On August 1, 2024 the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital (LTCH) Prospective Payment System  final rule. See the press release here. CMS released a fact sheet accompanying the rule.

The rule finalizes proposals to:

• Increase hospital operating payment rates by 2.9 percent,[1]
• Continue the hospital low wage index policy and update labor market areas,
• Continue to calculate disproportionate share hospital payments from three years of uncompensated care data,
• Establish a separate IPPS payment for establishing and maintaining access to essential medicines for small independent hospitals,
• Change the severity designation of inadequate housing and housing instability Z codes,
• Make changes to criteria for new residency programs and distribute 200 additional residency slots as required by the Consolidated Appropriations Act, 2023,
• Make several changes to quality reporting programs,
• Enhance data reporting requirements for hospitals and critical access hospitals (CAHs) to address respiratory illnesses,
• Change New Technology Add-On Payment (NTAP) policies,
• Increase Long-Term Care Hospital (LTCH) payments by 2.0 percent, and
• Continue delay of the three-way severity split for MS-DRGs.

Additionally, CMS finalizes the Transforming Episode Accountability Model (TEAM), a mandatory episode-based payment model with the goal of improving patient care after surgery. The model’s start date is January 1, 2026.

This final rule is scheduled to be published in the Federal Register on August 28, 2024.

CMS PREDICTS $3.2 BILLION FY2025 HOSPITAL PAYMENT INCREASE

The Inpatient Prospective Payment System (IPPS) per-discharge payment is based on two national standardized base payment rates, one for operating costs and the other for capital-related costs. CMS adjusts each of these rates for geographic, case-mix, and other factors.

For FY 2025, CMS finalizes a 2.9 percent increase (compared to a 3.1 percent increase in FY 2024) in its 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 3.4 percent market basket update that is offset by a 0.5 percent multifactor productivity (MFP) adjustment.^[2]  Overall, CMS projects an increase in hospital payments by $2.9 billion in FY 2025, including $3.2 billion in operating and capital increases, a $.2 billion decrease in disproportionate share hospital (DSH) payments, and $0.3 billion in additional payments for inpatient cases involving new medical technologies ).CMS notes that additional payments for Medicare-Dependent Hospitals (MDHs) and temporary payment changes for low-volume hospitals expiring December 31, 2024 could decrease payments to these hospitals by $0.4 billion in FY 2025 if not extended through legislation. This projected $0.4 billion decrease is included in the projected $2.9 billion increase calculation.

Operating Payments

Table 1. Update Factors for Hospital Operating Payment Rates (FY 2025)[3]

Submitted Quality Data	Meaningful EHR User	Gross   FY2023 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	+3.4	N/A	N/A	-0.5	+2.9
No	Yes	+3.4	-0.85	N/A	-0.5	+2.05
Yes	No	+3.4	N/A	-2.55	-0.5	+0.35
No	No	+3.4	-0.85	-2.55	-0.5	-0.5

Table 2. Resulting Standardized Operating Amounts (FY 2025)[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	$4,466.00	$2,140.51	$4,096.04	$2,510.47
No	Yes	$4,429.11	$2,122.83	$4,062.20	$2,489.74
Yes	No	$4,355.33	$2,087.47	$3,994.54	$2,448.26
No	No	$4,318.44	$2,069.78	$3,960.70	$2,427.52

Capital-Related Payments

Consistent with FY 2024, the basic methodology for determining capital payments for FY 2025 is below:

• Capital-Related Payment = (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor or GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)[6]

For FY 2025, CMS finalizes a capital standardized Federal Rate of $510.51. Overall, CMS estimates a 2.8 percent increase in capital payments per patient case, relative to FY 2024.

CMS UPDATES LABOR MARKET AREAS, CONTINUES HOSPITAL LOW WAGE INDEX POLICY FOR AT LEAST THREE MORE YEARS

The wage index reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. To determine a hospital’s labor market area, CMS uses Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget (OMB). For FY 2025, CMS finalizes its proposal to use CBSAs established in 2023 to calculate the wage index, providing a more accurate representation of wage differences across geographies. While this change could negatively impact certain hospital’s wage indexes, CMS believes that the permanent cap policy, discussed below, will mitigate any major changes. Accordingly, there will be no transition period for this change.

Continuation of the low-wage index hospital policy

Under the FY 2020 IPPS/LTCH PPS final rule, CMS finalized a temporary policy to address wage index disparities affecting low-wage index hospitals, many of which are rural hospitals. This policy increased wage indexes for hospitals with a wage index below the 25^th percentile by half the difference between the hospital’s wage index and the 25^th percentile wage index[7]. Due to the Covid-19 public health emergency (PHE), most recent data has not been usable. Accordingly, CMS continues the low-wage hospital policy for at least three years beginning in FY 2025. As FY 2024 was the first full year of data following the end of the PHE, this would give CMS four years of usable data to evaluate the program, as originally intended. CMS will continue the policy’s related budget neutrality adjustment. For FY 2025, the budget neutrality adjustment associated with this policy will be 0.997157.

Other wage index related policies with a budget neutral impact include:

• The permanent cap policy, which was finalized in the FY 2023 IPPS/LTCH PPS final rule and prevents any hospital from having a wage index below 95 percent of its wage index for the previous fiscal year. For FY 2025, the budget neutrality adjustment associated with this policy will be 0.999173.
• The rural floor, which was implemented as part of the Balanced Budget Act of 1997 and mandates that wage indexes for urban hospitals in a state cannot be lower than said state’s rural area wage index. In the FY 2024 IPPS/LTCH PPS final rule, CMS finalized that rural reclassified hospitals be treated the same as geographically rural hospitals for wage index calculation purposes. For FY 2025, the budget neutrality adjustment associated with this policy will be 0.977499.
• Medicare Geographic Classification Review Board (MGCRB) reclassifications, which were implemented as part of the Omnibus Budget Reconciliation Act of 1989 and allow hospitals to apply to be reclassified to a higher wage index area. For FY 2025, the budget neutrality adjustment associated with this policy will be 0.962791.

DSH PAYMENT POLICIES INCLUDE A DECREASE IN UNCOMPENSATED CARE PAYMENTS FOR CY 2025

Hospitals that receive Medicare disproportionate share hospital (DSH) payments 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 uncompensated care (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.

CMS will distribute roughly $5.7 billion in uncompensated care payments to hospitals in 2025, a decrease of approximately $0.2 billion from FY 2024. The proposed figure was $6.5 billion in uncompensated care payments, which would have been an increase of approximately $560 million from FY 2024.

Consistent with the FY 2023 proposal, for FY 2024 and thereafter, CMS will 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. Accordingly, for FY 2025, CMS will use hospitals’ FY 2019, FY 2020, and FY 2021 cost reports for the distribution of these funds.

CMS will continue its supplemental payment for Indian Health Services and Tribal hospitals and Puerto Rico hospitals, finalized in FY 2023 to mitigate the discontinued use of low-income insured days as an alternative for uncompensated care costs. These hospitals are expected to receive approximately $79.88 million in supplemental payments in FY 2025, compared to $91.08 million as proposed.

CMS finalizes implementation of the new OMB labor market area delineations for the FY 2025 wage index, as based on the 2020 Decennial Census data (see Wage Index section of this summary for more detail), which will impact the calculation of Medicare DSH payment adjustments for certain hospitals. Based on this update, hospitals with less than 500 beds that are currently in urban counties would become rural (if they do not become rural referral centers or Medicare-dependent, small rural hospitals, whose additional payments are set to end of December 31, 2024, if not extended by legislation), meaning that these hospitals would be subject to a maximum DSH payment adjustment of 12 percent. Urban hospitals are subject to a maximum DSH payment adjustment of 12 percent only if they have less than 100 beds. Per existing regulation, if a hospital currently located in an urban county becomes rural under the new OMB delineations, the hospital may receive an adjustment to its rural federal payment amount for operating costs for two sequential fiscal years, with greater additional payments in the first year.

CMS FINALIZES MANDATORY TRANSFORMING EPISODE ACCOUNTABILITY MODEL (TEAM), FOCUSING ON IMPROVING PATIENT CARE AFTER SURGERY

Recognizing that Medicare beneficiaries may experience fragmented care following surgery, CMS finalizes TEAM, a mandatory, episode-based payment model, to improve the patient experience from surgery through recovery by facilitating care coordination and transition. The model will be mandatory for eligible hospitals in select CBSAs. A list of CBSAs selected for participation is included on page 1185 of the unpublished rule. This model will begin on January 1, 2026, and end after five years, on December 31, 2030. Selected participants will have 17 months to prepare for the model, and an additional 12 months before they are subject to downside risk, as the model contains a downside risk free track available to all participants in the first year of the model. In a modification to the proposed model, CMS will allow safety net hospitals to remain in this downside risk free track for the first three years of the model.

Through the model, selected acute care hospitals will coordinate care for fee-for-service (FFS) Medicare beneficiaries who undergo one of the surgical procedures included in the model, and assume responsibility for the cost and quality of care beginning with surgery through the first 30 days after the beneficiary departs the hospital. To establish accountable care relationships, hospitals will connect patients to primary care services.

Surgical procedures included in the model are lower extremity joint replacement, surgical hip femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure[8]. Participating hospitals will be provided with a target price from CMS that will represent Medicare spending during an episode of care, which includes surgery and follow-up care, and either receive payment from CMS or face a recoupment depending on their performance against that target. The model will have three tracks, with varying financial risk and quality performance adjustments.

WITH THE GOAL OF MITIGATING DRUG SHORTAGES, CMS FINALIZES ADD ON PAYMENT TO SMALL, INDEPENDENT HOSPITALS FOR BUFFER STOCK OF ESSENTIAL MEDICINES

In the FY 2024 Hospital Outpatient Prospective Payment System (OPPS) Proposed Rule, CMS requested comments on the concept of providing payments to hospitals to help them maintain a buffer stock of 86 essential medicines, with the goal of making hospitals more resilient to shortages of essential drugs. The agency received multiple comments, including some calling for expanding the list of essential drugs and others asking for solutions that addressed the issue of quality management among drug manufacturers, which many believe to be the primary driver of the drug shortages. Additionally, many commenters were concerned that so many hospitals establishing buffers stocks could create shocks to the supply chain or encourage hoarding behavior. In the final rule, CMS stated that they would consider these comments for future rulemaking.

CMS finalizes as proposed its policy to establish a separate payment under the IPPS to reimburse small, independent hospitals for the cost of maintaining a 6-month buffer stock of any of 86 essential medicines present on a list developed by the Advanced Regenerative Manufacturing Institute (ARMI). This policy will begin with cost reporting periods starting in FY 2025 (on or after October 1, 2024). The payment will only cover the additional resource costs of maintaining the buffer stock (e.g. ventilation, managing expiration dates, etc.), not the cost of the drugs themselves. The payment will be provided either as a lump sum upon cost report settlement or through biweekly payments that would be reconciled upon cost report settlement. This policy will not be budget neutral.

To address concerns that the policy could create shocks to the supply chain, this payment will only be available to independent hospitals with 100 beds or fewer. Independent hospital status would be determined by whether a hospital was identified as part of a chain organization on its cost report. CMS believes that these smaller, independent hospitals lack the resources available to larger hospitals or systems. Based on FY 2021 cost reports, 493 hospitals would be eligible for this proposal, 249 of which were located in rural areas.

In response to concerns voiced  toward the FY 2024 proposal about hospitals hoarding essential medicines in the event of a shortage, CMS will not separately pay hospitals for establishing a buffer stock for a drug that is currently in shortage per the FDA Drug Shortages Database. Hospitals maintaining an already established buffer stock for a drug in shortage would be eligible for the separate payment. Because hospitals may lack the space, equipment, and staff necessary to directly maintain the buffer stock themselves, any arrangements with pharmaceutical manufacturers, intermediaries, or distributors to maintain the stock would be eligible for payment under this proposal.

If a drug were added to the ARMI list, it will become eligible under this policy. Similarly, if a drug were removed from the list, it will no longer be eligible.

The majority of commenters supported CMS’s proposed policy, though commenters with concerns cited potential unintended consequences, including that this policy could exacerbate existing or create new shortages. Several commenters also requested the eligibility criteria for this policy be expanded. In response to comments, CMS disagreed that this policy would further contribute to shortages given the small pool of eligible hospitals and declined to expand the pool of eligible hospitals at this time for similar reasons.

Some commenters, including the Medicare Payment Advisory Commission (MedPAC), noted concerns that Medicare payment policy is not a sufficient or well-suited mechanism to support adequate supplies of essential medicines, and supported policies beyond Medicare to address shortages. CMS also received a number of comments beyond the scope of this rulemaking requesting broader policy actions to address drug shortages, including seeking legislative authority to make additional payments, convening a technical workgroup to consult on the policy, requiring drug manufacturers to produce more stock, preventing hospitals participating in this policy from contracting with manufacturers with outstanding quality issues, and issuing guidance waiving prior authorization for alternative products.

CMS will consider program expansion and other revisions based on a future assessment of the program’s impact.

CMS TO RECOGNIZE INADEQUATE HOUSING & HOUSING INSTABILITY IMPACT ON HOSPITAL RESOURCE UTILIZATION

IPPS payments for cases are based on the hospital resources required to treat the patient’s severity of illness, complexity of service, or consumption of resources. A higher severity level designation for a diagnosis code typically results in higher payment to reflect the additional resources required in these cases.

In the FY 2024 IPPS final rule, CMS changed the severity designation of three ICD-10-CM diagnosis codes (often referred to as “Z codes”) describing homelessness (unspecified, sheltered, and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC) to recognize the higher average resource costs required for cases with these diagnosis codes.

For FY 2025, CMS finalizes its proposal to change the severity designation of seven additional ICD-10-CM codes describing inadequate housing and housing instability from NonCC to CC based on the higher average resource costs required for these cases. These changes align with the Biden-Harris Administration’s goal to recognize social determinants of health (SDOH) and their impact on health and resource use.

CMS FINALIZES POLICIES TO DISTRIBUTE 200 ADDITIONAL RESIDENCY SLOTS AS REQUIRED BY THE CONSOLIDATED APPROPRATIONS ACT, 2023

Section 4122 of the Consolidated Appropriations Act, 2023 (CAA, 2023) mandates the allocation of an additional 200 Medicare-funded residency positions to train new physicians, at least 100 of which are earmarked for psychiatry or its subspecialties. For hospitals to qualify for an increase in residency slots, they must show a “demonstrated likelihood” of filling these positions within the first five training years after the proposed increase takes effect. Accordingly, CMS finalizes its proposal to require hospitals to prove that their current full-time equivalent (FTE) resident caps are insufficient to accommodate new or expanded programs.

Additionally, at least 10 percent of the total residency positions must be allocated to rural hospitals, hospitals exceeding standard resident limits, hospitals in states with new medical schools or additional campuses, and those serving Health Professional Shortage Areas (HPSAs). Further, each qualifying hospital that submits a timely application will receive at least one (or a fraction of one) of the residency positions before any qualifying hospital receives more than one residency position.

Consistent with statutory deadlines, CMS expects to notify hospitals of the first awards of positions by January 31, 2026. Awards through Section 4122 will be effective July 1, 2026. CMS estimates that this additional funding will total approximately $74 million in support for teaching hospitals from FY 2026 through FY 2036.

CMS MAINTAINS EXISTING CRITERIA FOR NEW RESIDENCY PROGRAMS AND ISSUES ADDITIONAL REQUEST FOR INFORMATION

Residency programs that are considered “new” can receive additional direct graduate medical education (GME) and/or indirect medical education (IME) cap slots. To be deemed “new” and eligible for these slots, a previously non-teaching hospital must guarantee new residents, a new program director, and new teaching staff. In the proposed rule, to ensure appropriate creation of newly funded cap slots, CMS proposed that for a program to qualify as “new” and eligible for additional direct GME and/or IME cap slots, at least 90 percent of individual resident trainees (not FTEs) must have no prior training in the same specialty. If more than 10 percent of trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, the program would be disqualified from receiving new cap slots.

However, in response to diverse feedback and a lack of consensus on the optimal approach for determining residency newness, CMS is not finalizing this proposal. Instead, CMS is issuing a new Request for Information (RFI) to gather further input on defining residency newness in order to foster consensus on this issue.

CMS RESPONDS TO FEEDBACK ON ADVANCING PATIENT SAFETY AND IMPROVING OUTCOMES ACROSS THE HOSPITAL QUALITY PROGRAMS

In the proposed rule, CMS sought input on enhancing existing measures within the quality reporting programs to address unplanned patient hospital visits and improve discharge processes. While current hospital quality reporting and value-based purchasing initiatives incentivize hospitals to mitigate concerns related to unplanned returns, CMS was concerned that the existing measures may not fully capture the breadth of unplanned patient returns to inpatient or outpatient care post-discharge. The agency was particularly interested in adopting measures that more comprehensively represent outcomes important to patients, such as unplanned returns to emergency departments and the receipt of observation services within 30 days following discharge from an inpatient stay to improve quality and reduce unplanned follow-up visits.

Commenters generally supported these measures and suggested tracking these outcomes to better understand post-discharge care and encourage hospitals to enhance discharge practices. Some commenters raised concerns about potential unintended consequences, such as penalizing hospitals for factors beyond their control, and suggested alternatives such as refining existing measures or incorporating new ones into quality reporting programs. CMS plans to consider this feedback in future rulemaking and explore ways to harmonize quality measures, address health disparities, and enhance discharge care and financial support for hospitals.

Additionally, CMS finalizes significant changes and modifications to each of its quality reporting programs.

HOSPITAL INPATIENT QUALITY REPORTING PROGRAM

The Hospital Inpatient Quality Reporting (IQR) Program aims to enhance healthcare quality through a pay-for-reporting model.  Hospitals failing to meet program requirements face reductions in their Annual Payment Update under IPPS.

The finalized proposals for the Hospital Inpatient Quality Reporting Program include several updates and changes. CMS introduces seven new quality measures, as proposed, including two new electronic clinical quality measures (eCQMs) for hospital harm events, a claims-based measure for surgical inpatient complications, and healthcare-associated infection measures specifically stratified for oncology locations. In addition, two structural measures are being adopted: one for patient safety and another for age-friendly practices. Modifications are also being made to two existing measures, the Global Malnutrition Composite Score and the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure, to enhance their applicability and relevance.

Additionally, CMS removes five existing quality measures, including four payment-related measures and the CMS PSI-04 measure (Death Among Surgical Inpatients with Serious Treatable Complications), to streamline reporting and focus on more comprehensive metrics. The agency also increases the number of mandatory eCQMs reported by hospitals over the next three years, with a gradual increase from six to eleven measures by the CY 2028 reporting period. This expansion aims to improve data accuracy and hospital accountability. A list of new and removed measures are included in the table below.

New Measures	Removed Measures
1.           Patient Safety Structural Measure

2.          Age Friendly Hospital Measure

3.           Catheter-Associated Urinary Tract Infection Standardized Infection Ratio Stratified for Oncology Locations

4.          Central Line-Associated Bloodstream Inflection Standardized Infection Ratio Stratified for Oncology Locations

5.           Hospital Harm- Falls with Injury eCQM

6.          Hospital Harm- Postoperative Respiratory Failure eCQM

7.     30-day Risk-Standardized Death Rate among Surgical Inpatients with Complications (failure-to-rescue)1.           Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI)

2.          Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care Heart Failure (HF)

3.           Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care Pneumonia (PN)

4.          Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measures.

5.     The Death Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04)

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

In this final rule, CMS finalizes several key changes to the Medicare Promoting Interoperability Program. The program will now separate the Antimicrobial Use and Resistance (AUR) Surveillance measure into two distinct measures: Antimicrobial Use (AU) Surveillance and Antimicrobial Resistance (AR) Surveillance, starting from the CY 2025 electronic health record (EHR) reporting period. Hospitals that lack the necessary data sources for these measures can qualify for new exclusions. Additionally, CMS increases the performance-based scoring threshold from 60 points to 70 points for CY 2025 and to 80 points starting in CY 2026.

CMS also adds two new eCQMs for hospitals to choose from: the Hospital Harm – Falls with Injury eCQM and the Hospital Harm – Postoperative Respiratory Failure eCQM, both available beginning in CY 2026. The existing Global Malnutrition Composite Score eCQM has been modified.

The program will progressively increase the number of mandatory eCQMs that eligible hospitals and critical access hospitals (CAHs) must report. Specifically, eight eCQMs will be required for CY 2026, nine for CY 2027, and eleven beginning with CY 2028. These changes aim to enhance the scope and rigor of quality reporting within the program, promoting better clinical practices and patient outcomes.

HOSPITAL VALUE-BASED PURCHASING PROGRAM

The Hospital VBP Program operates on a budget-neutral basis by reducing the base operating Diagnosis-Related Group (DRG) payments to participating hospitals by 2% each fiscal year and redistributing the total amount as value-based incentive payments. In this final rule, CMS finalizes the following changes:

• For the FY 2027 through FY 2029 program years, the scoring for the HCAHPS Survey measure in the Person and Community Engagement Domain will be adjusted to focus solely on the six dimensions of the survey that remain unchanged. This corresponds with updates being adopted and publicly reported in the Hospital IQR Program.
• Starting in FY 2030, CMS will incorporate sub-measure updates to the HCAHPS Survey measure within the Person and Community Engagement Domain, following a year of public reporting in the Hospital IQR Program.
• The scoring method for the HCAHPS Survey measure in the Person and Community Engagement Domain will be adjusted beginning in FY 2030 to reflect the implemented updates to the survey.

PPS-EXEMPT CANCER HOSPITAL QUALITY REPORTING PROGRAM

The PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, which focuses on quality reporting for the eleven cancer hospitals exempt from the IPPS, involves CMS collecting and sharing data on relevant quality measures. In this final rule, CMS finalizes several actions:

• Implementing the Patient Safety Structural measure starting with the CY 2025 reporting period/FY 2027 program year, with some modifications.
• Updating sub-measures for the HCAHPS Survey measure, also beginning with the CY 2025 reporting period/FY 2027 program year.
• Advancing the public display date for hospital performance on the Hospital Commitment to Health Equity measure to January 2026 or as soon as it becomes feasible.

CMS UPDATES DATA REPORTING REQUIREMENTS FOR HOSPITALS AND CAHS TO ADDRESS RESPIRATORY ILLNESSES

CMS updates the Conditions of Participation (CoPs) for hospitals and critical access hospitals (CAHs) regarding the data reporting requirements for respiratory infections. This update emphasizes the importance of consistent data collection and reporting on respiratory illnesses beyond emergency situations, helping hospitals and CAHs stay informed about changing infection control needs. Starting November 1, hospitals and CAHs must electronically report data on COVID-19, influenza, and respiratory syncytial virus (RSV) according to a schedule set by the Secretary.

Additionally, in the case of a declared PHE related to an acute respiratory illness, the Secretary may mandate the reporting of further details, including the operational status of facility structure and infrastructure, hospital and emergency department (ED) diversion status, staffing levels and shortages, inventory shortages of supplies, and relevant medical countermeasures and treatments. The specifics of the frequency and format for these reports will be determined at the Secretary’s discretion.

CMS FINALIZES CHANGES TO NEW TECHNOLOGY ADD-ON PAYMENT POLICIES FOR FY 2025 AND FY 2026 AND APPROVES NEW TECHNOLOGIES FOR ADD-ON PAYMENTS

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 year’s rule, CMS finalizes several changes to the NTAP. Beginning in FY 2026, for new applicants and when extending NTAP for an additional year for FY 2025 or subsequent year NTAP approvals, CMS is changing the NTAP eligibility cutoff for determining whether a technology is within its 2- to 3-year newness period from the current April 1 date to October 1. CMS indicates the change is aimed at improving flexibility for NTAP applicants. CMS estimates this change will increase IPPS spending by approximately $459 million in FY 2027.

CMS also finalizes its proposal that, beginning with applications for NTAP for FY 2026, CMS will no longer consider an FDA marketing authorization hold status to be an inactive status for the purpose of the NTAP application eligibility.

Lastly, consistent with CMS’ Sickle Cell Disease Action Plan and to increase access to for gene therapies for the treatment of sickle cell disease (SCD), CMS is finalizing its proposal to increase the NTAP percentage from 65 to 75 percent for certain gene therapies approved for NTAP when indicated and used specifically for the treatment of SCD. This will be effective beginning in FY 2025 and conclude at the end of the 2- to 3-year newness period of any such gene therapy. This contrasts with CMS’s current FY 2024 policy where NTAPs are generally limited to the lesser of 65 percent of the costs of the technology, or 65 percent of the amount by which the costs of the case exceed the standard MS–DRG payment with the only exceptions being for QIDP or products approved under FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD), which has an NTAP percentage of 75 percent. CMS determined that for FY 2025 these new payment amounts would only apply to Casgevy™ (exagamglogene autotemcel) and Lyfgenia™ (lovotibeglogene autotemcel), when indicated and used specifically for the treatment of SCD. CMS indicated it will continue to assess the policy and may propose changes in the future. These changes will increase IPPS spending by approximately $38 million in FY 2025.

Under the traditional NTAP pathway, for FY 2025, CMS will continue NTAPs for 24 technologies[9] and discontinue NTAPs for 7 technologies.[10] Under the traditional pathway, CMS is approving 5 new technologies for NTAP for FY 2025. The agency is approving 12 new technology add-on payments for 11 technologies (one applicant received approval for 2 separate NTAPs). Of these 11 technologies, 10 technologies had Breakthrough Device designation and 1 had Qualified Infectious Disease Product (QIDP) designation.

CMS FINALIZES 2.0 PERCENT INCREASE AND A HISTORICALLY HIGH FIXED-LOSS THRESHOLD AMOUNT FOR LONG TERM CARE HOSPITALS PAYMENTS

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 2025, CMS estimates that the aggregate LTCH prospective payment system (PPS) payments will increase by 2.0 percent or $45 million.[11] CMS finalizes its proposal to rebase and revise the LTCH market basket to reflect a 2022 base year, stating that this allows for a market basket percentage increase that better reflects the growing labor costs relative to other input costs.

CMS finalizes a LTCH PPS standard Federal payment rate of $49,059.74 for FY 2025. The proposed rule affects 331 LTCHs nationwide for discharges occurring on or after October 1, 2024.

In the FY 2025 IPPS proposed rule, CMS proposed an outlier fixed-loss threshold amount of $90,921 but is finalizing a fixed-loss amount of $77,048. CMS acknowledges that while this is a higher than historical norms, the high-cost outlier payments in both FYs 2023 and 2024 are expected to account for a percentage of total LTCH PPS standard federal rate payments higher than the budget neutral statutory target of 7.975 percent, 8.8 percent. Therefore, CMS will offset the annual payment update to the LTCH PPS standard Federal payment rate with a 0.8 percent decrease in high-cost outlier payment. The American Hospital Association said in a statement[12] on the proposed rule that “expecting LTCHs to absorb an additional $31,048 loss per patient would greatly exacerbate the resource challenges these hospitals face” and urged the agency to modernize it high-cost outlier policy.

Finally, CMS clarifies requirements for a hospital to qualify for LTCH classification and finalized reordering some existing paragraphs in regulation to improve the clarity of the requirements.

New SDOH Data Elements to be Added to the LTCH Quality Reporting Program

CMS finalizes its proposals to add four new data elements to the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS), to modify one item, and to extend the admission assessment window for the LCDS beginning with the beginning with the FY 2028 LTCH QRP.  The new data elements are all related to Social Determinants of Health that are collected as part of the standardized patient assessment data, including an item on the patient’s living situation, two food related item, and an item related to utilities.

Additionally, CMS summarizes the feedback received on its request for information on future measure concepts and the LTCH Star Rating system. CMS sought comments on similar concepts and Star Rating systems in the FY 2025 Inpatient Rehabilitation Prospective Payment System and other post-acute care payment rules.

CMS MAKES MS-DRG CLASSIFICATION ADJUSTMENTS

CMS finalizes changes to MS-DRG classifications based on their yearly review and recalibration of the MS-DRG relative weights. For FY 2025, CMS’s analysis was based on ICD-10 claims data from the September 2023 update of the FY 2023 MedPAR file, which contains hospital bills received from October 1, 2022, through September 30, 2023. CMS finalizes its proposal to delete MS-DRGs 453, 454, and 455 and to create new MS-DRGs 426, 427, 428, 447, and 448 with modifications, and MS-DRGs 429 and 430 without modifications, for FY 2025. CMS also deletes MS-DRGs 459 and 460 and finalizes the creation of MS-DRGs 450 and 451.

In the FY 2021 IPPS 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 will continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2025, as they did for FY 2024. CMS states that it is extending the delay to further consider public feedback associated with application of the NonCC subgroup criteria, among other concerns.

CMS WILL CONSIDER PUBLIC INPUT ON MEDICARE IPPS PAYMENT RATES FOR MATERNITY CARE IN FUTURE ACTIONS

In the proposed rule, CMS requested information on whether hospital resources for inpatient pregnancy and childbirth differ between Medicare and non-Medicare patients. The agency also sought insights into how non-Medicare payers use IPPS rates for payment determination and its impact on maternal health outcomes. Additionally, CMS sought public input on potential strategies, within the framework of hospital CoPs, to address documented concerns regarding maternal morbidity, mortality, disparities, and access to maternity care in the United States. The agency specifically sought feedback on the structure and requirements of a potential obstetrical services CoP.

Commenters appreciated CMS’s commitment to improving maternal health, and generally focused on three main topics:

• Payment: Some commenters noted that payment rates to providers and health care professionals for maternity care services are inadequate regardless of the payers, and that there are structural issues with payment. Many commenters noted the importance of Disproportionate Share Hospital (DSH) payments, Uncompensated Care payments, and adequate payments for Medicare as keys to supporting hospitals that provided maternity care services. Medicaid payments were also highlighted as important.
• Resource use: Most commenters suggested there are differences in the resources needed to treat Medicare versus non-Medicare beneficiaries. Some noted that the current MS-DRG structure and weights do not adequately reflect resource composition.
• Strategies to improve maternal health outcomes: Commenters suggested value-based care arrangements, standardizing quality reporting, support programs for care for mental health and substance use disorders, and addressing housing and food security challenges as important.

. The agency will consider these comments for future actions.

CMS FINALIZES NEW ICD-10 CODE ASSIGNMENTS, INCLUDING FOR HYPOGLYCEMIA LEVELS

CMS assigns over 300 new ICD-10 codes to MS-DRGs, notably including hypoglycemia Level 1, Level 2, and Level 3.[13] CMS acknowledges stakeholder comments that these new diagnosis codes will enable consistent quantification and outcomes measurement and help support intervention efforts such as documenting a patient’s need for a continuous glucose monitor.

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This Applied Policy® Summary was prepared by Will Henkes with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact him at whenkes@appliedpolicy.com or at (608) 722-9413.

[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 page 908 of the unpublished final rule. Does not include applicable increases for Puerto Rico IPPS hospitals.

[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 page 2737 of the unpublished final rule.

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

[7] For FY 2025 this 25^th percentile wage index is 0.9007

[8] See page 1926 of the unpublished final rule for a list of the Billing Codes (MS-DRG/HCPCS) included in each episode category.

[9] See Table II.E.-01 in the final rule.

[10] See Table II.E.-02 in the final rule.

[11] LTCHs that do not meet the reporting requirements are subject to a 2.0 percent reduction in their annual payment update (resulting in a 0.8 percent update for FY 2025).

[12] https://www.aha.org/press-releases/2024-04-10-aha-statement-fy-2025-proposed-ipps-ltch-payment-rule

[13] See Table 6A on page 288 of the unpublished final rule.