2,449.39
Yes No $4,287.05 $2,054.74 $3,931.91 $2,409.88
No No $4,251.90 $2,037.89 $3,899.67 $2,390.12

IPPS Impact Favors Proprietary Hospitals and Rural Hospitals in FY 2024

CMS provides impact estimates for various types of providers and these estimates incorporate all the policy changes in the final rule.

Table 3. Impact Analysis of Changes to the IPPS for Operating Payment Rates (FY 2024)[6]

Provider Type Number of Hospitals Net Increase to Operating Payment Rates[7] Budget Neutral Changes[8] Rural Floor with Application of National Rural Floor Budget Neutrality [9] Imputed Floor, Frontier State Wage Index & Outmigration Adjustment [10] All Changes[11]
ALL HOSPITALS 3,131 3.1 0 0 0.4 3.1
URBAN HOSPITALS 2,416 3.1 -0.1 0 0.4 3.1
RURAL HOSPITALS 715 3 1.7 -0.6 0.1 3.5
TEACHING STATUS  
Nonteaching 1,900 3.1 -0.2 0.9 0.3 3.5
Fewer than 100 residents 953 3.1 0 0 0.5 3.2
100 or more residents 278 3 0.2 -0.7 0.4 2.6
OWNERSHIP  
Voluntary 1,920 3.1 0.2 -0.2 0.4 3.0
Proprietary 778 3.1 -0.6 1.3 0.2 3.8
Government 432 3 -0.5 -0.1 0.1 3.0
MEDICARE % OF INPATIENT DAYS  
0-25 995 3 -0.3 0.3 0.2 3.6
25-50 1,945 3.1 0.2 -0.2 0.5 2.8
50-65 138 3 -0.4 1.6 0.6 3.5
Over 65 25 2.7 1.3 -0.2 0 4.1
MEDICAID % OF INPATIENT DAYS  
0-25 2,038 3.1 0 -0.4 0.4 2.7
25-50 974 3.1 0 0.3 0.4 3.4
50-65 91 2.9 0.6 2.7 0.1 6.4
Over 65 28 2.9 -0.5 7.6 0 11.7
URBAN DSH
Non-DSH 353 3.1 -2 -0.2 0.9 2.0
100 or more beds 1,099 3.1 -1.7 1.2 0.6 3.5
Less than 100 beds 359 3.1 -1.7 1.7 0.4 3.1
RURAL DSH            
Both teaching and DSH 637 3.1 -1.6 0.8 0.7 3.2
Teaching and no DSH 57 3.1 -1.5 -0.5 1.1 2.4
No teaching and DSH 821 3.1 -1.7 2.2 0.3 4.1
No teaching and no DSH 296 3.1 -2.2 -0.1 0.8 1.8

Capital-Related Payments

The basic methodology for determining capital payments for each discharge is below:

Capital-Related Payment = (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)[12]

For FY 2024, CMS finalizes a capital standardized Federal Rate of $503.83, a 4.14 percent increase relative to FY 2023. This finalized rate is a decrease from the $505.54 Federal Rate CMS originally proposed for FY 2024.

Outlier Payments

CMS finalizes its methodology as proposed with modifications to calculate the outlier threshold. Specifically, CMS finalizes its proposal to use charge inflation factors and adjusted cost-to-charge ratio (CCR) factors derived from FY 2022 MedPAR data. Using this methodology, CMS finalizes a final fixed-loss threshold of $42,750 for FY 2024, a 10 percent increase over FY 2023 ($38,859). Under this approach, CMS estimates total outlier payments of approximately $4.9 billion and total operating Federal payments of approximately $79.48 billion for FY 2024.

Stakeholder Reaction

Hospital industry groups have expressed concern about the inadequacy of the finalized payment update and impacts associated with DSH payment reductions.[13],[14] However, stakeholders responded positively to CMS’s finalized policies to promote improved safety net care.

CMS TO CONTINUE HOSPITAL LOW WAGE INDEX POLICY, MAKES RURAL WAGE INDEX CHANGES

CMS finalizes its proposal to base wage index values for FY 2024 on Medicare cost reports beginning in FY 2020. The wage index reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.

The agency also finalizes the following wage-index policies.

Continuation of the low-wage hospital policy

In the FY 2020 IPPS/LTCH PPS final rule, CMS finalized temporary policies to address wage index disparities affecting low-wage index hospitals, many of which are rural hospitals. CMS finalizes its proposal to continue this policy for FY 2024 in order to obtain and review additional data on the effects of the policy. CMS also finalizes its proposal to continue the policy’s related budget neutrality adjustment.

Changes to the rural wage index calculation methodology

CMS finalizes its proposal to treat rural reclassified hospitals[15] the same as geographically rural hospitals for wage index calculation purposes. Consistent with Section 4410(a) of the Balanced Budget Act of 1997,[16]CMS also finalizes the implementation of a rural wage index floor, meaning that the area wage index for hospitals located in urban areas of a state may not be less than the area wage index for hospitals located in rural areas of the state.

CMS CALCULATES DSH PAYMENTS FROM THREE YEARS OF DATA, REDUCES DSH PAYMENTS FOR FY 2024

Hospitals that meet Medicare DSH criteria receive two separate payments:

  1. 25 percent of the amount they previously would have received under Section 1886(d)(5)(F) of the Social Security Act (Act) for DSH; and
  2. An additional payment for UC as determined by the product of three factors:
  • Factor 1: 75 percent of the payments that would otherwise be made under Section 1886(d)(5)(F) of the Act,
  • Factor 2: 1 minus the percent change in the percent of individuals who are uninsured; and
  • Factor 3: a hospital’s UC amount relative to all DSH hospitals expressed as a percentage.

For FY 2024, CMS finalizes a distribution of roughly $5.938 billion in uncompensated care (UCP) payments, a decrease of approximately 14.6 percent from FY 2023. As noted above, hospital industry groups have expressed alarm about CMS’s finalized DSH payment reductions.

Factor 1 Calculation

For FY 2024, CMS finalizes a Factor 1 of $10,015,191,021.88. This is 75 percent of the total amount of CMS estimated Medicare DSH payments for FY 2024, based on the Office of the Actuary’s (OACT) June 2023 estimate of approximately $13.354 billion in Medicare DSH payments for FY 2024.[17] The OACT’s estimates are based on data from the March 2023 update of the Medicare Hospital Cost Report Information System (HCRIS) and the FY 2024 IPPS/LTCH PPS final rule IPPS impact file.

While CMS acknowledges stakeholder comments that urged CMS to reassess impacts of Medicaid disenrollment that can “inhibit care access and lead to worse outcomes, resulting in more complex cases and higher hospitalization rates,”[18] the agency finalized the same set of factors used in the proposed rule, with the most recent available data, for the calculation of Factor 1. In response to comments urging CMS to adopt a separate case mix acuity factor, CMS notes that the impact of the COVID-19 pandemic has lessened in 2021 and 2022, which constitute some of the years for which Medicare case mix and discharge factors are derived to estimate DSH payments.

Table 4. DSH Factor 1 Calculations for FY 2024[19]

Estimated Medicare DSH Payments for FY 2024[20] Empirically Justified Medicare DSH Payments for FY 2024[21] Finalized Factor 1 for FY 2024[22]
$13,353,588,029 $3,338,397,007 $10,015,191,021

Factor 2 Calculation

For FY 2024, CMS finalizes Factor 2 of 59.29 percent, a decrease from the proposed Factor 2 of 65.71 percent. CMS calculates this by subtracting the percent change in uninsured individuals from 2013 (14%) to 2024 (8.3%) from 1, as reflected by the following equation: 1 – ((0.14 – 0.083)/0.14) = 0.5929.[23] In this final rule, CMS projects only an 8.3 percent uninsured rate in FY 2024, which is based on a weighted average of National Health Expenditure Accounts (NHEA) updated uninsured projections for calendar year (CY) 2024. This is a decrease from the 9.2 percent uninsured rate CMS originally estimated in the FY 2024 IPPS/LTCH proposed rule.

In response to the FY 2024 IPPS/LTCH proposed rule, many stakeholders urged CMS to reassess its uninsured estimates in consideration of the expiration of Medicaid continuous enrollment provisions on March 31, 2023 and its impact on the total uninsured population. However, CMS believes that NHEA estimates adequately account for anticipated changes in enrollment across all insurance coverage categories and finalizes the use of updated June 2023 NHEA projections to calculate Factor 2 for FY 2024.

Factor 3 Calculation

Consistent with last year’s proposal, for FY 2024 and thereafter, CMS finalizes its proposal to use the three most recent fiscal years of data (for which audited data are available) of uncompensated care costs from Worksheet S-10 data to calculate Factor 3 to determine uncompensated care payments. This means that for FY 2024, CMS would use hospitals’ FY 2018, FY 2019, and FY 2020 cost reports to calculate Factor 3 for eligible hospitals.

Indian Health Services and Tribal Hospitals and Puerto Rico Hospitals

CMS finalizes its proposal to continue its supplemental payment for Indian Health Services and Tribal hospitals and Puerto Rico hospitals. CMS finalized this policy in FY 2023 to mitigate the discontinued use of low-income insured days as an alternative for uncompensated care costs.

CMS FINALIZES CHANGES TO SECTION 1115 DSH CALCULATIONS

CMS finalizes its proposal to, for the purposes of the DSH calculation, regard as eligible for medical assistance under a title XIX approved State plan those patients who receive health insurance authorized by a section 1115 demonstration or obtain health insurance with premium assistance provided through a section 1115 demonstration, where State expenditures are matched with title XIX funds. From the Medicaid fraction numerator, CMS will also exclude patient days for which hospitals are paid from demonstration-authorized uncompensated or undercompensated care pools. This policy will be effective for discharges occurring on October 1, 2023 and thereafter.

As background, eligible hospitals must qualify under certain criteria to receive DSH payment adjustments. The most common method is based on a complex statutory formula under which payment is determined from a hospital’s geographic designation, the hospital’s number of beds, and the hospital’s disproportionate patient percentage (DPP) level. The DPP represents the sum of two fractions: a Medicare fraction and a Medicaid fraction. The Medicare fraction is calculated by dividing a hospitals’ total number of inpatient days provided to patients entitled to both Medicare Part A and Supplemental Security Income benefits by that hospital’s total number of patient days provided to patients entitled to Medicare Part A benefits. The Medicaid fraction is calculated by diving the hospital’s number of inpatient days provided to patients who were eligible for Medicaid but not entitled to Medicare Part A during those days by that hospital’s total number of inpatient days over the same period.

Calculation of the Medicare DPP is reflected by the following formula.[24]

In 2000, CMS finalized a policy that enabled hospitals to include in the DPP Medicaid fraction numerator those patient days of groups who were made eligible for Title XIX Medicaid matching payments from a section 1115 demonstration.[25] This was regardless of whether those individuals were eligible or could be made eligible for a State’s Medicaid plan benefits.[26] Since that time, CMS has periodically revisited this policy, which prompted a series of court decisions.

In the FY 2023 Hospital IPPS/LTCH proposed rule,[27] CMS proposed to revise regulations governing the calculation of the Medicaid fraction of the Medicare DSH calculation. There, CMS proposed that for patient days associated with section 1115 demonstrations to be counted in the numerator of the Medicaid fraction, they must include patients who can be “regarded as” eligible for Medicaid. While CMS did not finalize this proposal in the FY 2023 IPPS final rule, CMS proposed this policy in subsequent rulemaking in February 2023.[28]

Specifically, CMS proposed to regard as eligible for medical assistance under a Title XIX approved State plan those patients who receive health insurance authorized by a section 1115 demonstration or obtain health insurance with premium assistance provided through a section 1115 demonstration, where State expenditures are matched with Title XIX funds. This means that days of patients who receive premium assistance through a section 1115 demonstration or those for which payments are provided to hospitals from an uncompensated, or undercompensated, care pool established by a section 1115 demonstration may not be counted in the DPP Medicaid fraction numerator.

CMS finalizes its proposal that only section 1115 demonstrations that provide the following may be included in the DPP Medicaid fraction numerator: [29]

  • health insurance that covers inpatient hospital services, or
  • premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services.

In either case, the patient must also not be entitled to Medicare Part A. CMS also finalizes that patients whose inpatient hospital stays are paid for by funding from a section 1115 demonstration are not regarded as eligible for Medicaid, which means these days may not be captured in the Medicaid fraction numerator.

CMS FINALIZES CHANGES TO PHYSICIAN-OWNED HOSPITAL EXPANSION

CMS finalizes several changes to physician-owned hospital expansion criteria, including policies to provide additional clarity as to what will be required for requests to be considered and the revision of certain aspects of the process for requesting an expansion exception. CMS also finalizes its proposal to reinstate program integrity restrictions for hospitals that meet the criteria for a “high Medicaid facility” expansion exception request, including the frequency of requests, maximum aggregate expansion of a hospital, and location of expansion facility capacity that were removed in the calendar year 2021 hospital Outpatient Prospective Payment System and Ambulatory Surgical Center final rule. Restrictions will not apply to any CMS-approved expansion exception request submitted by a high Medicaid facility between January 1, 2021, and September 30, 2023.

In addition, the agency finalizes its proposal to only permit a hospital to request an expansion exception up to once every two years, regardless of the type of exception the hospital is requesting. Currently, this restriction only applies to hospitals applying for an applicable hospital expansion exception. The finalized restriction will also apply to hospitals requesting a high Medicaid facility expansion exception.

CMS does not finalize some of its proposals. Specifically, CMS does not finalize its proposal to require hospitals submitting an expansion exception request to include information regarding the requesting hospital’s need for additional operating rooms, procedure rooms, or beds to serve Medicaid, uninsured, and underserved populations. CMS also did not finalize its proposals to require the inclusion of documentation supporting whether a hospital intends to use expansion capacity to furnish specialty care services if the request is approved or to require the requesting hospital to provide notice to any hospital whose data are not part of the comparisons necessary to determine whether a hospital meets applicable hospital or high Medicaid facility criteria.

CMS TO CONTINUE DELAY OF THREE-WAY SEVERITY SPLIT FOR MS-DRGS

CMS finalizes changes to MS-DRG classifications based on their yearly review for FY 2024 and finalizes the recalibration of the MS-DRG relative weights. The data CMS used to develop relative weights is based on the FY 2022 MedPAR file, which includes discharges between October 1, 2021, and September 30, 2022, based on claims received by CMS through March 31, 2023. CMS also finalizes changes to MS-DRGs, including the addition of new MS-DRGs and reassignment and deletion of other MS-DRGs.

In the FY 2021 IPPS/LTCH final rule, CMS finalized expanding criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG, finalizing the expansion of the criteria to include the non-complication or comorbidity (NonCC) subgroup for a three-way severity level split. CMS finalizes its proposal to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2024.

CMS finalizes several changes to MS-DRGs, including new MS-DRGs and reassignment and deletion of other MS-DRGs. Specifically, CMS finalizes its proposals to:

  • reassign procedures describing thrombolysis when performed for pulmonary embolism from MS-DRGs 166, 167, and 168 (Other Respiratory System O.R. Procedures with MCC, with CC, and without CC/MCC, respectively) to new MS-DRG 173 (Ultrasound Accelerated and Other Thrombolysis for Pulmonary Embolism).
  • create a new base MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures) for cases reporting an aortic valve repair or replacement procedure and a mitral valve repair or replacement procedure in addition to another concomitant cardiovascular procedure.
  • reassign the procedures involving cardiac defibrillator implants by deleting MS-DRGs 222 through 227 (Cardiac Defibrillator Implant, with and without Cardiac Catheterization, with and without AMI/HF/shock, with and without MCC, respectively), and establishes new MS-DRG 275 (Cardiac Defibrillator Implant with Cardiac Catheterization and MCC) for cases reporting cardiac defibrillator implant with cardiac catheterization with MCC. CMS also establishes new MS-DRGs 276 and 277 (Cardiac Defibrillator Implant with MCC and without MCC, respectively) for cases reporting cardiac defibrillator implant.
  • reassign procedures describing thrombolysis performed on peripheral vascular structures from MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively) to new MS-DRG 278 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures with MCC) and new MS-DRG 279 (Ultrasound Accelerated and Other Thrombolysis of Peripheral Vascular Structures without MCC).
  • create new MS-DRGs 323 and 324 (Coronary Intravascular Lithotripsy with Intraluminal Device with MCC and without MCC, respectively) for cases reporting C-IVL with placement of an intraluminal device and create a new base MS-DRG 325 (Coronary Intravascular Lithotripsy without Intraluminal Device) for cases reporting C-IVL without the placement of an intraluminal device.
  • delete MS-DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ Arteries or Stents), MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent without MCC), MS-DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ Arteries or Stents) and MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-DrugEluting Stent without MCC), and reassign these procedure codes to create new MS-DRG 321 (Percutaneous Cardiovascular Procedures with Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices) and new MS-DRG 322 (Percutaneous Cardiovascular Procedures with Intraluminal Device without MCC).
  • delete MS-DRGs 338 through 340 (Appendectomy with Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 341 through 343 (Appendectomy without Complicated Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively) describing appendectomy with and without a complicated principal diagnosis and create new MS-DRGs 397, 398, and 399 (Appendix Procedures with MCC, with CC, without CC/MCC, respectively).

CMS TO AMEND HOMELESSNESS-RELATED DIAGNOSIS CODE SEVERITY

CMS finalizes its proposal to change the severity level designation of three ICD-10-CM diagnosis codes describing homelessness – unspecified, sheltered, and unsheltered – from non-complication or comorbidity (NonCC) to complication or comorbidity (CC). This will allow CMS to identify homelessness as an indicator of higher resource utilization for FY 2024. IPPS payment depends on hospital resource use, so CMS believes this change will more appropriately reimburse hospitals treating patients with high severity levels and resource consumption rates. CMS also believes this change will support data reliability and validity as well as advance health equity.

In response to the proposed rule, stakeholders expressed, among other things, overwhelming support for this proposal. Other commenters urged CMS to continue to evaluate other social determinants of health diagnosis (SDOH) codes that have the potential to impact hospital resource use. In response, CMS indicates the agency will further evaluate additional diagnosis codes that describe SDOH for potential changes to severity level designations.

CMS FINALIZES CHANGES TO THE HOSPITAL INPATIENT QUALITY REPORTING PROGRAM

In this final rule, CMS introduces three new electronic clinical quality measures (eCQMs) that hospitals can opt for to fulfill the eCQM reporting requirements for the CY 2025 reporting period and FY 2027 payment determination:[30]

New ECQMs:

  • Hospital Harm — Pressure Injury eCQM. This measure gauges the percentage of inpatient hospitalizations involving patients aged 18 and above who experience harm by developing new stage 2, stage 3, stage 4, or unstageable pressure injuries.
  • Hospital Harm — Acute Kidney Injury eCQM. This measure evaluates the proportion of inpatient hospitalizations for patients aged 18 and above who encounter acute kidney injury (stage 2 or higher) during their hospital stay.
  • Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level — Inpatient) eCQM. This measure provides a standardized approach to monitor diagnostic CT performance, discouraging overly high radiation doses while preserving image quality.

Modified Measures:

CMS also finalizes modifications to three measures within the Hospital IQR Program:

  • Beginning with the FY 2027 payment determination year, CMS expands the Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measure to encompass Medicare Advantage (MA) patients.
  • Beginning with the FY 2027 payment determination year, CMS extends the Hybrid Hospital-Wide All-Cause Readmission measure to include MA admissions.
  • Beginning with the FY 2025 payment determination year, CMS revises the COVID-19 Vaccination Coverage among Healthcare Personnel measure. The updated measure reflects the cumulative count of healthcare personnel who are up to date with recommended COVID-19 vaccinations, aligning with the Centers for Disease Control and Prevention’s (CDC’s) definition of “up to date” vaccination.

Removed Measures:

Lastly, CMS removes three measures from the Hospital IQR Program:

  • Beginning with the FY 2030 payment determination year, CMS eliminates the Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure. This decision was made in conjunction with the recent updates to this measure in the Hospital Value Based Purchasing (VBP) Program.
  • Beginning with the FY 2028 payment determination year, CMS removes the Medicare Spending Per Beneficiary (MSPB) Hospital measure. This change coincides with the recent updates to this measure in the Hospital VBP Program.
  • Beginning with the FY 2026 payment determination year, CMS removes the Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of Babies Electively Delivered Prior to 39 Completed Weeks Gestation measure. CMS cites the reason for removing this measure as a plateau in performance over the last six performance periods.

CMS Updates Data Validation Criteria

For the FY 2027 payment determination year, CMS finalizes its proposal modifying Extraordinary Circumstances Exception (ECE) criteria. Hospitals that were recipients of an ECE will be factored into the validation targeting criteria. Any hospital that possesses an estimated reliability upper bound of the two-tailed confidence interval below 75 percent and has received an ECE for one or more quarters beginning from the FY 2027 program year will be included in the validation process, affecting discharges in the calendar year 2024.

CMS UPDATES THE MEDICARE PROMOTING INTEROPERABILITY PROGRAM

CMS finalizes several changes to the Medicare Promoting Interoperability Program for eligible hospitals and Critical Access Hospitals (CAHs):

  • Beginning with the Electronic Health Record (EHR) reporting period in CY 2024, CMS adjusts the requirements of the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure. Under this measure, eligible hospitals and CAHs must confirm that they have conducted an annual self-assessment of all nine SAFER Guides at least once during the calendar year in which the EHR reporting period falls.
  • For participating eligible hospitals and CAHs, CMS revises the definition of the “EHR reporting period for a payment adjustment year.” Specifically, for CY 2025, the EHR reporting period is defined as any continuous 180-day period within CY 2025.
  • Beginning with the CY 2025 EHR reporting period, CMS modifies the definition of the “EHR reporting period for a payment adjustment year” to exempt eligible hospitals that have not previously demonstrated meaningful EHR use from attesting to meaningful use by October 1st of the year preceding the payment adjustment year.
  • CMS finalizes changes to the response choices associated with objectives and measures in the Medicare Promoting Interoperability Program. These changes apply to objectives and measures that lack a numerator and denominator, and where the counting of unique patients or actions is not applicable. The response option for such objectives and measures will now be “N/A (measure is Yes/No).”
  • In alignment with the IQR, beginning with the CY 2025 reporting period, CMS introduces three new electronic Clinical Quality Measures (eCQMs) that eligible hospitals and CAHs can select as part of their three self-selected eCQMs.

CMS UPDATES THE PPS-EXEMPT CANCER HOSPITAL QUALITY REPORTING PROGRAM

Cancer hospitals exempt from IPPS participate in the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program. CMS has enacted the following changes to the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) program for the eleven cancer hospitals that are statutorily exempt from the IPPS.

Additionally, CMS incorporates the following new and modified measures into the PCHQR Program:

  • Facility Commitment to Health Equity, beginning with the FY 2026 program year.
  • Screening for Social Drivers of Health, starting with voluntary reporting for the FY 2026 program year and transitioning to mandatory reporting for the FY 2027 program year.
  • Screen Positive Rate for Social Drivers of Health, initially as voluntary reporting for the FY 2026 program year and then becoming mandatory reporting for the FY 2027 program year.
  • Documentation of Goals of Care Discussions Among Cancer Patients, beginning from the FY 2026 program year.
  • In alignment with the Hospital IQR Program and LTCH Quality Reporting Program (QRP), CMS also makes modifications to the COVID-19 Vaccination Coverage among Healthcare Personnel

Beginning with the FY 2025 program year, CMS will publicly display the Surgical Treatment Complications for Localized Prostate Cancer measure. Additionally, CMS will implement technical changes to the administration of the HCAHPS survey measure from FY 2027 and onwards.

CMS UPDATES THE HOSPITAL VALUE-BASED PURCHASING PROGRAM

The Hospital Value-Based Purchasing (VBP) Program awards value-based incentive payments to hospitals based on their performance on a set of designated measures within a specified performance period. Hospitals that fail to meet reporting requirements are subject to a 2 percent reduction in base operating DRG payments each fiscal year. This reduction in payments is subsequently reallocated back to hospitals as value-based incentive payments.

CMS introduces several additions and modifications to the VBP Program for FY 2024:

  • Adopts the Severe Sepsis and Septic Shock: Management Bundle measure into the Safety Domain, scheduled to take effect in FY 2026. Hospitals seeking value-based payments must exhibit the execution of specific patient interventions within 3 or 6 hours when faced with severe sepsis or septic shock symptoms.
  • To enhance the Medicare Spending per Beneficiary (MSPB) measure, the final rule introduces three significant measure updates for program year 2028. These updates encompass adjustments such as accounting for new episodes triggered by readmissions, inclusion of a new indicator variable for prior inpatient stays, and a shift in the MSPB amount calculation methodology.
  • CMS makes updates to the Hospital-level Risk-Standardized Complication Rate (RSCR) following elective primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measure to include the of index admission diagnoses and in-hospital comorbidity data from Medicare Part A claims. This expansion serves to broaden the measure outcome to encompass 26 additional mechanical complication ICD-10 codes. These changes will take effect within the Hospital VBP Program in 2024.
  • CMS codifies eight measure removal factors,[31] along with the policies for updating measure specifications and retaining measures. Additionally, CMS codifies the minimum number of cases for the Hospital VBP Program measures.[32]

Scoring Methodology Updates

CMS makes substantial modifications to the Hospital VBP Program’s scoring methodology. A novel adjustment will be introduced that rewards hospitals based on their performance and the proportion of their patients with dual eligibility for both Medicare and Medicaid. Known as the Health Equity Adjustment (HEA), bonus points will be incorporated into a hospital’s Total Performance Score (TPS). The HEA calculation will be based on a comprehensive evaluation of a hospital’s performance across all four domains for the program year and the hospital’s patient proportion with dual Medicaid and Medicare eligibility. The maximum number of HEA bonus points will be capped at 10, resulting in an increase of the TPS maximum from 100 to 110. This adjustment will become effective starting from the FY 2026 Program Year, ushering in a new TPS score range of 0 to 110.

CMS UPDATES THE HOSPITAL CONSUMER ASSESSMENT OF HEALTHCARE PROVIDERS AND SYSTEMS SURVEY

CMS finalizes updates to the data collection and submission requirements for the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey, effective from the FY 2027 Program Year, including:

  • Adds three new modes for survey administration including web-mail, web-phone, and web-mail-phone, alongside the current modes of mail-only, telephone-only, and mail-phone.
  • Eliminates the restriction that only patients can respond to the survey, enabling proxy responses.
  • Extends of the data collection period for the HCAHPS Survey from 42 to 49 days.
  • Mandates collection of information about the patient’s spoken language during their hospital stay, along with administration of the official CMS Spanish translation of the HCAHPS Survey for Spanish-preference patients.
  • Removes two existing options for survey administration: active interactive voice response survey (IVR) and the multiple sites option, both of which had limited use.

CMS MODIFIES THE HOSPITAL-ACQUIRED CONDITION REDUCTION PROGRAM

The Hospital Acquired Condition (HAC) Reduction Program is a statutory framework designed to encourage applicable hospitals to curtail the occurrence of hospital-acquired conditions through payment adjustments and financial incentives.

Modification to the HAC Reduction Program Validation Reconsideration Process

Commencing with the FY 2025 program year, CMS introduces a new procedure for hospitals that do not successfully pass the validation process. CMS finalizes that these hospitals will be granted the opportunity to request a reconsideration of their validation results before these results are factored into the HAC Reduction Program’s scoring calculations. This offer for reconsideration is extended solely to hospitals that fail to meet the passing threshold for the end-of-year confidence interval calculation.

For hospitals that do not meet the HAC Reduction Program’s validation criteria, CMS will convey this determination via certified mail. In the event a hospital wishes to initiate a validation reconsideration, a designated reconsideration request form must be submitted within a 30-day timeframe. To be considered valid, a hospital’s submission must include a detailed rationale for seeking reconsideration as well as the provision of comprehensive documentation and evidence that substantiate the hospital’s plea for review. CMS’s assessment will be confined exclusively to information that was originally submitted by the hospital during the initial validation process. This means that medical records not initially submitted will not be reviewed.

CMS FINALIZES PROPOSAL TO ALLOW MEDICAL RESIDENTS TO TRAIN IN RURAL EMERGENCY HOSPITALS

The Consolidated Appropriations Act, 2021,[33] established Rural Emergency Hospitals (REHs) as a new Medicare provider type, to address concerns over increasing closures of rural hospitals. REHs are facilities that convert from either a critical access hospital (CAH) or a rural hospital with 50 or less beds to facilities  that do not provide acute care inpatient services. To strengthen access to care in rural communities, and in alignment with the Administration’s commitment to health equity, CMS is finalizing its proposal to allow REHs to be designated as graduate medical education training sites. This policy aims to address workforce shortages in rural communities by allowing medical residents to train in these settings.

CMS FINALIZES CHANGES TO NEW TECHNOLOGY ADD-ON PAYMENT POLICIES FOR FY 2025 APPLICANTS AND APPROVES 20 NEW TECHNOLOGIES FOR ADD-ON PAYMENTS FOR FY 2024

The new technology add-on payment (NTAP) program allows for an additional payment for medical services or technologies that are found to be: (1) new; (2) disproportionately costly to the existing MS-DRG; and (3) a substantial clinical improvement. In this rule, CMS finalizes its proposal to require NTAP applicants for technologies not already market authorized by the Food and Drug Administration (FDA) to have a complete and active FDA market authorization application request at the time of NTAP application submission and to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025. CMS also continues NTAPs for 11 technologies[34] and approves NTAPs for 20 new technologies (8 traditional pathway and 12 alternative pathway).[35] CMS estimates that total NTAP payments for the 20 new NTAP approvals would be approximately $364 million for FY 2024.

CMS FINALIZES CHANGES TO RELATIVE WEIGHT CALCULATION FOR MS-DRG 18, CHIMERIC ANTIGEN RECEPTOR T-CELL THERAPIES

In the FY 2021 IPPS final rule, CMS created MS-DRG 018 for cases that include Chimeric Antigen Receptor (CAR) T-cell therapies and finalized a payment adjustment for applicable clinical trial and expanded access immunotherapy cases grouped to this DRG. For FY 2024, CMS finalized changes to its methodology for identifying clinical trial claims and expanded access use claims in the MS-DRG 018 relative weight calculation. Applying this methodology, CMS estimated that the average costs of cases assigned to MS–DRG 018 that are identified as clinical trial cases ($84,883) were 27 percent of the average costs of the cases assigned to MS-DRG 018 that are identified as non-clinical trial cases ($314,862).

As in FY 2023, CMS will adjust the transfer-adjusted case count for MS– DRG 018 by applying the adjustor of 0.27 to the applicable clinical trial and expanded access use immunotherapy cases and use this adjusted case count for MS–DRG 018 in calculating the national average cost per case, which is used in the calculation of the relative weights. In addition, in calculating the national average cost per case for purposes of this final rule, each case identified as an applicable clinical trial or expanded access use immunotherapy case was adjusted by 0.27. As applied in FY 2023, CMS is applying this same adjustor for the applicable cases that group to MS–DRG 018 for purposes of budget neutrality and outlier simulations.

LONG-TERM CARE HOSPITALS TO RECEIVE SMALL PAY INCREASE FOR FY 2024

Long-Term Care Hospitals (LTCHs) are excluded from the IPPS and are paid under their unique payment system because of the difference in complexity, resource utilization and length of stay factors. For FY 2024, CMS estimates that the aggregate LTCH payments will increase by 3.3 percent.[36] LTCH PPS payments for FY 2024 will increase by $6 million relative to FY 2023. CMS finalizes the LTCH PPS standard Federal payment rate at $48,116.62 for FY 2024.

In updating its proposed rate, CMS projects that payments for discharges paid at the same LTCH standard rate will decrease only by 0.2 percent, or $4 million, because of the 2.9 percent decrease in high-cost outlier payments between FY 2023 and FY 2024. CMS originally proposed a 4.7 percent decrease in high-cost outlier payments, but the agency modified its methodology in response to stakeholder feedback.

Changes to the LTCH Quality Reporting Program are Finalized

CMS finalizes the following measures beginning FY 2025 LTCH QRP:

  • Functional Discharge. This assessment evaluates functional status by calculating the percentage of LTCH patients whose discharge function score either meets or exceeds the anticipated score. This evaluation relies on mobility and self-care data that are already gathered through the assessment tool.
  • Updates the COVID-19 Vaccination Coverage among HCP measure to align with current CDC guidance.
  • Removes two measures under Application of Percent of Long-Term Care LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function.

CMS finalizes the following measures beginning FY 2026 LTCH QRP:

  • Adds the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date (Patient/Resident level COVID-19 Vaccine),
  • Increases LTCH QRP Data Completion Thresholds so that LTCHS must report 100 percent of the required quality measure data and standardized patient assessment data on at least 85 percent of the assessment they submit.

Beginning FY 2024, CMS also finalizes public reporting of the Transfer of Health information (TOH)-patient and TOH-provider measures.

CMS RECEIVES FEEDBACK ON CHALLENGES FACED BY SAFETY-NET HOSPITALS

Consistent with CMS’s Strategic Plan pillar of advancing health equity, the agency issued a Request for Information (RFI) on safety-net hospitals in the FY 2024 IPPS proposed rule. Safety-net hospitals provide care to uninsured, underinsured, and other underserved populations unable to access essential services. In response to the specific care needs for these patient populations, safety-net hospitals may experience significant financial challenges. In the proposed rule, CMS requested information on the challenges these hospitals and their patients face as well as potential approaches to combat them. CMS additionally requested feedback on two potential approaches to identify safety-net hospitals – a Safety-Net Index (SNI) and an area-level index. The SNI calculation would account for the hospital’s level of dependence on Medicare, revenue spent on uncompensated care, and number of low-income beneficiaries in Medicare. Area-level indices measure social disadvantage geographically, providing a basis for CMS to prioritize communities needing assistance in order to address social determinants of health.

CMS received a wide range of comments, including from organizations representing safety-net hospitals and other interested parties. The agency is reviewing these comments and intends to use this information to guide future rulemaking and other actions related to safety-net hospitals.

***

This Applied Policy® Summary was prepared by the Applied Policy team of health policy experts. If you have any questions or need more information, please contact Applied Policy at 202.558.5272.

[1] For general acute care hospitals paid under the Inpatient Prospective Payment System (IPPS) that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.

[2] The MFP adjustment is a 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity.

[3] See the table on page 989 of the unpublished rule.

[4] Section 3401 of the Patient Protection and Affordable Care Act, Pub. L. 111-148, requires market basket updates under the Medicare prospective payment system to be reduced annually by the MFP adjustment.

[5] See Tables 1A and 1B on page 1,991 of the unpublished rule.

[6] See Table I on pages 2013-2015 of the unpublished rule (estimates do not include assumptions about changes in volume & service-mix).

[7] Includes the payment impact of the hospital rate update and other adjustments included across all hospitals in a category.

[8] Includes weights and DRG changes, wage index changes, and geographic reclassifications.

[9] Includes rural floor and changes to the rural wage index methodology.

[10] Includes the combined impact of the imputed floor for all-urban states, the policy that hospitals located in frontier states have a wage index no less than 1.0 and an increase in a hospital’s wage index if a threshold percentage of residents of the county where the hospital is located commute to work at hospitals in counties with higher wage indexes. These are not budget neutral policies.

[11] Reflects the estimated change in payments from FY 2023 to FY 2024.

[12] Hospitals also may receive outlier payments for high-cost cases that qualify under thresholds established for each fiscal year.

[13] AHA Statement on FY 2024 Final IPPS & LTCH Payment Rule. https://www.aha.org/press-releases/2023-08-01-aha-statement-fy-2024-final-ipps-ltch-payment-rule?utm_source=newsletter&utm_medium=email&utm_campaign=aha-today

[14] America’s Essential Hospitals. Statement on FY 2024 Inpatient Prospective Payment System Final Rule. https://essentialhospitals.org/general/statement-fy-2024-inpatient-prospective-payment-system-final-rule

[15] Rural reclassified hospitals are hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Social Security Act (implemented in the regulations at §412.103).

[16] Pub. L. 105-33

[17] These estimates exclude sole-community hospitals, Maryland hospitals, and26 hospitals anticipated to participate in the Rural Community Hospital Demonstration Program in FY 2024 because these hospitals are not eligible to receive empirically justified Medicare DSH payments or uncompensated care payments.

[18] See page 864 of the unpublished rule.

[19] See commentary on page 867 of the unpublished rule.

[20] Reflects the OACT’s June 2023 Medicare DSH payment estimate.

[21] Reflects 25 percent of the total amount of estimated Medicare DSH payments for FY 2024.

[22] Reflects the difference between columns 1 and 2.

[23] See pages 879-880 of the unpublished rule.

[24] CMS. Medicare Disproportionate Share Hospital. https://www.cms.gov/outreach-and-education/medicare-learning-network-mln/mlnproducts/downloads/disproportionate_share_hospital.pdf

[25] Section 1115 of the Social Security Act provides authority to the Secretary of the Department of Health and Human Services to approve demonstrations, pilots, or demonstrations found to promote the objectives of the Medicaid and Children’s Health Insurance Program (CHIP) programs. https://www.medicaid.gov/medicaid/section-1115-demonstrations/index.html

[26] See 65 FR 3135, 65 FR 47086 – 47087

[27] 87 FR 28108

[28] 88 FR 12623

[29] See page 17 of the unpublished rule.

[30] Note that CMS also added these new eCQMs to the Medicare Promoting Interoperability Program.

[31] 42 CFR § 412.164(c)

[32] 42 CFR § 412.165(a)(1)(i)

[33] Pub. L. 116-260

[34] See page 2040 in the unpublished final rule.

[35] See pages 2042-2043 in the unpublished final rule.

[36] only LTCH discharges that meet the criteria for exclusion from the site neutral payment rate are paid based on the LTCH PPS standard Federal payment rate specified at 42 CFR 412.523