On July 31, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) and Quality Reporting (IPFQR) Updates final rule. CMS released a fact sheet accompanying the rule. In this rule, CMS finalizes proposals to:

• Increase IPF PPS payment rates by 2.8 percent;
• Revise the patient-level IPF PPS adjustment factors and increase electroconvulsive therapy (ECT) payment per treatment;
• Update the IPF wage index based on revised census data;
• Phase out the rural adjustment for IPFs that transition from rural to urban status;
• Clarify the eligibility criteria for an IPF to file all-inclusive cost reports; and
• Adopt one new measure under the IPF Quality Reporting (IPFQR) Program.

CMS is not finalizing its proposal to require IPFs to submit patient-level quality data quarterly. Data reporting for these measures will remain annual.

The agency also responds to feedback to inform development of a standardized IPF Patient Assessment Instrument and future revisions to the IPF PPS facility-level adjustments.

This final rule is scheduled to be published in the Federal Register on August 7, 2024.

INPATIENT PSYCHIATRIC FACILITIES TO RECEIVE A $65 MILLION INCREASE IN FY 2025 PAYMENTS

For FY 2025, CMS finalizes a 2.8 percent increase in IPF payment rates, rather than 2.7 percent as proposed. This rate increase is based on a 3.3 percent market update, reduced by a productivity adjustment of 0.5 percentage points. Overall, CMS estimates that payments to IPFs will increase by $65 million (2.5 percent) in FY 2025 compared to FY 2024, revised from the proposed estimate of a $70 million increase. This reflects an estimated $75 million increase from the update to the payment rates, offset by a $10 million decrease due to the update to the outlier threshold amount to set total estimated outlier payments at 2.0 percent of total estimated payments for  FY 2025.

IPFs that fail to report required quality data will continue to have an additional 2-percentage point reduction applied to their payments.

Payment Rates

IPFs are paid a daily base rate covering all routine, ancillary, and capital costs, and adjusted based on patient and facility characteristics. Patient-level adjustments consider age, Diagnosis-Related Group (DRG) assignment, comorbidities, per diem costs that vary throughout a patient’s stay. Facility-level adjustments account for wage index, rural location, teaching status, cost-of-living, and emergency department (ED) presence. Additional policies address outlier cases, interrupted stays, and per treatment payments for electroconvulsive therapy (ECT) patients.

Per the Consolidated Appropriations Act of 2023 (CAA, 2023), CMS must update the methodology for determining payment rates for FY 2025 onwards. CMS finalizes revisions to the IPF PPS patient-level adjustment factors based on a review of cost and claims data.

Additionally, analysis of the latest IPF PPS claims and cost data indicates that ancillary costs for stays that include ECT treatments have increased since 2005 by a greater amount than the current ECT per treatment payment under the IPF PPS. To account for this, CMS will increase the IPF PPS ECT payment per treatment. CMS believes this increase would improve access to ECT for patients who need it. See Table 1 below for FY 2025 per-diem and ECT payment rates, relative to FY 2024.

Table 1. IPF PPS Payment Rates by Fiscal Year

Inpatient Psychiatric Facility Proposed Payment System (IPF PPS)	FY 2024 (Current)	FY 2025 (Finalized)
Per-Diem Base Rate	$895.63	$876.53
Electroconvulsive Therapy Payment (per treatment)	$385.58	$661.52

Outlier Threshold

For FY 2025, CMS finalizes a fixed dollar loss threshold of $38,110, up from $33,470 in FY 2024 and revised from the proposed threshold of $35,590. This will continue to limit estimated outlier payments to 2 percent of total aggregate IPF payments for FY 2025.

CMS UPDATES THE IPF WAGE INDEX BASED ON REVISED CENSUS DATA AND PHASES OUT RURAL ADJUSTMENTS FOR IPFS TRANSITIONING FROM RURAL TO URBAN STATUS

For FY 2025, CMS finalizes its proposal to update the IPF PPS wage index using the Office of Management and Budget’s (OMB) most recent statistical area delineations based on 2020 Decennial Census data.[1] To account for variations in costs and differences in geographic wage levels, payment rates under the IPF PPS are adjusted by a geographic wage index. Currently, CMS updates the wage index annually based on the most recent available acute care hospital wage index, without any floors or reclassifications under the Medicare Inpatient Prospective Payment System (IPPS). IPF labor market areas are delineated based on the Core-Based Statistical Area (CBSA) established by OMB.

CMS believes adopting these new delineations will result in wage index values that more accurately represent the actual local costs of labor. CMS analysis shows that 53 counties currently part of an urban CBSA will be considered located in a rural area, and another 54 currently part of a rural CBSA will be considered located in an urban area.[2] Several counties will also switch from one urban CBSA to another if the new delineations are adopted.[3] The permanent five percent cap on negative wage index changes, which applies regardless of the reason for the decline and was finalized in the FY 2023 IPF PPS final rule, will mitigate any wage index decreases that result from this update.

CMS will also phase out the rural adjustment for IPFs that transition from rural to urban status under new CBSAs over three years. Impacted IPFs will receive two-thirds of the rural adjustment in FY 2025, one-third of the rural adjustment in FY 2026, and no rural adjustment in FY 2027. The three-year phase out is intended to reduce the impact the loss of the FY 2024 rural adjustment of 17.0 percent would have on these IPFs.

CMS finalizes similar changes in the FY 2025 Inpatient Rehabilitation Facility (IRF) PPS and Hospice Wage Index final rules.

CMS CLARIFIES ELIGIBILITY FOR IPFS FILING ALL-INCLUSIVE COST REPORTS

The CAA, 2023 requires the collection of data and information, including charges related to ancillary services, to revise the IPF PPS. Currently, IPFs and psychiatric units must report ancillary charges on cost reports. However, IPFs without this cost structure can file all-inclusive cost reports, accommodating their inability to allocate costs to charges. While historically few IPFs have filed all-inclusive cost reports, CMS notes an increase in erroneous filings. To address this, CMS clarifies that only government-owned or tribally-owned facilities are permitted to file all-inclusive cost reports for cost reporting periods beginning on or after October 1, 2024. This clarification aims to enhance payment accuracy for the IPF PPS, promote behavioral health treatment, and supports IPFs that provide care to beneficiaries with more complex and costlier conditions.

CMS FINALIZES QUALITY REPORTING PROGRAM CHANGES WITH A FOCUS ON POST-DISCHARGE OUTCOMES

The IPFQR Program requires that all IPFs paid under the IPF PPS submit specified quality data to CMS within prescribed timeframes. IPFs that do not submit the specified data as required receive a 2.0 percentage point reduction to their annual payment update.

CMS finalizes its proposal to adopt one new measure focused on ED visits following IPF discharge. With this addition, the IPFQR Program measure set will include 16 mandatory and one voluntary measure.[4] CMS is not modifying or removing any measures from the program.

However, CMS is not finalizing its proposal to require that IPFs report patient-level quality data on a quarterly basis, as opposed to the current annual basis. Data reporting for these measures will remain annual.

New Measure Adopted Focuses on Post-Discharge Outcomes

CMS will adopt one measure focused on post-discharge outcomes:

• 30-Day Risk-Standardized All-Cause Emergency Department Visit Following an Inpatient Psychiatric Facility Discharge Measure: Beginning with FY 2027, this measure will assess the proportion of patients 18 and older with an ED visit, including observation stays, within 30 days of discharge from an IPF without readmission. CMS believes this measure will enhance assessment of post-discharge acute care, prompting better discharge planning and care coordination.

CMS Will Not Require IPFs to Report Patient-Level Quality Data on a Quarterly Basis

IPFs are currently required to submit patient-level quality data on an annual basis. To align the IPFQR Program with other quality reporting programs and reduce data burden on IPF systems, CMS proposed to require IPFs to submit patient-level quality data on a quarterly basis. However, many commenters expressed concerns that IPFs would be unable to implement the necessary system changes for quarterly reporting by the November 15, 2025, submission deadline. In response to these concerns, CMS is not finalizing this proposal and will maintain the current annual reporting for these measures.

CMS RESPONDS TO FEEDBACK ON PATIENT ASSESSMENT INSTRUMENT REQUIRED BY THE CONSOLIDATED APPROPRIATIONS ACT, 2023

In compliance with the CAA, 2023, IPFs are mandated to gather and furnish standardized patient assessment data across designated categories. This data is pivotal for CMS to propose future enhancements to the IPF PPS, aiming for improved accuracy in healthcare reimbursement, quality monitoring, and identification of disparities in behavioral health care provision.

Consequently, in the proposed rule, CMS invited commentary to identify pertinent data elements for collection in the acute inpatient psychiatric care domain. CMS also sought input regarding potential criteria for formulating and implementing the assessment instrument. Additionally, CMS was interested in understanding the prospective burden on IPFs imposed by this supplementary data collection. Suggestions on mitigating this burden were invited, including whether any data presently collected through existing assessment tools in other contexts or via current IPF procedures could be repurposed as standardized patient assessment data elements for the IPF Patient Assessment Instrument (IPF-PAI).

Commenters offered several suggestions aimed at minimizing the administrative burden of new data collection, such as aligning IPF-PAI data elements with existing workflows (e.g. current IPFQR requirements) or choosing data elements that could be auto-populated  from electronic health records (EHR). Commenters also highlighted the need to consider the unique characteristics of the IPF patient population, such as the possibility that patients may be unwilling to participate in interviews when designing measures or setting completion rates. CMS will consider this feedback in developing the IPF-PAI and in future rulemaking.

CMS RESPONDS TO COMMENTARY ON IPF PPS FACILITY-LEVEL ADJUSTMENT FACTORS

Per the CAA, 2023, CMS is tasked with revising the methodology for determining payment rates for FY 2025 onwards. CMS solicited comments on potential modifications to these adjustment factors, grounded in recent analyses of IPF costs and claims. CMS’s examination of data from 2019 through 2021 suggests potential changes in the regression factors for IPFs located in rural areas and those with teaching status. Additionally, CMS is considering a new facility-level variable for safety net patient populations.

CMS indicated it was considering an adjustment based on the Medicare Safety Net Index (MSNI), developed by MedPAC as an alternative to the current mandated methodology for disproportionate share payments to IPPS hospitals. The agency emphasized the implications of revising rural and teaching status adjustment factors and including a new variable for safety net patient populations. CMS stated that updating these facility-level adjustment factors in future rulemaking could enhance the accuracy of reimbursement, bolster support for psychiatry residency training, and strengthen IPFs in rural and underserved regions. CMS invited comment on these considerations.

CMS received several comments supporting a payment adjustment for IPFs serving safety net populations. However, most stakeholders were concerned about the budget neutrality impact of an MSNI-based adjustment, which CMS estimated would reduce the IPF PPS per-diem base rate by about $245, negatively affecting IPFs with a low MSNI. There were also concerns that this adjustment could decrease the rural and teaching adjustments. Approximately half of the commenters on this issue indicated that they would support the adjustment if it were not budget neutral. Several commenters suggested a disproportionate share hospital (DSH) payment as an alternative to using the MSNI, and one suggested a quality measure-based bonus payment for IPFs that met a certain threshold of dually eligible patients. MedPAC expressed support for the MSNI-based adjustment but recommended capping its impact to reduce disruption to payment rates. CMS will consider these comments in future rulemaking.

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This Applied Policy® Summary was prepared by Caitlyn Bernard with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at cbernard@appliedpolicy.com or at (571) 451-6594.

[1] OMB Bulletin No. 23-01

[2] Table 14 on pages 97-99 of the final rule lists the counties that will switch from urban to rural if the adoption of new OMB delineations is finalized. Table 15 on pages 99-101 of the final rule lists the counties that will switch from rural to urban.

[3] Table 16 on page 102 of the final rule shows the list of counties that will change to a different CBSA and their new CBSA codes and titles.

[4] See Table 19 on page 203 of the final rule for the IPFQR Program measure set for the FY 2027 IPFQR Program.