On March 28, 2024, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) and Quality Reporting (IPFQR) Updates proposed rule. CMS released a fact sheet accompanying the rule. In this rule, CMS proposes to:

• Increase IPF PPS payment rates by 2.7 percent;
• Revise the patient-level IPF PPS adjustment factors and increase electroconvulsive therapy (ECT) payment per treatment;
• Update the IPF wage index based on revised census data;
• Phase out the rural adjustment for IPFs that transition from rural to urban status,
• Clarify the eligibility criteria for an IPF to file all-inclusive cost reports;
• Adopt one new measure under the IPF Quality Reporting (IPFQR) Program; and
• Require IPFs to submit patient-level quality data quarterly.

CMS also requests feedback to inform future revisions to the IPF PPS facility-level adjustments and the development of a standardized IPF Patient Assessment Instrument.

This proposed rule is scheduled to be published in the Federal Register on April 3, 2024, and comments are due by May 28, 2024.

INPATIENT PSYCHIATRIC FACILITIES PROPOSED TO RECEIVE A $70 MILLION INCREASE IN FY 2025 PAYMENTS

For FY 2025, CMS proposes to increase IPF payment rates by 2.7 percent (compared to a 3.3 percent finalized increase for FY 2024). This rate increase is based on a proposed 3.1 percent market update, which is reduced by a productivity adjustment of 0.4 percentage points. Overall, CMS estimates that payments to IPFs will increase by $70 million (2.6 percent) in FY 2025 compared to FY 2024.

IPFs that fail to report required quality data will continue to have an additional 2-percentage point reduction applied to their payments.

Payment Rates

IPFs are paid a daily base rate covering all routine, ancillary, and capital costs, and adjusted based on patient and facility characteristics. Patient-level adjustments consider age, Diagnosis-Related Group (DRG) assignment, comorbidities, per diem costs that vary throughout a patient’s stay. Facility-level adjustments account for wage index, rural location, teaching status, cost-of-living, and emergency department (ED) presence. Additional policies address outlier cases, interrupted stays, and per treatment payments for electroconvulsive therapy (ECT) patients.

Per the Consolidated Appropriations Act of 2023 (CAA, 2023), CMS must update the methodology for determining payment rates for FY 2025 onwards. CMS proposes revisions to the IPF PPS patient-level adjustment factors based on a review of cost and claims data.

Additionally, analysis of the latest IPF PPS claims and cost data indicates that ancillary costs for stays that include ECT treatments have increased since 2005 by a greater amount than the current ECT per treatment payment under the IPF PPS. To account for this, CMS proposes to increase the IPF PPS ECT payment per treatment. CMS believes this increase would improve access to ECT for patients who need it.

See Table 1 below for FY 2025 per-diem and ECT payment rates, relative to FY 2024.

Table 1. IPF PPS Payment Rates by Fiscal Year

Inpatient Psychiatric Facility Proposed Payment System (IPF PPS)	FY 2024 (Current)	FY 2025 (Proposed)
Per-Diem Base Rate	$895.63	$874.93
Electroconvulsive Therapy Payment (per treatment)	$385.58	$660.30

CMS proposes that if more recent data becomes available it will be used to determine the FY 2025 per diem base rate and electroconvulsive therapy payment.

Outlier Threshold

For FY 2025, CMS proposes a fixed dollar loss threshold of $35,590, compared to $33,470 for FY 2024. This proposal will continue to limit estimated outlier payments to 2 percent of total aggregate IPF payments for FY 2025. CMS proposes that if more recent data becomes available it will be used to determine the final outlier fixed dollar loss threshold amount for FY 2025.

CMS PROPOSES IPF WAGE INDEX UPDATE BASED ON REVISED CENSUS DATA AND TO PHASE OUT RURAL ADJUSTMENTS FOR IPFS TRANSITIONING FROM RURAL TO URBAN STATUS

To account for variations in costs and differences in geographic wage levels, payment rates under the IPF PPS are adjusted by a geographic wage index. Currently, CMS updates the wage index annually based on the most recent available acute care hospital wage index, without any floors or reclassifications under the Medicare Inpatient Prospective Payment System (IPPS). IPF labor market areas are delineated based on the Core-Based Statistical Area (CBSA) established by the Office of Management and Budget (OMB).

For FY 2025, CMS proposes to update the IPF PPS wage index using OMB’s most recent statistical area delineations based on 2020 Decennial Census data.[1] CMS believes adopting these new delineations would result in wage index values that more accurately represent the actual local costs of labor. If finalized, CMS analysis shows that 53 counties currently part of an urban CBSA would be considered located in a rural area, and another 54 currently part of a rural CBSA would be considered located in an urban area.[2] Several counties would also switch from one urban CBSA to another if the new delineations are adopted.[3] The permanent five percent cap on negative wage index changes, which applies regardless of the reason for the decline and was finalized in the FY 2023 IPF PPS final rule, will mitigate any wage index decreases that result from this update.

CMS also proposes to phase out the rural adjustment for IPFs that transition from rural to urban status under new CBSAs over three years. IPFs would receive two-thirds of the rural adjustment in FY 2025, one-third of the rural adjustment in FY 2026, and no rural adjustment in FY 2027. CMS proposes the three-year phase out to reduce the impact the loss of the FY 2024 rural adjustment of 17.0 percent would have on these IPFs.

CMS proposes similar changes in the FY 2025 Inpatient Rehabilitation Facility (IRF) PPS and Hospice Wage Index proposed rules.

CMS CLARIFIES ELIGIBILITY FOR IPFS FILING ALL-INCLUSIVE COST REPORTS

The CAA, 2023 requires the collection of data and information, including charges related to ancillary services, to revise the IPF PPS. Currently, IPFs and psychiatric units must report ancillary charges on cost reports. However, IPFs without this cost structure can file all-inclusive cost reports, accommodating their inability to allocate costs to charges. While historically few IPFs have filed all-inclusive cost reports, CMS notes an increase in erroneous filings. To address this, CMS clarifies that only government-owned or tribally-owned facilities are permitted to file all-inclusive cost reports for cost reporting periods beginning on or after October 1, 2024. This clarification aims to enhance payment accuracy for the IPF PPS and promote behavioral health treatment.

CMS PROPOSES QUALITY REPORTING PROGRAM CHANGES WITH A FOCUS ON POST-DISCHARGE OUTCOMES

The IPFQR Program requires that all IPFs paid under the IPF PPS submit specified quality data to CMS within prescribed timeframes. IPFs that do not submit the specified data as required receive a 2.0 percentage point reduction to their annual payment update.

In this proposed rule, CMS proposes to adopt one new measure focused on ED visits following IPF discharge. If the adoption of this measure is finalized, the IPFQR Program measure set would include 16 mandatory and one voluntary measure.[4] CMS does not propose to modify or remove any measures from the program.

In addition, CMS proposes to require that IPFs report patient-level quality data on a quarterly basis, as opposed to the current annual basis.

New Measure Proposed for Adoption Focuses on Post-Discharge Outcomes

CMS proposes to adopt one measure focused on post-discharge outcomes:

• 30-Day Risk-Standardized All-Cause Emergency Department Visit Following an Inpatient Psychiatric Facility Discharge Measure: Beginning with FY 2027, this measure would assess the proportion of patients 18 and older with an ED visit, including observation stays, within 30 days of discharge from an IPF without readmission. CMS believes this measure would enhance assessment of post-discharge acute care, prompting better discharge planning and care coordination.

CMS Proposes to Require IPFs to Report Patient-Level Quality Data on a Quarterly Basis

IPFs are currently required to submit patient-level quality data on an annual basis. To align the IPFQR Program with other quality reporting programs and reduce data burden on IPF systems, CMS proposes to require IPFs to submit patient-level quality data on a quarterly basis. While acknowledging that more frequent reporting could increase the possibility of IPFs failing to submit specified data and thus not receiving their full market basket, CMS views this risk as minimal due to IPFs’ prior experience with frequent data reporting, as with the COVID-19 Healthcare Personnel (HCP) Vaccination Measure. In addition, if this proposal is finalized, quarterly data submissions would occur within a 45-day period beginning three months after each calendar quarter.[5]

CMS REQUESTS INFORMATION ON PATIENT ASSESSMENT INSTRUMENT REQUIRED BY THE CONSOLIDATED APPROPRIATIONS ACT, 2023

In compliance with the CAA, 2023, IPFs are mandated to gather and furnish standardized patient assessment data across designated categories. This data is pivotal for CMS to propose future enhancements to the IPF PPS, aiming for improved accuracy in healthcare reimbursement, quality monitoring, and identification of disparities in behavioral health care provision.

Consequently, CMS invites commentary to identify pertinent data elements for collection, suited to the acute inpatient psychiatric care domain. Additionally, input is sought regarding potential criteria for formulating and implementing the assessment instrument. Furthermore, CMS is interested in understanding the prospective burden on IPFs imposed by this supplementary data collection. Suggestions on mitigating this burden are invited, including whether any data presently collected through existing assessment tools in other contexts or via current IPF procedures could be repurposed as standardized patient assessment data elements for the IPF Patient Assessment Instrument (IPF-PAI).

CMS SOLICITS COMMENT ON IPF PPS FACILITY-LEVEL ADJUSTMENT FACTORS

Per the CAA, 2023, CMS is tasked with revising the methodology for determining payment rates for FY 2025 onwards. CMS solicits comments concerning potential modifications to these adjustment factors, grounded in recent analyses of IPF costs and claims. Examination of data from 2019 through 2021 highlights potential alterations in the regression factors for IPFs located in rural areas and those with teaching status. Additionally, CMS is considering the introduction of a new facility-level variable catering to safety net patient populations. A proposed adjustment based on the Medicare Safety Net Index (MSNI) developed by MedPAC is under scrutiny with discussions in the proposed rule emphasizing the implications of revising rural and teaching status adjustment factors and including a new variable for safety net patient populations. Updating these facility-level adjustment factors in subsequent rulemaking endeavors could enhance the accuracy of reimbursement, bolster support for psychiatry residency training, and strengthen IPFs situated in rural and underserved regions. CMS invites comment on these considerations.

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This Applied Policy® Summary was prepared by Caitlyn Bernard with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at cbernard@appliedpolicy.com or at (571) 451-6594.

[1] OMB Bulletin No. 23-01

[2] Table 12 on pages 73-75 of the proposed rule lists the counties that would switch from urban to rural if the adoption of new OMB delineations is finalized. Table 13 on pages 76-77 of the proposed rule lists the counties that would switch from rural to urban if the adoption of new OMB delineations is finalized.

[3] Table 14 on page 78 of the proposed rule shows the list of counties that would change to a different CBSA if the adoption of new OMB delineations is finalized.

[4] See Table 22 on page 152 of the proposed rule for the IPFQR Program measure set for the FY 2027 IPFQR Program.

[5] See Table 24 on page 155 of the proposed rule for the proposed deadlines for the calendar year (CY) 2025 and CY 2026 performance periods.