On April 10, 2024 the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 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 sheet accompanying the rule.

The rule proposes to:

• Increase hospital operating payment rates by 2.6 percent,[1]
• Continue the hospital low wage index policy and update labor market areas,
• Continue to calculate disproportionate share hospital payments from three years of uncompensated care data,
• Change the severity designation of inadequate housing and housing instability Z codes,
• Make changes to criteria for new residency programs and distribute 200 additional residency slots as required by the Consolidated Appropriations Act, 2023,
• Make several changes to quality reporting programs,
• Enhance data reporting requirements for hospitals and critical access hospitals (CAHs) to address respiratory illnesses,
• Change New Technology Add-On Payment (NTAP) policies,
• Increase Long-Term Care Hospital (LTCH) payments by 2.8 percent, and
• Continue delay of the three-way severity split for MS-DRGs.

Additionally, CMS proposes the Transforming Episode Accountability Model (TEAM), a mandatory episode-based payment model with the goal of improving patient care after surgery. CMS also requests information on advancing patient safety across hospital quality programs and resources required for maternity care for Medicare patients.

This proposed rule is scheduled to be published in the Federal Register on May 2, 2024, and comments are due by 5:00pm EDT on June 10, 2024.

CMS PREDICTS $3.2 BILLION FY2025 HOSPITAL PAYMENT INCREASE

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 2025, CMS proposes a 2.6 percent increase (compared to a 3.1 percent increase in FY 2024) 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 0.4 percent multifactor productivity (MFP) adjustment.^[2]  Overall, CMS projects an increase in hospital payments by $3.2 billion in FY 2025, including $2.9 billion in operating and capital increases, $560 million in increased disproportionate share hospital (DSH) payments, and $94 million in additional payments for inpatient cases involving new medical technologies (depending on applications and public comments on the proposed rule). CMS notes that additional payments for Medicare-Dependent Hospitals (MDHs) and temporary payment changes for low-volume hospitals expiring December 31, 2024, could decrease payments to these hospitals by $0.4 billion in FY 2025 if not extended through legislation.

Operating Payments

Table 1. Proposed Update Factors for Hospital Operating Payment Rates (FY 2025)[3]

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[4]	Net Increase in Operating Payment Rates
Yes	Yes	+3.0	N/A	N/A	-0.4	+2.6
No	Yes	+3.0	-0.75	N/A	-0.4	+1.85
Yes	No	+3.0	N/A	-2.25	-0.4	+0.35
No	No	+3.0	-0.75	-2.25	-0.4	-0.4

Table 2. Resulting Standardized Operating Amounts (FY 2025)[5]

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	$4,506.29	$2,159.81	$4,132.98	$2,533.12
No	Yes	$4,473.35	$2,144.02	$4,102.77	$2,514.60
Yes	No	$4,407.47	$2,112.45	$4,042.35	$2,477.57
No	No	$4,374.53	$2,096.66	$4,012.14	$2,459.05

Capital-Related Payments

Consistent with FY 2024, the basic methodology for determining capital payments for FY 2025 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)[6]

For FY 2025, CMS proposes a capital standardized Federal Rate of $516.41. Overall, CMS estimates a 2.4 percent increase in capital payments per patient case, relative to FY 2024.

CMS PROPOSES TO UPDATE LABOR MARKET AREAS, CONTINUE HOSPITAL LOW WAGE INDEX POLICY FOR AT LEAST 3 MORE YEARS

The wage index reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. To determine a hospital’s labor market area, CMS uses Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget (OMB). For FY 2025, CMS proposes to use CBSAs established in 2023 to calculate the wage index, providing a more accurate representation of wage differences across geographies. While this change could negatively impact certain hospital’s wage indexes, CMS believes that the permanent cap policy, discussed below, will mitigate any major changes. Accordingly, there will be no transition period for this change.

Continuation of the low-wage index hospital policy

Under the FY 2020 IPPS/LTCH PPS final rule, CMS finalized a temporary policy to address wage index disparities affecting low-wage index hospitals, many of which are rural hospitals. This policy increased wage indexes for hospitals with a wage index below the 25^th percentile by half the difference between the hospital’s wage index and the 25^th percentile wage index. Due to the Covid-19 PHE, most recent data has not been usable. Accordingly, CMS proposes to continue the low-wage hospital policy for at least three years beginning in FY 2025. As FY 2024 was the first full year of data following the end of the PHE, this would give CMS four years of usable data to evaluate the program, as originally intended. CMS proposes to continue the policy’s related budget neutrality adjustment. For FY 2025, the budget neutrality adjustment associated with this policy would be 0.997498.

Other wage index related policies with a budget neutral impact include:

• the permanent cap policy, which was finalized in the FY 2023 IPPS/LTCH PPS final rule and prevents any hospital from having a wage index below 95 percent of its wage index for the previous fiscal year. For FY 2025, the budget neutrality adjustment associated with this policy would be 0.997162.
• the rural floor, which was implemented as part of the Balanced Budget Act of 1997 and mandates that wage indexes for urban hospitals in a state cannot be lower than said state’s rural area wage index. In the FY 2024 IPPS/LTCH PPS final rule, CMS finalized that rural reclassified hospitals be treated the same as geographically rural hospitals for wage index calculation purposes. For FY 2025, the budget neutrality adjustment associated with this policy would be 0.985868.
• Medicare Geographic Classification Review Board (MGCRB) reclassifications, which were implemented as part of the Omnibus Budget Reconciliation Act of 1989 and allow hospitals to apply to be reclassified to a higher wage index area. For FY 2025, the budget neutrality adjustment associated with this policy would be 0.976773.

CMS PROPOSES DSH PAYMENT POLICIES

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 2025, CMS proposes to distribute roughly $6.5 billion in uncompensated care payments, an increase of approximately $560 million from FY 2024.

Consistent with the FY 2023 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. Accordingly, for FY 2025, CMS would use hospitals’ FY 2019, FY 2020, and FY 2021 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, finalized in FY 2023 to mitigate the discontinued use of low-income insured days as an alternative for uncompensated care costs. These hospitals are expected to receive approximately $91.08 million in supplemental payments in FY 2025.

CMS proposes to implement the new OMB labor market area delineations for the FY 2025 wage index, as based on the 2020 Decennial Census data (see Wage Index section of this summary for more detail), which will impact the calculation of Medicare DSH payment adjustments for certain hospitals. Based on this update, hospitals with less than 500 beds that are currently in urban counties would become rural (if they do not become rural referral centers or Medicare-dependent, small rural hospitals, whose additional payments are set to end of December 31, 2024, if not extended by legislation) if the adoption of the new OMB delineations is finalized, meaning that these hospitals would be subject to a maximum DSH payment adjustment of 12 percent. Urban hospitals are subject to a maximum DSH payment adjustment of 12 percent only if they have less than 100 beds. Per existing regulation, if a hospital currently located in an urban county becomes rural under the new OMB delineations, the hospital may receive an adjustment to its rural federal payment amount for operating costs for two sequential fiscal years, with greater additional payments in the first year.

CMS PROPOSES MANDATORY TRANSFORMING EPISODE ACCOUNTABILITY MODEL (TEAM), FOCUSING ON IMPROVING PATIENT CARE AFTER SURGERY

Recognizing that Medicare beneficiaries may experience fragmented care following surgery, CMS proposes TEAM, a mandatory, episode-based payment alternative payment model, to improve the patient experience from surgery through recovery by facilitating care coordination and transition. The model would be mandatory for hospitals in select geographic areas. This model would launch on January 1, 2026, and end after five years, on December 31, 2030. Model policies will be finalized via rulemaking prior to launch.

Through the model, selected acute care hospitals would coordinate care for fee-for-service (FFS) Medicare beneficiaries who undergo one of the surgical procedures included in the model, and assume responsibility for the cost and quality of care beginning with surgery through the first 30 days after the beneficiary departs the hospital. To establish accountable care relationships, hospitals would connect patients to primary care services. Surgical procedures included in the model are lower extremity joint replacement, surgical hip femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure. Participating hospitals would be provided with a target price from CMS that would represent Medicare spending during an episode of care, which includes the surgery and follow-up care. The model would have three tracks, with varying financial risk and quality performance adjustments.

To focus on health equity, CMS proposes that the model would offer safety net hospitals certain flexibilities to participate in a track with lower levels of risk and reward and a pricing methodology that would include adjustments to account for underserved individuals. In the proposed rule, CMS outlines multiple methodological options for identifying safety net providers in the model including Medicare Safety Net Index (MSNI) and Area Deprivation Index (ADI) but proposes to use the CMS Innovation Center Strategy Refresh Safety Net definition for identifying safety net hospitals. CMS seeks comment on its proposal to identify safety net hospitals using the CMS’s Innovation Center’s Strategy Refresh’s definition. To further promote health equity, participants could voluntarily submit a health equity plan to CMS in the first performance year, and then would be required to submit the plan in subsequent years. Through these plans, participants would identify and monitor health disparities in their beneficiary populations.  Participants would also be required to submit health-related social needs data. In addition to these provisions, CMS seeks comment on the potential to provide upfront infrastructure payments to safety net hospitals to further support their care delivery transformation efforts.

Additionally, CMS proposes to include a voluntary Decarbonization and Resilience Initiative in the model which would address impacts of climate change.

The proposed rule outlines several other proposals and considerations related to the model, including financial arrangements, collaborations between TEAM participants and other stakeholders, quality measurement, beneficiary incentives, clinical goals, enforcement authority, relevant waivers, monitoring and beneficiary protection, data sharing, referral to primary care services, alternative payment model options, CMS’s evaluation approach, and model termination. Additional information on the proposed model is available here.

CMS PROPOSES ADD ON PAYMENT TO SMALL, INDEPENDENT HOSPITALS FOR BUFFER STOCK OF ESSENTIAL MEDICINES

In the FY 2024 OPPS Proposed Rule, CMS requested comments on the concept of providing payments to hospitals to help them maintain a buffer stock of 86 essential medicines, with the goal of making hospitals more resilient to shortages of essential drugs. The agency received multiple comments, including some calling for expanding the list of essential drugs and others asking for solutions that addressed the issue of quality management among drug manufacturers, which many believe to be the primary driver of the drug shortages. Additionally, many commenters were concerned that so many hospitals establishing buffers stocks could create shocks to the supply chain or encourage hoarding behavior. In the final rule, CMS stated that they would consider these comments for future rulemaking.

CMS proposes to establish a separate payment under the IPPS to reimburse small, independent hospitals for the cost of maintaining a 6-month buffer stock of any of 86 essential medicines present on a list developed by the Advanced Regenerative Manufacturing Institute (ARMI). This proposal would begin with cost reporting periods starting in FY 2025 (on or after October 1, 2024). The payment would only cover the additional resource costs of maintaining the buffer stock (e.g. ventilation, managing expiration dates, etc.), not the cost of the drugs themselves.[7] The payment would be provided either as a lump sum upon cost report settlement or through biweekly payments that would be reconciled upon cost report settlement. This proposal would not be budget neutral.

To address concerns that the proposal could create shocks to the supply chain, this payment would only be available to independent hospitals with 100 beds or fewer. Independent hospital status would be determined by whether a hospital was identified as part of a chain organization on its cost report. CMS believes that these smaller, independent hospitals lack the resources available to larger hospitals or systems. Based on FY 2021 cost reports, 493 hospitals would be eligible for this proposal, 249 of which were located in rural areas. CMS seeks comment on the proposed eligibility criteria.

In response to concerns about hospitals hoarding essential medicines in the event of a shortage, CMS would not separately pay hospitals for establishing a buffer stock for a drug that is currently in shortage per the FDA Drug Shortages Database. Hospitals maintaining an already established buffer stock for a drug in shortage would be eligible for the separate payment. Because hospitals may lack the space, equipment, and staff necessary to directly maintain the buffer stock themselves, any arrangements with pharmaceutical manufacturers, intermediaries, or distributors to maintain the stock would be eligible for payment under this proposal.

If a drug were added to the ARMI list, it would become eligible under this proposal. Similarly, if a drug were removed from the list, it would no longer be eligible. CMS is seeking comment on which drugs not included on the ARMI list, such as certain oncology drugs, should be included.

CMS TO RECOGNIZE INADEQUATE HOUSING & HOUSING INSTABILITY IMPACT ON HOSPITAL RESOURCE UTILIZATION

IPPS payments for cases are based on the hospital resources required to treat the patient’s severity of illness, complexity of service, or consumption of resources. A higher severity level designation for a diagnosis code typically results in higher payment to reflect the additional resources required in these cases.

In the FY 2024 IPPS final rule, CMS changed the severity designation of three ICD-10-CM diagnosis codes (often referred to as “Z codes”) describing homelessness (unspecified, sheltered, and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC) to recognize the higher average resource costs required for cases with these diagnosis codes.

For FY 2025, CMS is proposing to change the severity designation of seven additional ICD-10-CM codes describing inadequate housing and housing instability from NonCC to CC based on the higher average resource costs required for these cases. These changes align with the Biden-Harris Administration’s goal to recognize social determinants of health (SDOH) and their impact on health and resource use.

CMS PROPOSES POLICIES TO DISTRIBUTE 200 ADDITIONAL RESIDENCY SLOTS AS REQUIRED BY THE CONSOLIDATED APPROPRATIONS ACT, 2023

The Consolidated Appropriations Act, 2023 (CAA, 2023) mandates the allocation of an additional 200 Medicare-funded residency positions to train new physicians, at least 100 of which are earmarked for psychiatry or its subspecialties. For hospitals to qualify for an increase in residency slots, they must show a “demonstrated likelihood” of filling these positions within the first five training years after the proposed increase takes effect. Accordingly, CMS proposes that hospitals must prove that their current full-time equivalent (FTE) resident caps are insufficient to accommodate new or expanded programs.

Additionally, at least 10 percent of the total residency positions must be allocated to rural hospitals, those exceeding standard resident limits, hospitals in states with new medical schools or additional campuses, and those serving Health Professional Shortage Areas (HPSAs). Section 1886(h)(10)(F)(iii) of the Act defines a qualifying hospital as a hospital in one of these four categories. CMS proposes to implement policies that will govern the application and award process in a manner consistent with this statutory requirement.

CMS estimates that this additional funding will total approximately $74 million from FY 2026 through FY 2036.

CMS PROPOSES MODIFIED CRITERIA FOR NEW RESIDENCY PROGRAMS

Residency programs that are considered “new” can receive additional direct graduate medical education (GME) and/or indirect medical education (IME) cap slots for that program. To be deemed “new” and eligible for these slots, a previously non-teaching hospital must guarantee new residents, a new program director, and new teaching staff. To ensure appropriate creation of newly funded cap slots, CMS proposes that for a program to be considered “new” eligible for additional direct GME and/or IME cap slots, at least 90 percent of the individual resident trainees (not FTEs) within the program must lack previous training in the same specialty. If more than 10 percent of the trainees (not FTEs) transferred from another program at a different hospital/sponsor in the same specialty, even during their first year of training, CMS proposes this would disqualify the entire program from receiving new cap slots.

To fully inform the definition of a “new” program, CMS solicits comments on the scope of a “small” program, criteria for determining whether a faculty and program director are new,  appropriate commingling among residents from existing programs with those from hospitals eligible for FTE cap increases due to new program training, and scenarios where hospitals may prefer training residents in separately accredited programs within the same specialty.

REQUEST FOR INFORMATION ON ADVANCING PATIENT SAFETY AND IMPROVING OUTCOMES ACROSS THE HOSPITAL QUALITY PROGRAMS

CMS seeks input on enhancing existing measures within the quality reporting programs to address unplanned patient hospital visits and improve discharge processes. While current hospital quality reporting and value-based purchasing initiatives incentivize hospitals to mitigate concerns related to unplanned returns, the existing measures may not fully capture the breadth of unplanned patient returns to inpatient or outpatient care post-discharge. CMS is particularly interested in adopting measures that more comprehensively represent outcomes important to patients, such as unplanned returns to emergency departments and the receipt of observation services within 30 days following discharge from an inpatient stay.

Additionally, in this proposed rule, CMS proposes significant changes and modifications to each of its quality reporting programs.

HOSPITAL INPATIENT QUALITY REPORTING PROGRAM

The Hospital Inpatient Quality Reporting (IQR) Program aims to enhance healthcare quality through a pay-for-reporting model.  Hospitals failing to meet program requirements face reductions in their Annual Payment Update under the Inpatient Prospective Payment System (IPPS). In this proposed rule, CMS proposes several significant adjustments to the IQR Program.

Seven New Measures Proposed for Adoption

1. Patient Safety Structural measure: This measure is proposed to begin with the CY 2025 reporting period, affecting payment determination from FY 2027 onwards.
2. Age Friendly Hospital measure: Also slated to start with the CY 2025 reporting period, impacting payment determination from FY 2027.
3. Catheter-Associated Urinary Tract Infection (CAUTI) Standardized Infection Ratio Stratified for Oncology Locations: Set to commence with the CY 2026 reporting period, influencing payment determination from FY 2028.
4. Central Line-Associated Bloodstream Infection (CLABSI) Standardized Infection Ratio Stratified for Oncology Locations: Similarly proposed to start with the CY 2026 reporting period, impacting FY 2028 payments.
5. Hospital Harm – Falls with Injury eCQM and Hospital Harm – Postoperative Respiratory Failure eCQM: Both slated to begin reporting from the CY 2026 period, influencing payment determination from FY 2028.
6. Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications (Failure-to-Rescue) measure: Proposed to start with the July 1, 2023 – June 30, 2025 reporting period, affecting payment determination from FY 2027.

Proposal to Modify Two Existing Measures

CMS proposes to modify the Global Malnutrition Composite Score (GMCS) electronic clinical quality measure (eCQM) and the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey to ensure that the measures accurately capture the quality of care provided by hospitals. Proposed refinements to the GMCS measure are proposed to commence with the CY 2026 reporting period, impacting the payment determination from FY 2028. Adjustments to the HCAHPS Survey are proposed to begin with CY 2025 reporting period, impacting payment determination from FY 2027.

Five Measures Proposed for Removal

To make space for more broadly applicable measures, and to accommodate new clinical topics requiring attention, CMS proposes to eliminate certain condition-specific risk-standardized measures are from the program.

The Death Among Surgical Inpatients with Serious Treatable Complications (CMS PSI 04) measure is proposed for removal from the July 1, 2023 – June 30, 2025 reporting period, affecting FY 27 payments.

The following measures are proposed for removal from various reporting periods, impacting FY2026 payments: Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for Acute Myocardial Infarction (AMI) Heart Failure (HF), Pneumonia (PN), and Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) measures.

Proposed Changes to eCQM Data Reporting

In addition to measure-related changes, CMS proposes a progressive increase in the number of mandatory eCQMs hospitals need to report, starting from the CY 2026 reporting period. Additionally, CMS recommends changes to validation policies, including implementing validation scoring based on data accuracy and adjusting reconsideration request requirements to make medical records submission optional from CY 2023 discharges onwards.

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

In the Medicare Promoting Interoperability (PI) Program, CMS proposes raising the performance-based scoring threshold for eligible hospitals and CAHs participating in the Medicare PI Program from 60 points to 80 points, effective from the EHR reporting period in CY 2025.

Additionally, CMS proposes several key changes to enhance the reporting of electronic health record (EHR) data.

Proposal to Separate the Antimicrobial Use and Resistance (AUR) Surveillance Measure

CMS proposes dividing the AUR Surveillance measure into two distinct measures – Antimicrobial Use (AU) Surveillance and Antimicrobial Resistance (AR) Surveillance. Additionally, CMS suggests adding a new exclusion for eligible hospitals or CAHs that lack the necessary data elements for AU or AR Surveillance reporting. The proposal would modify the applicability of existing exclusions to the AU and AR Surveillance measures. CMS plans to treat the AU and AR Surveillance measures as new measures beginning with the CY 2025 reporting period.

Proposed Additions and Modifications to eCQMs; Reporting Requirements

CMS proposes the incorporation of two new eCQMs that hospitals can choose as part of their three self-selected eCQMs. These new measures are the Hospital Harm – Falls with Injury eCQM and the Hospital Harm – Postoperative Respiratory Failure eCQM.  Additionally, CMS proposes to modify one existing eCQM – the Global Malnutrition Composite Score eCQM, all beginning with the CY 2026 reporting period.

Notably, CMS proposes a progressive increase in the number of mandatory eCQMs that eligible hospitals and CAHs would be required to report, starting from the CY 2026 reporting period. This adjustment aims to enhance data reporting standards and improve the quality of information collected under the program.

HOSPITAL VALUE-BASED PURCHASING PROGRAM

The Hospital Value-Based Purchasing (VBP) Program operates under a budget-neutral framework, in which participating hospitals’ base operating DRG payments are reduced by 2 percent each fiscal year. The withheld funds are then redistributed back to hospitals as value-based incentive payments.

CMS proposes the adoption of a patient safety structural measure and the modification of the HCAHPS survey measure starting with the CY 2025 reporting period/FY 2027 program year. Additionally, CMS aims to expedite the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure to January 2026, or as soon as practically possible. This measure seeks to enhance transparency regarding hospitals’ commitment to addressing health equity concerns within their communities.

PPS-EXEMPT CANCER HOSPITAL QUALITY REPORTING PROGRAM

For the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, CMS proposes to adopt a patient safety measure, modify the HCAHPS survey measure, and advance the start date for publicly displaying hospital performance on health equity measures. Originally planned for July 2026, CMS proposes to move this start date to January 2026 or as soon as operationally possible.

CMS PROPOSES ENHANCED DATA REPORTING REQUIREMENTS FOR HOSPITALS AND CAHS TO ADDRESS RESPIRATORY ILLNESSES

CMS proposes updates to the Conditions of Participation (CoPs) for hospital and CAH infection prevention and control, as well as antibiotic stewardship programs, to extend certain COVID-19 and influenza data reporting requirements. This proposal aims to strike a balance between the need for comprehensive data for virus surveillance and the burden it places on facilities and staff.

The proposed update would replace the COVID-19 and seasonal influenza reporting standards with a new standard focused on acute respiratory illnesses. Starting October 1, 2024, hospitals and CAHs would be required to electronically report specific data elements related to COVID-19, influenza, and respiratory syncytial virus (RSV). This includes confirmed infections of respiratory illnesses among hospitalized patients, hospital bed census and capacity, and limited patient demographic information such as age. Outside of a public health emergency (PHE), hospitals and CAHs would need to report this data on a weekly basis.

Additionally, CMS acknowledges the need for additional reporting categories during a national PHE for an acute respiratory illness. These may include facility structure and infrastructure operational status, hospital/ED diversion status, staffing and shortages, supply inventory shortages, and relevant medical countermeasures and therapeutics.

CMS Solicits Feedback on Elements of Data Reporting

CMS solicits feedback on ways to minimize reporting burdens while ensuring sufficient data collection, expanding the proposed reporting requirements both within and outside a declared PHE, and assessing the value of these data in protecting patient and staff health and safety. The agency also seeks input on system readiness and capacity for data collection and reporting, as well as whether demographic information such as race/ethnicity, socioeconomic factors, or disability status should be included in ongoing reporting requirements.

Furthermore, CMS issues a Request for Information (RFI) to explore strategies for enhancing hospital and CAH participation in and timely, complete data reporting through the CDC’s National Syndromic Surveillance Program (NSSP).

CMS PROPOSES CHANGES TO NEW TECHNOLOGY ADD-ON PAYMENT POLICIES FOR FY 2025 AND FY 2026 AND CONSIDERS 50 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.

Beginning in FY 2026, for new applicants and when extending NTAP for an additional year for FY 2025 or subsequent year NTAP approvals, CMS proposes changing the NTAP eligibility cutoff for determining whether a technology is within its 2- to 3-year newness period from the current April 1 date to October 1. CMS indicates the change is aimed at improving flexibility for NTAP applicants.

CMS also proposes that, beginning with applications for NTAP for FY 2026, CMS will no longer consider an FDA marketing authorization hold status to be an inactive status for the purpose of the NTAP application eligibility.

Lastly, consistent with CMS’ Sickle Cell Disease Action Plan and to increase access to for gene therapies for the treatment of sickle cell disease (SCD), CMS proposes to temporarily increase the NTAP percentage from 65 to 75 percent for a gene therapy that is indicated and used specifically for the treatment of SCD (subject to CMS’s determination). This would be effective beginning in FY 2025 and concluding at the end of the 2- to 3-year newness period of any such gene therapy. Under CMS’s current policy, NTAPs are limited to the lesser of 65 percent of the costs of the technology, or 65 percent of the amount by which the costs of the case exceed the standard MS–DRG payment (75 percent for a QIDP or a product approved under FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD)).

Under the traditional NTAP pathway, CMS proposes for FY 2025 to continue NTAPs for 24 technologies[8] and discontinue NTAPs for 7 technologies.[9] Regarding new applications under the traditional pathway, CMS considers 12 new applications for FY 2025. The agency also considers 14 new alternative pathway NTAP applications, 12 with Breakthrough Device designation and 2 with Qualified Infectious Disease Product (QIDP) designation.

CMS PROPOSES NEARLY 2.8 PERCENT INCREASE FOR LONG TERM CARE HOSPITALS PAYMENTS

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 2025, CMS estimates that the aggregate LTCH prospective payment system (PPS) payments will increase by 2.8 percent or $41 million.[10] CMS proposes a LTCH PPS standard Federal payment rate of $49,262.80 for FY 2025. The proposed rule affects 330 LTCHs nationwide (down 3 from last year), for discharges occurring on or after October 1, 2024.

CMS clarifies requirements for a hospital to qualify for LTCH classification and proposes reordering some existing paragraphs in regulation to improve clarity of the requirements.

CMS expects a 1.3% decrease in high-cost outlier payments and is seeking stakeholder feedback on the proposed methodology for outlier threshold for discharges paid the LTCH standard federal payment rate.

New SDOH Data Elements to be Added to the LTCH Quality Reporting Program

CMS proposes to add four new data elements to the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) and modify one item, and to extend the admission assessment window for the LCDS beginning with the beginning with the FY 2028 LTCH QRP.  The new data elements are all related to Social Determinants of Health that are collected as part of the standardized patient assessment data, including a patient’s living situation, food, and utilities. Additionally, CMS is seeking information on future measure concepts and the LTCH Star Rating system.

CMS PROPOSES MS-DRG CLASSIFICATION ADJUSTMENTS

CMS proposes changes to MS-DRG classifications based on their yearly review for FY 2025 and proposes recalibration of the MS-DRG relative weights. For FY 2025, CMS’s analysis was based on ICD-10 claims data from the September 2023 update of the FY 2023 MedPAR file. CMS proposes minor changes to MS-DRGs based on this data.

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 2025, as they did for FY 2024.

CMS INVITES PUBLIC INPUT ON MEDICARE IPPS PAYMENT RATES FOR MATERNITY CARE

CMS requests information on whether hospital resources for inpatient pregnancy and childbirth differ between Medicare and non-Medicare patients. Additionally, the agency seeks insights into how non-Medicare payers use IPPS rates for payment determination and its impact on maternal health outcomes. CMS also invites public input on potential strategies, within the framework of hospital CoPs, to address documented concerns regarding maternal morbidity, mortality, disparities, and access to maternity care in the United States. Specifically, the agency seeks feedback on the structure and requirements of a potential obstetrical services CoP.

CMS PROPOSES NEW ICD-10 CODE ASSIGNMENTS

CMS proposes to assign over 300 new ICD-10 codes to MS-DRGs, notably including hypoglycemia Level 1, Level 2, and Level 3.[11]

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This Applied Policy® Summary was prepared by April Gutmann with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at agutmann@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] See the Table on page 614 of the unpublished proposed rule. Does not include applicable increases for Puerto Rico IPPS hospitals.

[4] 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.

[5] See the Table on page 1,667 of the unpublished proposed rule.

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

[7] For a more comprehensive list of the costs CMS is considering eligible under this proposal, see page 717 of the unpublished rule.

[8] See Table II.E.-01 in the proposed rule.

[9] See Table II.E.-02 in the proposed rule.

[10] LTCHs that do not meet the reporting requirements are subject to a 2.0 percent reduction in their annual payment update (resulting in a 0.8 percent update for FY 2025).

[11] See Table 6A: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2025-ipps-proposed-rule-home-page#Tables