CMS has issued the FY 2024 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule. The Rule is pending formal publication on August 28th. The Final Rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for FY 2024. CMS is also finalizing policies to promote health equity and patient safety, such as proposals to make health equity adjustments in the Hospital Value-Based Purchasing (VBP) Program by rewarding those who provide excellent care in underserved populations and adding 15 new health equity hospital categorizations for the FY 2024 IPPS payment impacts.

The Final Rule aims to advance the goals of the CMS Framework for Health Equity 2022-2032, including the goal to more explicitly measure the impact of their policies on health equity. Notable changes are discussed in more detail below.

Key Payment Updates

Changes to Payment Rates Under IPPS

Operating payment rates for general acute care hospitals that are paid under the IPPS, successfully participate in the Hospital Inpatient Quality Reporting (IQR) program, and are meaningful electronic health record (EHR) users will increase by 3.1%. This percentage reflects a projected FY 2024 IPPS hospital market basket update of 3.3% (increased from 3% as proposed) reduced by a statutorily required .2 percentage point productivity adjustment. CMS states the increase in operating and capital IPPS payment rates will generally increase hospital payments in FY 2024 by $2.2 billion.

CMS projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $957 million. CMS also estimates that additional payments for inpatient cases involving new medical technologies will decrease by $364 million in FY 2024.

Changes to Payment Rates Under LTCH PPS

For FY 2024, CMS expects the LTCH standard payment rate to increase by 3.3% and LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 0.2%, or $6 million. CMS made modifications to the methodology used to determine the LTCH PPS high-cost outlier (HCO) threshold for discharges paid the LTCH standard federal payment rate and finalized a threshold that is notably lower than in the proposed rule.

While the HCO threshold is notably lower than that in the proposed rule, the final rule will increase the threshold by 55% from the current $38,518 to $59,873 (instead of the proposed $94,378) to achieve the target of paying roughly 8% of aggregate LTCH payments as HCO payments. This increase will result in a decrease in the number of cases qualifying for an outlier payment, which will substantially impact LTACH reimbursement.

Rural Emergency Hospitals (REHs) and Graduate Medical Education (GME)

The Final Rule allows REHs to serve as training sites for Medicare GME payment purposes. Specifically, effective for portions of cost reporting periods beginning on or after October 1, 2023, an REH may decide to be a non-provider site and can either (1) include the full-time equivalent (FTE) residents training at the hospital in its GME and indirect graduate medical education (IME) FTE counts for Medicare payment purposes, or (2) incur direct GME costs and receive payment based on reasonable costs for those training costs. These changes will help support graduate medical training in rural areas. Allowing REHs to be GME eligible facilities will help promote greater physician participation in rural healthcare thereby improving workforce shortages in rural areas and in turn improve patient access to care in underserved areas.

Changes to the New COVID-19 Treatments Add-On Payment (NCTAP)

Although the PHE ended May 11, 2023, CMS extended eligibility for NCTAP through September 30, 2023 (the end of FY 2023) to continue to mitigate potential financial disincentives for hospitals to provide new treatments, and to minimize any potential payment disruption following the end of the PHE. Discharges involving eligible products made on or after October 1, 2023, will no longer be eligible for the NCTAP.

Changes to the Rural Wage Index Calculation Methodology

CMS is in the process of finalizing the proposed rule to treat rural reclassified hospitals under §412.103 the same as geographically rural hospitals for the purposes of calculating the wage index. Specifically, hospitals with a §412.103 reclassification along with geographically rural hospitals will be included in rural wage index calculations beginning with FY 2024. Further, CMS will include the data of all §412.103 reclassified hospitals in the calculation of the wage index for the rural area of the state and the calculation of the rural floor for urban hospitals in the state. CMS estimates that this policy will result in 596 hospitals receiving the rural floor in FY 2024.

Disproportionate Share Hospital (DSH) Payment Changes and Uncompensated Care

CMS will distribute approximately $5.94 billion, a substantially lower amount than the $6.7 billion as proposed, in uncompensated care payments for FFY 2024. This is a decrease of approximately $950 million in uncompensated care payments from FY 2023.

CMS is finalizing the changes to the regulations governing the counting of days associated with individuals eligible for certain benefits provided by section 1115 demonstrations in the Medicaid fraction. Under the Final Rule, only the days of those patients who receive from the Section 1115 Demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100% of the premium cost to the patient which the patient uses to buy health insurance that covers inpatient hospital services are to be included. For more information on the 1115 waiver days impact to DSH percentage please see the Advis team’s analysis here.

Hospital Value-Based Purchasing (VBP) Program

CMS is finalizing the proposal to refine measure modifications for two existing measures: MSPB Hospital and Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty.

CMS will also adopt a new measure, the Severe Sepsis and Septic Shock: Management Bundle in the Safety Domain, beginning with the FY 2026 program year. Additionally, in line with their goals in promoting health equity and patient safety, CMS is adopting a health equity scoring change for rewarding excellent care in underserved populations beginning with the FY 2026 program year. The program’s scoring methodology will now include a health equity adjustment based on both a hospital’s performance on existing program measures and the proportion of individuals with dual-eligibility status that a hospital treats.

Other Notable Policies:

Continuation of the Low-Wage Hospital Policy: CMS will continue temporary policies finalized in the FY 2020 IPPS/LTCH PPS final rule to address wage index disparities affecting low-wage index hospitals, which includes many rural hospitals.

Social Determinants of Health Diagnosis (SDOH) Codes: Consistent with CMS’s goal of advancing health equity for all, CMS has finalized a change to the severity designation of the three ICD-10-CM diagnosis codes describing homelessness (e.g., unspecified, sheltered, and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes.

Changes to New Technology Add-On Payment (NTAP) Policies: As proposed, CMS is finalizing two revisions to the criteria that applicants must meet to apply for new technology add-on payments (NTAP).

Hospital Inpatient Quality Reporting (IQR) System: In sum, CMS is finalizing the adoption of three new electronic clinical quality measures (eCQMs), the removal of three existing measures, and the modification of three current measures. The specific eCQMs are explained in more detail in our previous blast regarding the Proposed Rule.

Physician-Owned Hospitals: CMS is clarifying the data and information that must be included in an expansion exception request, identifying factors that CMS will consider when making a decision on the request, and revising certain aspects of the process for requesting an expansion exception. CMS will also be reinstating program integrity restrictions on the frequency of expansion exception requests for those hospitals that meet the criteria for “high Medicaid facilities.”

For any questions regarding this proposed rule, or for assistance in any other healthcare regulatory and operational matters for your organization, please contact Advis through our website or give us a call at 708-478-7030.


Published: August 22, 2023