On April 10th, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2024 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital (LTCH) Prospective Payment System proposed rule. See the press release here. CMS released a fact sheetaccompanying the rule.

The rule proposes to:

• increase hospital operating payment rates by 2.8 percent,[1]
• continue the hospital low wage index policy,
• make rural wage index changes,
• delay application of three-way severity split for MS-DRGs,
• calculate disproportionate share hospital payments from three years of uncompensated care data,
• make changes to physician-owned hospital expansion criteria,
• permit medical residents to train in Rural Emergency Hospitals,
• make several changes to quality reporting, promoting interoperability, and value-based purchasing programs,
• not make any changes to the Hospital Readmissions Reduction Program,
• consider nearly 40 technologies for new technology add-on payments,
• discontinue COVID-19 treatment add-on payments at the end of FY 2023,
• amend the severity designation of three ICD-10-CM homelessness diagnosis codes,
• increase Long-Term Care Hospital payment rates by 2.9 percent, and
• include a request for information on challenges faced by safety-net hospitals.

This proposed rule is scheduled to be published in the Federal Register on May 1, 2023, and comments are due by 5:00pm EDT on June 9, 2023.

CMS PREDICTS $3.3 BILLION INCREASE IN HOSPITAL PAYMENTS FOR FY 2024

The Inpatient Prospective Payment System (IPPS) per-discharge payment is based on two national standardized base payment rates, one for operating costs and the other for capital-related costs. CMS adjusts each of these rates for geographic, case-mix, and other factors.

For FY 2024, CMS proposes a 2.8 percent increase (compared to a 4.3 increase in FY 2023) in its operating payment rates for hospitals that submitted quality data and were meaningful electronic health record (EHR) users (see Tables 1 and 2). This increase is based on a 3.0 percent market basket update that is offset by a 0.2 percent multifactor productivity (MFP) adjustment.^[2]  Overall, this accounts for a combined $3.2 billion increase in operating payments for FY 2024,[3] and a combined decrease of $0.466 million arising from new technology add-on payment changes, relative to FY 2023.

Operating Payments

Table 1. Proposed Update Factors for Hospital Operating Payment Rates (FY 2024)[4]

Submitted Quality Data	Meaningful EHR User	Gross   FY2023 Market Basket	Adjustment for Failure to Submit Quality Data	Adjustment for Failure to be Meaningful EHR User	Multifactor Productivity Adjustment[5]	Net Increase in Operating Payment Rates
Yes	Yes	+3.0	N/A	N/A	-0.2	+2.8
No	Yes	+3.0	-0.75	N/A	-0.2	+2.05
Yes	No	+3.0	N/A	-2.25	-0.2	+0.55
No	No	+3.0	-0.75	-2.25	-0.2	-0.2

Table 2. Resulting Standardized Operating Amounts (FY 2024)[6]

Submitted Quality Data	Meaningful EHR User	Standardized Operating Amounts (Wage Index > 1)		Standardized Operating Amounts (Wage Index <= 1)
		Labor	Non-Labor	Labor	Non-Labor
Yes	Yes	$4,410.86	$2,114.08	$4,045.46	$2,479.48
No	Yes	$4,378.68	$2,098.66	$4,015.95	$2,461.39
Yes	No	$4,314.32	$2,067.81	$3,956.92	$2,425.21
No	No	$4,282.14	$2,052.39	$3,927.41	$2,407.12

Capital-Related Payments

Consistent with FY 2023, the basic methodology for determining capital payments for FY 2024 is below:

• Capital-Related Payment = (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor or GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)[7]

For FY 2024, CMS proposes a capital standardized Federal Rate of $505.54. Overall, CMS estimates a 6.3 percent increase in capital payments per patient case, relative to FY 2023.

CMS TO CONTINUE HOSPITAL LOW WAGE INDEX POLICY, MAKES RURAL WAGE INDEX CHANGES

The wage index reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. CMS is proposing to base wage index values for FY 2024 on Medicare cost reports beginning in FY 2020. To compute the proposed wage index, CMS used the same methodology used in the FY 2021 IPPS/LTCH PPS final rule.

The Agency also proposes the following wage-index policies.

Continuation of the low-wage hospital policy

Under the FY 2020 IPPS/LTCH PPS final rule, CMS finalized temporary policies to address wage index disparities affecting low-wage index hospitals, many of which are rural hospitals. CMS proposes to continue this policy in order to obtain and review additional data on the effects of the policy. CMS proposes to continue the policy’s related budget neutrality adjustment.

Changes to the rural wage index calculation methodology

CMS is proposing to treat rural reclassified hospitals[8] the same as geographically rural hospitals for wage index calculation purposes. Under this proposal, data from rural reclassified hospitals would be included with geographically rural hospitals for the purposes of rural wage index calculations and the calculation of the wage index floor for urban hospitals in the state. This policy will be implemented in a budget neutral manner.

CMS PROPOSES TO CONTINUE DELAY OF THREE-WAY SEVERITY SPLIT FOR MS-DRGS

CMS proposes changes to MS-DRG classifications based on their yearly review for FY 2024 and proposes recalibration of the MS-DRG relative weights. For FY 2024, CMS’s analysis was based on ICD-10 claims data from the September 2022 update of the FY 2022 MedPAR file, containing hospital bills received from October 1, 2021 through September 30, 2022. CMS proposes changes to MS-DRGs, including proposed new MS-DRGs and reassignment and deletion of other MS-DRGs.

In the FY 2021 IPPS final rule, CMS finalized expanding criteria to create a new complication or comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base MS-DRG, finalizing the expansion of the criteria to include the non-complication or comorbidity (NonCC) subgroup for a three-way severity level split. CMS proposes to continue to delay application of the NonCC subgroup criteria to existing MS-DRGs with a three-way severity level split for FY 2024.

CMS TO CALCULATE DSH PAYMENTS FROM THREE YEARS OF DATA

Hospitals that receive Medicare disproportionate share hospital (DSH) receive two separate payments:

1. 25 percent of the amount they previously would have received under Section 1886(d)(5)(F) of the Social Security Act (Act) for DSH; and
2. An additional payment for uncompensated care (UC) as determined by the product of three factors:

• Factor 1: 75 percent of the payments that would otherwise be made under Section 1886(d)(5)(F) of the Act,
• Factor 2: 1 minus the percent change in the percent of individuals who are uninsured, and
• Factor 3: a hospital’s UC amount relative to all DSH hospitals expressed as a percentage.

For FY 2024, CMS proposes to distribute roughly $6.7 billion in uncompensated care (UCP) payments, a decrease of approximately $161 million from FY 2023.

Consistent with last year’s proposal, for FY 2024 and thereafter, CMS proposes to use the three most recent fiscal years of data (for which audited data are available) of uncompensated care costs from Worksheet S-10 data to calculate factor 3. This means that for FY 2024, CMS would use hospitals’ FY 2018, FY 2019, and FY 2020 cost reports for the distribution of these funds.

CMS proposes to continue its supplemental payment for Indian Health Services and Tribal hospitals and Puerto Rico hospitals. CMS finalized this policy in FY 2023 to mitigate the discontinued use of low-income insured days as an alternative for uncompensated care costs.

CMS PROPOSES CHANGES TO PHYSICIAN-OWNED HOSPITAL EXPANSION

Physician-owned hospitals are limited in their ability to increase the aggregate number of operating rooms, procedure rooms, and beds above that for which the hospital was licensed on March 23, 2010. These hospitals may request an exception to the prohibition on expansion of facility capacity using the process CMS previously established.[9]

CMS proposes several changes to physician-owned hospital expansion criteria. CMS is proposing to provide additional clarity as to what will be required for requests to be considered. CMS is also proposing to revise certain aspects of the process for requesting an expansion exception.

In addition, CMS is proposing to reinstate restrictions for hospitals that meet the criteria for a “high Medicaid facility” expansion exception request, including the frequency of requests, maximum aggregate expansion of a hospital, and location of expansion facility capacity that were removed in the calendar year 2021 hospital Outpatient Prospective Payment System and Ambulatory Surgical Center final rule.

In addition, the Agency proposes to only permit a hospital to request an expansion exception up to once every two years, regardless of the type of exception the hospital is requesting. Currently, this restriction only applies to hospitals applying for an applicable hospital expansion exception. Under the proposal, this restriction would also apply to hospitals requesting a high Medicaid facility expansion exception.

Further, CMS is proposing to require hospitals submitting an expansion exception request to include information regarding the requesting hospital’s need for additional operating rooms, procedure rooms, or beds to serve Medicaid, uninsured, and underserved populations. If finalized, CMS would require the use of Healthcare Cost Report Information System (HCRIS) data for all expansion exception requests, instead of allowing the use of external data sources.

CMS PROPOSES TO ALLOW MEDICAL RESIDENTS TO TRAIN IN RURAL EMERGENCY HOSPITALS

The Consolidated Appropriations Act, 2021, established Rural Emergency Hospitals (REHs) as a new Medicare provider type, to address concerns over increasing closures of rural hospitals. REHs are facilities that convert from either a critical access hospital (CAH) or a rural hospital with 50 or less beds that do not provide acute care inpatient services.

To strengthen access to care in rural communities, and in alignment with the Administration’s commitment to health equity, CMS proposes to allow REHs to be designated as graduate medical education training sites. This proposal aims to address workforce shortages in rural communities by allowing medical residents to train in these settings.

CMS PROPOSES CHANGES TO THE HOSPITAL INPATIENT QUALITY REPORTING PROGRAM

The Hospital Inpatient Quality Reporting (IQR) Program is a pay-for-reporting quality program. Hospitals that fail to meet the requirements or submit quality data are subject to a reduction in their annual payment update.

For FY 2024, CMS proposes to adopt three new quality measures, remove three existing quality measures, and modify three quality measures. Additionally, the Agency is proposing two policies relevant to data submission, reporting, and several modifications to the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey measure.

Proposed New Quality Measures for Adoption

CMS proposes three electronic clinical quality measures (eCQMs) for adoption. Hospitals may self-select measures from the list of eCQMs to meet annual reporting requirements. The proposed eCQMs include:

• Hospital Harm- Pressure Injury eCQM (Effective CY 2025 reporting period/FY 2027 payment determination),
• Hospital Harm- Kidney Injury eCQM (Effective CY 2025 reporting period/FY 2027 payment determination), and
• Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level-Inpatient) eCQM (Effective CY 2025 reporting period/FY 2027 payment determination).

Proposed Modifications to Current Quality Measures

CMS is proposing refinements to several current quality measures. Specifically, CMS proposes to modify the Hospital-Wide All-Cause Risk Standardized Mortality Measure and the Hybrid Hospital-Wide All-Cause Readmission Measures to include Medicare Advantage admissions, beginning with the FY 2027 payment determination year.

Additionally, the Agency proposes to update the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP COVID-19 Vaccine) measure beginning with the quarter 4 CY 2023 reporting/FY 2025 payment determination year. The prior iteration of this measure reported solely on whether healthcare personnel had received the first vaccination series for COVID-19. The proposed modification to this measure would require hospitals to report the cumulative number of healthcare personnel who are up to date with the CDC’s guidance on recommended COVID-19 vaccinations.[10] This measure is a cross-program measure for the Hospital IQR Program, PPS-Exempt Cancer Hospital Quality Reporting Program, and the Long-Term Care Hospital Quality Reporting Program.

Proposed Removal of Three Measures

The Agency proposes to remove two measures in consideration of the adoption of new, updated measures in the Hospital Value-Based Purchasing Program, and one measure due to a “topped out” performance measure. These measures include:

• Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure (Removal effective FY 2030 payment determination),
• Medicare Spending per Beneficiary (MSPB) Hospital Measure (Removal effective FY 2028 payment determination), and
• Elective Delivery Prior to 39 Completed Weeks’ Gestation: Percentage of Babies Electively Delivered Prior to 39 Completed Weeks’ Gestation Measure. Beginning with the CY 2024 reporting period/FY 2026 payment determination, the Agency proposes to remove this measure due to high and unvarying measure performance deemed inconducive to meaningful improvements in performance. CMS asserts that the removal of the elective delivery measure will allow for additional meaningful maternal health outcome measures in the future.

CMS Requests Information on Geriatric Initiatives in the QRP

CMS seeks comment on the inclusion of the geriatric hospital and geriatric surgical structural measures. Additionally, the Agency seeks comment on the potential establishment of a publicly reporting hospital designation to report on the quality and safety of geriatric care.

PROPOSED CHANGES TO THE MEDICARE PROMOTING INTEROPERABILITY PROGRAM

The Medicare Promoting Interoperability Program was established by CMS more than a decade ago to encourage eligible hospitals and Critical Access Hospitals (CAHs) to encourage the adoption and maintenance of certified electronic health record technology (CEHRT). In this proposed rule, CMS proposes the following changes to the Medicare Promoting Operability Program.

Specifically, CMS proposes to modify requirements for the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure to require eligible hospitals and CAHs. Beginning with the EHR reporting period in CY 2024, eligible hospitals and CAHs must positively attest to conducting an annual self-assessment of all nine SAFER Guides during the calendar year in which the EHR reporting period occurs.

The Agency also proposes to modify the definition of “EHR reporting period for a payment adjustment year,” for hospitals that have not demonstrated meaningful EHR use in a prior year, to remove the requirement to attest to meaningful use by October 1st of the year prior to the payment adjustment year, beginning with the EHR reporting period in CY 2025.

PROPOSED CHANGES TO THE PPS-EXEMPT CANCER HOSPITAL QUALITY REPORTING PROGRAM

Cancer hospitals that are statutorily exempt from the IPPS participate in the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program. CMS proposes several changes to the PCHQR. Beginning with data from the FY 2025 program year, the Agency proposes to require the public display of the Surgical Treatment Complications for Localized Prostate Cancer measure. Additionally, CMS proposes the adoption of four new measures, beginning with the FY 2026 program year and to modify the COVID-19 Vaccination among healthcare personnel measure.

PROPOSED MODIFICATIONS TO THE HOSPITAL-ACQUIRED CONDITION REDUCTION PROGRAM

The Hospital-Acquired Condition (HAC) Reduction Program incentivizes hospitals to reduce the frequency of hospital-acquired conditions, by reducing payment by 1 percent for low performing hospitals on select measures of HACs.

In this proposed rule, the Agency proposes the establishment of a validation reconsideration process for hospitals failing to meet data validation requirements. This validation reconsideration process will begin with the FY 2025 program year and affect CY 2022 discharges. Additionally, with respect to the Extraordinary Circumstances Exception (ECE), CMS proposes to modify the targeting data criteria for data validations for hospitals receiving an ECE. This modification would apply to data periods validated starting with the FY 2027 program year (affecting CY 2024 discharges).

CMS also requests comment on future measures for inclusion in the HAC Reduction Program, specifically, measures promoting patient safety and reducing health disparities.

PROPOSED CHANGES TO THE HOSPITAL VALUE-BASED PURCHASING PROGRAM

The Hospital Value-Based Purchasing (VBP) Program is a budget-neutral program that rewards acute care hospitals with incentive payments for the quality of care provided in the inpatient hospital setting. It is funded by withholding participating hospitals’ Medicare payments by 2% and redistributing the entire amount of those reductions back to the hospitals as value-based incentive payments.

CMS proposes to adopt substantive measure modifications, the addition of a measures, as well as other relevant changes to the program.

In addition, to reward hospitals providing quality care to underserved populations, CMS proposes to adopt a health equity scoring change. A health equity adjustment would be applied to hospitals’ Total Performance Scores (TPS), and would be based on both the hospital’s performance in the existing Hospital VBP Program measures, and the percentage of patients with dual eligibility status. In tandem with this proposal, CMS proposes to modify the TPS maximum to be 110 to reflect a numeric score range of 0 to 110.

To inform future rulemaking, CMS also requests stakeholder feedback on additional health equity changes that should be considered in the Hospital VBP Program scoring methodology.

CMS PROPOSES CHANGES TO NEW TECHNOLOGY ADD-ON PAYMENT POLICIES FOR FY 2024 AND CONSIDERS NEARLY 40 TECHNOLOGIES FOR ADD-ON PAYMENTS

The new technology add-on payment (NTAP) program allows for an additional payment for medical services or technologies that are found to be: (1) new; (2) disproportionately costly to the existing MS-DRG; and (3) a substantial clinical improvement.

For FY 2024, CMS proposes to require NTAP applicants for technologies not already market authorized by the Food and Drug Administration (FDA) to have a complete and active FDA market authorization application request at the time of NTAP application submission. CMS also proposes to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025.

Under the traditional NTAP pathway, CMS is proposing for FY 2024 to continue NTAPs for 11 technologies[11]and discontinue NTAPs for 15 technologies.[12] Regarding new applications under the traditional pathway, CMS is considering 19 new applications for FY 2024. The agency is also considering 20 new alternative pathway NTAP applications, 16 with Breakthrough Device designation, 1 with pending Breakthrough Device designation, and 3 with QIDP designation.

CMS CLARIFIES TIMELINES FOR END OF NEW COVID-19 TREATMENTS ADD-ON PAYMENT

In response to the COVID-19 public health emergency (PHE), CMS established the New COVID-19 Treatments Add-on Payment (NCTAP) under the IPPS for certain qualifying COVID-19 cases to increase the current IPPS payment amounts and mitigate any potential financial disincentives for hospitals to provide new COVID–19 treatments during the PHE.

Previously in the FY 2022 IPPS/LTCH PPS final rule, CMS finalized a change to its policy which would extend NCTAP through the end of the FY in which the PHE ends for all eligible products to continue to mitigate potential financial disincentives for hospitals to provide these treatments and to minimize any potential payment disruption immediately following the end of the PHE.

Based on the policy, if the PHE ends in May of 2023, as planned by the Department of Health and Human Services (HHS), discharges involving eligible products would continue to be eligible for the NCTAP through the end of FY 2023 which is September 30, 2023. The NCTAP would expire at the end of FY 2023, and no NCTAP would be made beginning in FY 2024 (i.e., discharges on or after October 1, 2023).

CMS PROPOSES CHANGES TO RELATIVE WEIGHT CALCULATION FOR MS-DRG 18, CHIMERIC ANTIGEN RECEPTOR T-CELL THERAPIES

In the FY 2021 IPPS final rule, CMS created MS-DRG 018 for cases that include Chimeric Antigen Receptor (CAR) T-cell therapies and finalized a payment adjustment for applicable clinical trial and expanded access immunotherapy cases grouped to this DRG.

For FY 2024, CMS is proposing technical changes to their methodology for identifying clinical trial claims and expanded access use claims. Specifically, CMS is proposing that in calculating the relative weight for MS-DRG 018 for FY 2024, claims that group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only code “ZC” or (2) contain condition code “ZB” (or, for subsequent fiscal years, condition code “90”) would be excluded from the calculation of the average cost for MS-DRG 018.

CMS is also proposing to no longer use the proxy of standardized drug charges of less than $373,000 to identify clinical trial claims and expanded access use cases when calculating the average cost for MS–DRG 018.

CMS PROPOSES TO AMEND HOMELESSNESS-RELATED DIAGNOSIS CODE SEVERITY

CMS is proposing to amend the severity level designation of three ICD-10-CM diagnosis codes describing homelessness – unspecified, sheltered, and unsheltered – from NonCC to CC.

The proposed change will allow CMS to identify homelessness as an indicator of higher resource utilization for FY 2024. IPPS payment depends on hospital resource use, so the proposed change would appropriately reimburse hospitals treating patients with high severity levels and resource consumption rates. CMS believes this proposal will support data reliability and validity as well as advance health equity.

CMS is additionally requesting feedback on methods to incentivize documenting and reporting diagnosis codes describing social and economic conditions.

CMS PROPOSES NEARLY 3 PERCENT INCREASE FOR LONG TERM CARE HOSPITALS PAYMENTS

Long-Term Care Hospitals (LTCHs) are excluded from the IPPS and are paid under their unique payment system because of the difference in complexity, resource utilization and length of stay factors.

For FY 2024, CMS estimates that the aggregate long-term care hospital (LTCH) prospective payment system (PPS) payments will increase by 2.9 percent.[13] CMS proposes a LTCH PPS standard Federal payment rate of $47,948.15 for FY 2024. The proposed rule affects 333 LTCHs nationwide (down 6 from last year), for discharges occurring on or after October 1, 2023.

Although the overall payment update is positive, CMS estimates that payments for discharges paid at the same rate would decrease by $59 million because of a projected 4.7 percent decrease in high-cost outlier payments. CMS is seeking stakeholder feedback on the proposed methodology for outlier threshold payments for discharges paid the LTCH standard federal payment rate.

Few Changes Proposed to the LTCH Quality Reporting Program

CMS is proposing to modify the healthcare provider COVID-19 Vaccine measure, to adopt the Functional Discharge Score (DC Function) measure, and to remove two other measures from the LTCH QRP beginning FY 2025. CMS also proposes to begin to display data publicly for the quality measures Transfer of Health information (TOH)-patient, TOH-provider, DC Function, and Patient/Resident Covid-19 Vaccine.

Additionally, CMS is seeking feedback on principles for selecting and prioritizing LTCH QRP quality measures and concepts for measure development for help with the Agency’s efforts to address health equity issues.

CMS ISSUES REQUEST FOR INFORMATION ON SAFETY-NET HOSPITALS

Consistent with CMS’s Strategic Plan pillar of advancing health equity, the Agency issued a Request for Information (RFI) on safety-net hospitals to advance health equity. Safety-net hospitals provide care to uninsured, underinsured, and other underserved populations unable to access essential services despite having limited resources and facing significant financial challenges. CMS is requesting information on the obstacles these hospitals and their patients face as well as potential approaches to combat them. Responses to the RFI will inform ways to better support safety-net providers.

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This Applied Policy® Summary was prepared by Patrick Harrison with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact him at pharrison@appliedpolicy.com or at (202) 558-5272.

[1] For general acute care hospitals paid under the Inpatient Prospective Payment System (IPPS) that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.

[2] The MFP adjustment is a 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity.

[3] Includes uncompensated care, low-volume hospital, and FY 2024 capital payments.

[4] See the Table on page 711 of the unpublished proposed rule. Does not include applicable increases for Puerto Rico IPPS hospitals.

[5] Section 3401 of the Patient Protection and Affordable Care Act, Pub. L. 111-148, requires market basket updates under the Medicare prospective payment system to be reduced annually by the MFP adjustment.

[6] See the Table on page 1,291 of the unpublished proposed rule.

[7] Hospitals also may receive outlier payments for high-cost cases that qualify under thresholds established for each fiscal year.

[8] Rural reclassified hospitals are hospitals that have reclassified from urban to rural under section 1886(d)(8)(E) of the Social Security Act (implemented in the regulations at §412.103).

[9] The current process was established in the calendar year (CY) 2012 hospital outpatient prospective payment system (OPPS) and ambulatory surgical center (ASC) payment system final rule.

[10] https://www.cdc.gov/nhsn/pdfs/hps/covidvax/UpToDateGuidance-508.pdf

[11] See Table II.P.-01 in the proposed rule.

[12] See Table II.P.-02 in the proposed rule.

[13] LTCHs that do not meet the reporting requirements are subject to a 2.0 percent reduction in their annual payment update (resulting in a 0.9 percent update for FY 2024).