April 12, 2023 – This week, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year 2024 Medicare hospital inpatient prospective payment system (IPPS) and long-term care hospital prospective payment system (LTCH PPS) proposed rule.
The proposed rule would update Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs. The proposed increase in operating payment rates is projected to be 2.8%. This would be for general acute care hospitals paid under the IPPS, that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users. This reflects a projected FY 2024 hospital market basket percentage increase of 3.0%, according to CMS, reduced by a 0.2 percentage point productivity adjustment.
Hospitals may be subject to other payment adjustments under the IPPS, including:
- Payment reductions for excess readmissions under the HRRP.
- Payment reduction (1%) for the worst-performing quartile under the Hospital Acquired Condition (HAC) Reduction Program.
- Upward and downward adjustments under the Hospital Value-Based Purchasing (VBP) Program.
CMS said the proposed increase in operating and capital IPPS payment rates will generally increase hospital payments in FY 2024 by $3.3 billion. In addition, CMS projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $115 million.
Industry reaction
American Hospital Association: In a statement shared with the media, Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said, “The AHA is deeply concerned with CMS’ woefully inadequate proposed inpatient hospital payment update of 2.8% given the near decades-high inflation and increased costs for labor, equipment, drugs and supplies. Moreover, long-term care hospitals would see a staggering negative 2.5% payment update under this proposal. These insufficient adjustments are simply unsustainable.
“2022 was the most financially challenging year for hospitals during the pandemic, with half of hospitals finishing the year with a negative operating margin. So far, this worrying trend has continued in 2023, most recently with reports of record high hospital defaults. The AHA has repeatedly requested that CMS and the Administration remedy shortcomings in its previous market basket forecasts for all hospitals. For example, CMS’ inpatient payment update was a full three percentage points less than what actual market basket inflation was in 2022 and the long-term care update was 2.9 percentage points less.
“Layering these inadequate inflationary adjustments on top of Medicare’s existing underpayments to hospitals does not reflect the reality of the world hospitals are providing care in. Without more substantial updates in the final rule, hospitals’ ability to continue caring for patients and providing essential services for their communities will be threatened.”
Premier: Soumi Saha, Senior Vice President of Government Affairs, Premier, said, “The Centers for Medicare & Medicaid Services (CMS) continues to use data sources for calculating labor costs that fail to capture the stratospheric rise in the cost of labor that have plagued hospitals since the pandemic started. This chasm between the 2.8 percent payment update and reality, coupled with uncomfortably high inflation, delivers a one-two punch to hospitals that must be addressed. Premier will continue to press CMS to adopt new or supplemental data sources to calculate labor costs in the final rule that more accurately reflect the cost of labor, such as more real-time data directly from hospitals, inclusive of contract labor.
“Premier appreciates CMS progressing from collecting information on health equity via its numerous requests for information to acting on stakeholder recommendations, including providing incentives for hospitals to advance health equity and improve access to care for underserved populations. Premier looks forward to unpacking the details of the proposals and working with CMS to refine these policies to ensure they accomplish their intended purpose.”