On August 1, 2024, CMS filed a display copy of its final rule for Fiscal Year (FY) 2025 pertaining to the Inpatient Prospective Payment Systems (IPPS) for general acute care hospitals and long-term care hospitals (LTCHs) (the Final Rule). The Final Rule, scheduled for publication on August 28, 2024, generally finalized changes that CMS proposed in the FY 2025 Proposed Rule, but CMS made some revisions. CMS revised the payment rates for general acute care hospitals and LTCHs, finalized its IPPS adjustment for providers of essential medicines, implemented changes for graduate medical education (GME) programs, implemented the latest core based statistical areas (CBSAs), and modified the composition of the Provider Reimbursement Review Board (PRRB).
Payment Rates Overview
In the FY 2025 proposed rule, CMS initially projected that the payment rates for general acute care hospitals under the IPPS, for those hospitals that participate in the Hospital Inpatient Quality Reporting program and are meaningful users of electronic health records, would increase by 3% in FY 2025. During the notice and comment rulemaking, many providers indicated that they believe a 3% increase to their payment rates in FY 2025 would be inadequate, and that inflation and rising labor costs would continue to outpace CMS’s increases to Medicare reimbursement rates.
CMS noted commenters’ concerns but indicated that the agency has little interest in modifying its method for updating the IPPS rates. However, even without CMS modifying the underlying methodology of its IPPS payment rate calculation, the “hospital market basket update” went from increasing by 3% under the Proposed Rule to increasing by 3.4% under the Final Rule, due to CMS incorporating new data into its calculation.
Despite these changes to the Medicare reimbursement rate, CMS’s estimate for the total operating and capital payments going to general acute care hospitals remained largely unchanged from the proposed rule to the Final Rule; both versions estimated that hospitals’ payments under the IPPS would increase by $2.9 billion.
In addition to general acute care hospitals seeing a boost to their payment rates in the Final Rule, as compared to the proposed rule, CMS also indicated that the standard payment rate for LTCHs would be higher under the Final Rule than the proposed rule. The increase in the LTCH standard payment rate went from a 1.2% increase for FY 2025 under the Proposed Rule, adding approximately $26 million over the prior year, to a 2% increase for FY 2025 under the Final Rule, adding approximately $45 million over the prior year.
Establishing and Maintaining Access to Essential Medicines
CMS finalized its proposal to establish, beginning in FY 2025, a separate IPPS payment adjustment for the additional resource costs that small, independent hospitals incur in voluntarily establishing and maintaining access to a six-month buffer stock of one more of eighty-six “essential medicines” either directly or through contractual arrangements with a pharmaceutical manufacturer, distributor, or intermediary. For hospitals with contractual arrangements, the hospital must clearly identify those costs separately from the costs of other provisions of the contract with that entity.
Eligibility for the separate IPPS payment is limited to hospitals with 100 beds or fewer that are not part of a chain organization. For purposes of this policy, a “chain organization” is a group of two or more health care facilities owned, leased, or, through any other device, controlled by one organization. Any hospital that answers “yes” (denoted “Y”) to line 140 column 1 or fills out any part of lines 141 through line 143 on Worksheet S-2, Part I, on its Medicare cost report would be considered to be part of a chain organization and not independent, and therefore not eligible for separate payment under this proposal.
The “essential medicines” are defined from a list of 86 pharmaceuticals in the Essential Medicines Supply Chain and Manufacturing Resilience Assessment report. This report was developed by the HHS Office of the Assistant Secretary for Preparedness and Response and published in May 2022. However, any subsequent revisions to the list are also included as essential medicines. Separate payment will not apply to buffer stocks of any of the essential medicines on the Advanced Regenerative Manufacturing Institute’s (ARMI’s) list that are currently listed as “Currently in Shortage” on the FDA Drug Shortages Database unless a hospital had already established a 6-month buffer stock of that medicine prior to the shortage.
The new, separate, IPPS payment is non-budget neutral with payment adjustments commencing for cost reporting periods beginning on or after October 1, 2024. The separate payment will cover the IPPS share of the additional costs to maintain the buffer stock and could be issued in a lump sum, or as biweekly payments to be reconciled at cost report settlement. CMS estimates that approximately 500 hospitals will qualify under this policy.
Graduate Medical Education
In the Final Rule, CMS finalized rules implementing section 4122(a) of the Consolidated Appropriations Act, 2023 (CAA ’23), which requires CMS to distribute additional residency positions to hospitals. The rules for CAA ’23 are similar to the rules CMS adopted for the Consolidated Appropriations Act, 2021 (CAA ’21), which authorized CMS to distribute 1,000 FTE cap slots over 5 years. But the CAA ’23 rules differ in three important respects. First, instead of 1,000 FTE cap slots over five years, CAA ’23 authorizes a distribution of 200 FTE cap slots in FY 2026 only. Second, at least 100 of those FTE cap slots are reserved for programs in psychiatry and its subspecialities. Third, every hospital that qualifies for a distribution must receive at least one FTE, or a fraction of one if there are more than 200 eligible applicants. If any slots remain after that initial allocation, the distribution of the remainder will be prioritized by Health Professional Service Area scores. No qualifying hospital can receive more than ten FTE cap slots. Applications are due March 31, 2025. Rewards will be announced by January 31, 2026, and the awarded slots will be available beginning July 1, 2026.
In the proposed rule, CMS issued a request for information (RFI) to solicit comments about how the agency should identify “new” programs. The RFI included a proposal to modify the definition of “new” program to specify that at least 90 percent of the individual residents must not have previous training in the same specialty as the new program. In the Final Rule, CMS declined to finalize its proposal because “we received many wide-raining comments and comments did not arrive at a consensus on the best approach to this issue.” Commenters said the proposal would be administratively burdensome and impede the development of new programs, and that it would overlook the roles that the ACGME, ABMS, and the National Resident Matching Program have in the process of establishing new programs. Other commenters suggested alternative definitions of “newness.” CMS has initiated a second RFI “in an effort to achieve greater consensus on this issue.”
Medicare Wage Index
In the Final Rule, CMS finalized its proposal to adopt the latest CBSA delineation published by the Office of Management and Budget (OMB). As a result of this transition, CMS reports that fifty-three urban counties and thirty-three urban hospitals will become rural, and fifty-four rural counties and twenty-four rural hospitals will become urban. Seventy-three urban counties will split off from one CBSA to join another. The update also reflects Connecticut’s change from eight counties to nine planning regions. Hospitals that are adversely affected by these changes in FY 2025 will receive at least 95 percent of their wage index values from the previous year. CMS has not proposed any additional measures to mitigate the transition.
CMS also finalized its decision to continue the low wage index hospital policy, first adopted in FY 2020, into FY 2025. Under this policy, CMS will make upward adjustments to the wage indices of hospitals with a wage index value below the 25th percentile. The adjustment for each eligible hospital will be equal to half of the difference between the otherwise applicable final wage index value for the hospital and the 25th percentile wage index value for all hospitals that same year. The 25th percentile wage index for FY 2025 will be 0.9007. CMS acknowledged that the D.C. Circuit recently struck down this policy in Bridgeport Hospital v. Becerra. The agency reported that it is evaluating the decision and considering next steps.
Social Determinants of Health Diagnosis Codes
In the Final Rule, CMS finalized its proposal to redesignate the ICD-10-CM diagnosis codes for patients with inadequate or unstable housing from non-complication or comorbidity (NonCC) to complication or comorbidity (CC). This means that hospitals will be eligible to receive more reimbursement for treating patients with inadequate housing or housing instability. The affected codes include Z59.10 (inadequate housing, unspecified), Z59.11 (inadequate housing, environmental temperature), Z59.12 (inadequate housing, utilities), Z59.19 (other inadequate housing), Z59.811 (housing instability, housed, with risk of homelessness), Z59.812 (housing instability, housed, homelessness in past 12 months), and Z59.819 (housing instability, housed unspecified). CMS determined based on the claims data that the resources involved in carrying for patients with these codes warrants increasing the severity level from a NonCC to a CC.
Provider Reimbursement Review Board
CMS finalized its proposal to make several changes to the governing composition of the PRRB. According to CMS, it has been increasingly challenging to attract a large pool of qualified candidates who have relevant skills and experience in matters that come before the PRRB. CMS’s aim is to decrease the frequency of turnover and permit lengthier periods of service for Board Members, which it believes would have the potential to increase the PRRB’s efficiency and productivity.
CMS has stated that the nature of the PRRB’s cases has evolved over time, with an increase in broad-based legal challenges to regulatory interpretations and fewer appeals of reimbursable expenses specific to individual providers. With the evolution of Part A reimbursement to a prospective payment system, appeals to the PRRB frequently involve nuanced issues that implicate highly specialized and complex areas of law that often reach the federal courts, and on occasion, are decided by the U.S. Supreme Court. The longer length of service, according to CMS, would allow Board Members to obtain a deeper understanding of, and knowledge about, pertinent issues and caselaw.
CMS finalized changes to the PRRB regulation, 42 C.F.R. § 405.1845, to:
- Require that board members shall be knowledgeable “in the field of payment of providers under Medicare Part A” rather than “knowledgeable in the field of cost reimbursement;” and
- Permit a board member to serve no more than three consecutive 3-year terms, instead of two consecutive 3-year terms currently allowed under current regulation.
CMS proposed to permit a board member who is designated as chairperson in their second or third consecutive term to serve a fourth consecutive term to continue leading the board as chairperson. CMS, however, did not finalize this part of its proposal at this time.
These changes to the PRRB regulation become effective January 1, 2025.
Request for Information to Advance Patient Safety and Outcomes Across Hospital Quality Programs
In the proposed Rule, CMS sought feedback from providers regarding how to improve quality programs that focus on reducing unplanned patient visits for inpatient and outpatient care. Particularly, CMS sought out ways to improve programs focused on excess days in acute care (EDAC) for acute myocardial infraction patients, heart failure patients, and pneumonia patients.
Even though some commenters were generally satisfied with CMS’s chosen measures and goals, CMS noted that many commenters are concerned that quality goals pertaining to EDAC, and hospital readmissions, risk overemphasizing factors that are outside most hospitals’ control. Those commenters indicated they are afraid hospitals “that disproportionately serve populations with health-related social needs” will perform worse in these quality programs regardless of what the hospitals do. Additionally, these commenters expressed concern that focusing on readmissions may create adverse incentives that hurt patient health outcomes, such as causing physicians to “choose” healthier patients over sick patients, or to delay transferring patients to emergency departments.
Commenters also expressed concern that comparable quality programs, such as the Hospital Readmissions Reduction Program, err by examining patients over too-long of a time horizon. The Hospital Readmissions Reduction Program evaluates hospitals based on whether patients are readmitted within 30-days after discharge, but some commenters believe that any number of extraneous factors outside of hospitals’ control can lead to readmissions over that long of a window. In contrast, some commenters suggested evaluating providers based on whether a patient is readmitted after seven days, because they believe a shorter window does a better job at evaluating whether patients are receiving sufficient discharge care.
Even though CMS did not indicate it would modify the FY 2025 Final Rule, based on the commenters’ arguments, CMS did indicate that the agency would take these providers’ comments under advisement for future rulemakings.
Maternity Care Request for Information
In the proposed rule, CMS also asked providers to answer a series of questions regarding the differences between hospital resources required for providing inpatient obstetrical services to Medicare patients as compared to non-Medicare patients.
In commenters’ answers, many of them stressed the importance of disproportionate share hospital payments and uncompensated care programs for financing their maternity care programs. Other commenters discussed their hope that CMS would do more to work with state Medicaid agencies due to Medicaid’s role in the delivery of maternal care services. CMS did not modify any details in the Final Rule based on providers’ comments, but CMS did pledge to consider providers’ advice for future maternal health programs.
The Final Rule is available here, and a CMS fact sheet is available here. The Final Rule is scheduled to be published in the Federal Register on August 28, 2024.
