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On August 1st, 2023, the Centers for Medicare & Medicaid Services (CMS) announced its final rules for the 2024 inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) payment system. These are designed to improve care, promote health equity and patient safety, and ensure that Medicare fee-for-service payment rates and policies are accurate for inpatient hospitals and LTCHs for FY 2024. 

Below is a summary of the final rules for the IPPS and LTCH.

  1. Base rate updates for IPPS/LTCH 

Market Basket Update: The CMS has approved a net increase of 3.1 percent for the FY 2024 IPPS payment rates. This increase is larger than the initially proposed 2.8 percent rise but falls short of the 3.8 percent hike that was implemented in FY 2023. The CMS has also confirmed that the 2024 LTCH payment rates will be reduced by 0.2 percent from FY 2023. 

A physician is calculating costs for the CMS 2024 inpatient prospective payment system (IPPS).
The CMS has announced its final rules for the 2024 inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) payment system.

These announcements have received criticism from hospital groups who deem the increases insufficient. They are calling on the CMS to suspend the productivity adjustment that measures physician-specific productivity, noting that the decline in productivity resulted from the COVID-19 pandemic. This led to canceled procedures and reduced access to health services for some patients.

Utilization of 2022 Data for MS-DRGs Amid COVID-19: In an unprecedented move, the CMS has used FY 2022 claims data to set Medicare rates. The CMS did not alter its usual rate-setting methodology despite incorporating additional adjustments to reflect the impact of COVID-19 hospitalizations and the standard updates based on previous-year claims data. This decision is grounded in the CMS’ belief that FY 2022 data sufficiently takes into account COVID-19 hospitalizations, with uncertainty remaining about the virus’s effect on LTCHs in FY 2024 relative to FY 2022.

  1. The final rule for health equity policies

Safety-Net Hospitals Challenges: The CMS is still reviewing feedback it received about the challenges faced by safety-net hospitals. The agency has sought input on identifying and classifying these hospitals, including using the Area Deprivation Index (ADI), which measures the socio-economical standing of residents in accordance with ADI rankings. These rankings are based on census, education, employment, and housing indicators, helping to identify the impact of social determinants on health.

Severity Level Designation for Homelessness Codes (SDOH): The CMS has finalized the change of severity level designation for social determinants of health codes that pertain to homelessness. These codes will now be classified as complications or comorbidities in FY 2024. This change recognizes homelessness as an indicator of increased resource utilization in acute inpatient settings.

Hospital VBP Program: The CMS has projected a value-based incentive payment pool of around $1.7 billion for FY 2024. Notably, the Hospital Value-Based Purchasing (VBP) program’s scoring methodology has been adjusted to include dual-eligible status patients who will now receive Health Equity Adjustment bonus points. These points are calculated using a measured performance scale and an underserved multiplier.

The CMS has also introduced updates to the Medicare Spending per Beneficiary Hospital measure. This evaluates how much Medicare spends for an episode of care at a particular hospital and compares it with other hospitals nationwide. The update will start in FY 2028. 

And the CMS has adopted a standard operating procedure named the Severe Sepsis and Septic Shock: Management Bundle measure for the Hospital VBP program, demonstrating a desire to improve sepsis care.

Lastly, the CMS has made survey-related changes to the Hospital Consumer Assessment of Healthcare Providers and Systems. This makes surveys permanently available via “web-mail” and allows patients to request a Spanish version starting in January 2025.

  1. Wage index, geographic reclassification, and rural hospital changes

Changes to Rural Wage Index Calculation: The CMS has reclassified hospitals under 42 C.F.R. § 412.103 for wage index purposes. This means that urban hospitals that are geographically the same as rural hospitals will now be treated the same starting in FY 2024. 

Low-Wage Index Policy Continuation: The CMS has approved continuing its low-wage index policy, which impacts Medicare wage index calculations. This policy raises the wage index for hospitals in the lowest quartile, offsetting the adjustment by decreasing the wage index for other hospitals. 

Effective Date of Rural Reclassification for Hospitals Meeting SCH Criteria Due to Merger: The CMS has modified the effective date of rural reclassification for certain hospitals that qualify for reclassification under 42 C.F.R. § 412.103(a)(3). This satisfies the sole community hospital (SCH) criteria through a merger. 

For hospitals whose SCH status eligibility hinges on a merger, the effective date of rural reclassification under section 412.103(a)(3) will coincide with the approved merger’s effective date, provided the application reaches the Medicare contractor on or after October 1, 2023. If the contractor does not receive a complete application within 90 days of CMS’ written merger notification, the SCH reclassification will take effect on the date the contractor receives the application.

REH Enrollment Requirements: The CMS has implemented requirements for eligible facilities seeking enrollment as Rural Emergency Hospitals (REHs). This provider category was introduced by Congress in the Consolidated Appropriations Act of 2021, with the CMS adopting enrollment methods for REHs in the CY 2023 OPPS final rule. 

The CMS finalized instructions on January 26, 2023, providing clear direction for REH enrollment. Additionally, the CMS has included a new stipulation mandating that facilities applying for REH enrollment must submit an action plan comprising four key elements: 

  • An outline for commencing REH services
  • A transition plan detailing how the provider will modify, retain, add, and discontinue services as an REH
  • A description of other outpatient medical services to be provided as an REH
  • Information outlining the intended utilization of the additional facility payment granted to REHs
  1. Other medical education programs

Graduate Medical Education Payments: The CMS has added paragraph (d) in 42 C.F.R. § 419.92 concerning payments for Rural Emergency Hospitals (REHs). Starting on October 1, 2023, REHs can choose to be a non-provider site, allowing them to include FTE residents’ training at the hospital in their direct and indirect graduate medical education. 

Revised Medicare Part C Nursing and Allied Health Payments: In 2023, Congress passed a $60 million annual cap on additional nursing and allied health (NAHE) payments for CYs from 2010 to 2019. This led the CMS to create a data table to calculate Part C NAHE payments, using the most recent CY 2022 data and eliminating the cap. 

The CMS will also recalculate pool amounts according to 42 U.S.C. § 1395ww(l)(2), varying from approximately $63 million for CY 2010 to around $140 million for CY 2019. This will allow the CMS to recoup previous amounts to hospitals while preventing further recoupments by lowering Part C GME payments by 3.27%.

  1. Disproportionate Share Hospital payment changes

Section 1115 Waiver Days: The CMS has restricted the inclusion of section 1115 waiver days in the Medicaid fraction for Disproportionate Share Hospital (DSH) payment calculation. Under the finalized rule, only patients with health insurance that covers inpatient hospital services through premium assistance (i.e., it covers the full premium cost for insurance) can qualify for the Medicaid fraction. Medicare Part A patients are disqualified

This means that the CMS will now exclude patient days that are covered by uncompensated care pool payments and those with section 1115 premium assistance covering less than 100% of their premium costs from the Medicaid fraction numerator. 

Continued Uncompensated Care Payments Reduction: While the general process remains consistent between the proposed and final rules, there are changes in the specific figures:

  • Factor 1 is lowered from $10.461 billion in FY 2023 to $10.015 billion in FY 2024, a decrease of over $450 million.
  • Factor 2 considers data indicating a decline in the nationwide uninsured rate from 14 percent to an average of 9.3 percent.
  • The pool of DSH uncompensated care funds decreased by nearly $1.2 billion, from $6.712 billion to $5.938 billion between the proposed and final rules.
  • Factor 3 calculations for FY 2024 remain consistent with the FY 2023 IPPS final rule methodology. This is based on audited cost reports from FYs 2018, 2019, and 2020 using the March 2023 Healthcare Cost Report Information System (HCRIS) update.
  1. Quality of care for ownership disclosures and hospital performance reporting

Disclosures of Ownership on Medicare Enrollment Forms: The CMS proposed extending the definitions of “private equity company” and “real estate investment trust” to apply to all skilled nursing facility (SNF) rulemaking providers and suppliers who completed the CMS-855A enrollment application form. However, this proposal was not finalized in the current rule, with the CMS stating its intention to address this matter later.

HAC Reduction Program and Validation Reconsideration: The CMS has implemented a validation reconsideration process for the Hospital-Acquired Condition (HAC) Reduction Program. Starting from FY 2025, hospitals can request a reconsideration of their final validation scores. Hospitals that fail the validation requirement will receive notification to submit a reconsideration request form and supporting documentation within 30 days. The reconsideration process aims to give hospitals an opportunity to challenge their scores.

Furthermore, the CMS had considered adding new electronic clinical quality measures (eCQMs) to the HAC Reduction Program. However, based on the feedback it received, the CMS has decided to assess the potential inclusion of these measures further and has stated that any proposal to implement new measures would be subject to notice-and-comment rulemaking.

New and Modified Measures in Hospital IQR Program: The CMS has confirmed three new measures for the Hospital Inpatient Quality Reporting (IQR) Program, focusing on the quality of care, safety, patient experiences, coordination, clinical outcomes, and cost. These new measures include:

  • Hospital Harm-Acute Kidney Injury
  • Hospital Harm-Pressure Injury
  • Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computer Tomography in Adults

Additionally, the CMS has finalized changes to some existing measures in the Hospital IQR Program. Starting from FY 2027, this means that Medicare fee-for-service and Medicare Advantage for patients aged 65 to 94 will expand under the following measures:

  • Hybrid Hospital-Wide All-Cause Risk Standardized Mortality
  • Hybrid Hospital-Wide All-Cause Readmission 

Furthermore, several measures have been removed from the Hospital IQR Program: 

  • Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty
  • Total Knee Arthroplasty
  • Medicare Spending Per Beneficiary
  • Elective Delivery Prior to 39 Completed Weeks Gestation

The removal of these measures aims to eliminate duplicative reporting and simplify administration

Changes to COVID-19 Vaccination Coverage among HCP Measure The CMS has modified the COVID-19 Vaccination Coverage Among Health Care Personnel (HCP) measure. The term “complete vaccination course” will be replaced with “up to date” in the HCP vaccination definition. 

Compliance with being “up to date” will follow the Centers for Disease Control and Prevention’s definition as of the reporting quarter’s first day. The measure will calculate the cumulative number of HCP eligible to work, excluding those with contraindications to COVID-19 vaccination, and are considered up-to-date with recommended vaccines, divided by the total number of eligible HCP.

This modification will be effective from the Q4 CY 2023 reporting period/FY 2025 payment determination for the Hospital IQR Program and the FY 2025 program year for the LTCH Quality Reporting Program and the PPS-Exempt Cancer Hospital Quality Reporting Program. While public reporting for the modified COVID-19 Vaccination Coverage among HCP measures will start with the October 2024 Care Compare refresh.

  1. Low-volume hospitals payment adjustment

The CMS will extend temporary changes to the definition and payment adjustment for low-volume hospitals for FY 2024. The definition of low-volume hospitals is those within 15 road miles from another subsection (d) hospital and with fewer than 3,800 discharges in the fiscal year. 

The payment adjustment will be determined using a sliding scale, ranging from 25 percent for low-volume hospitals with 500 or fewer discharges to 0 percent for those with over 3,800 discharges. Conforming adjustments will be made to the regulation text at 42 C.F.R. § 412.101

Hospitals seeking low-volume hospital status must submit written requests with supporting documentation to their Medicare contractor by September 1, 2023, and adhere to applicable mileage and discharge criteria.

  1. Medicare interoperability

The CMS has approved minor changes to the Promoting Interoperability (PI) Program. The reporting period for CY 2025 will extend to 180 days. This is an increase from the 90-day period used in CY 2023. And it aligns with the 180-day electronic health record (EHR) reporting period in CY 2024. For new PI Participating Hospitals, the payment adjustment year will commence two years after the reporting period in CY 2025. 

Starting with CY 2024 reporting, PI Participating Hospitals will be required to conduct annual Safety Assurance Factors for EHR Resilience (SAFER) Guides self-assessments

Furthermore, three new electronic Clinical Quality Measures (eCQMs) have been added for reporting by PI Participating Hospitals: 

  • Hospital Harm – Pressure Injury eCQM
  • Hospital Harm – Acute Kidney Injury eCQM
  • Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level – Inpatient) eCQM. 

These measures can be reported for the Medicare Promoting Interoperability Program and the Hospital IQR Program.

Experience Care will keep you updated on future developments.