On August 1, 2022, the Centers for Medicare & Medicaid Services (“CMS”) released the Medicare Program’s 2023 Acute Care Hospital Inpatient Prospective Payment Systems (“IPPS”) final rule. Scheduled to be published in the August 10, 2022 Federal Register, the final rule announces upcoming payment and policy changes to the IPPS operating and capital rates as required by the statutory provisions the Affordable Care Act (“ACA”).
Overall, Medicare anticipates total spending for inpatient hospital services, including capital, to increase by $2.6 billion in Federal Fiscal Year (“FFY”) 2023. However, this increase may be offset by a decrease in payments for disproportionate share hospitals (“DSH”) and uncompensated care payments.
MEDICARE BASE PPS PAYMENT RATES
Medicare’s increase in operating payment rates in FFY 2023 for hospitals who successfully participate in the Hospital Inpatient Quality Reporting Program (“IQR”), and are a designated meaningful user, is 4.3%. This increase is comprised of the FY 2023 market basket increase of 4.1% reduced by the -0.3% productivity adjustment, and a 0.5% adjustment required by statute.
We caveat that factors such as wage index changes, geographic reclassifications, case mix changes and increases in outlier thresholds will influence the final payments made to an individual hospital.
FEDERAL CAPITAL RATE
The projected FFY 2023 Federal capital rate of $483.76 is slightly higher than the FFY 2022 rate of $472.59. This is prior to the application of the geographical adjustment factors and hospital case mix.
WAGE INDEX
In the final rule, CMS finalized the permanent 5% cap for any hospital’s wage index that declines from the prior fiscal year, regardless of the cause. CMS adopted this cap as a means to prevent large year-to-year variations and reduce volatility for hospitals.
CMS is also continuing the current low wage index policy adopted in FFY 2020 to mitigate wage index disparities between high wage and low wage hospitals. This policy increases the wage index values for certain hospitals with wage index values below the 25th percentile.
UNCOMPENSATED CARE AND DISPROPORTIONATE SHARE
CMS will continue to apply the same methodology to DSH hospitals for uncompensated care (“UCC”) payments as in previous years, with 25% based on the original DSH method and 75% on the uncompensated care data in accordance with the ACA. In the final rule, CMS anticipates allocating $6.874 billion for UCC payments in FFY 2023, a decrease of $300 million from the FFY 2022 pool.
Based on comments from the FY 2022 IPPS final rule, hospitals were concerned with the use of only one year to determine the Factor 3 allocations and the year-to-year fluctuations in UCC payments. Therefore, CMS finalized the calculation to determine the FY 2023 Factor 3 using the average of the audited FY 2018 and audited FY 2019 Uncompensated Care reports. CMS also will transition to the use of three years of audited data to determine Factor 3 by FFY 2024.
MEDICAL EDUCATION PAYMENTS
CMS will adopt a new Graduate Medical Education (“GME”) payment formula for cost reporting periods beginning on or after October 1, 2022. This change, in response to the U.S. District Court for the District of Columbia’s decision in Milton S. Hershey Medical Center v. Becerra, No. 19-cv-2680, 2021 WL 1966572 (D.D.C. May 17, 2021) will no longer penalize hospitals whose weighted number of FTE’s exceed the FTE cap. If the weighted number of FTE’s exceed the cap, the GME count is adjusted to the cap. This rule is also retroactive to October 1, 2001 provided hospitals have open or reopenable cost reports.
QUALITY INITIATIVES
CMS is pausing several measures used in the scoring of the Hospital Acquired Condition Reduction Program (“HAC”) and the Hospital Value-Based Purchasing Program (“VBP”) in FFY 2023 due to the impact of COVID-19. No penalties will be accessed in FY 2023, but CMS will publicly report the measure’s results for full transparency of the pandemic’s impact. CMS will continue to suppress the calendar year 2021 performance on the Healthcare Associated Infection measures.
Hospital Acquired Condition Program (“HAC”) – CMS will suppress all six measures for the FY 2023 program. Hospitals participating in the HAC Reduction Program will not be given a measure score or a Total HAC score and will not receive a payment penalty in FY 2023.
Hospital Readmission Reduction Program (“HRRP”) – This program reduces the hospital base operating DRG payment to account for excess readmissions. CMS finalized the policy to resume the use of the Hospital 30-day, All-Cause, Risk-Standardized Readmission rate following Pneumonia measure in FFY 2024 that has been suppressed due to the pandemic in FFY 2023.
Hospital Value Based Purchasing Program (“VBP”) – CMS finalized the suppression of the Hospital Consumer Assessment of Healthcare Providers and Systems (“HCAHPS”) measure for FY 2023 due to COVID-19 and the emergence of COVID variants citing that hospitals should not be penalized for the challenges brought on by the pandemic. CMS also will not calculate the Total Performance Scores for any hospital but will add a value-based payment amount for each discharge that is equal to the amount withheld. No bonus or penalty will be applied in response to the COVID-19 pandemic.
Hospital Inpatient Quality Reporting Program (“IQR”) – This program reduces payments to hospitals that fail to meet program requirements. In the final rule for FFY 2023, CMS plans to adopt 10 new measures and refine 2 current measures. The measures start with a voluntary reporting period followed by mandatory reporting periods.
MEDICARE INTEROPERABILITY PROGRAM
CMS continues to make changes to the program to reduce the burden on providers who comply with program requirements. The Hospital Promoting Interoperability Program (“PI Program”) was established to empower patients with control of their healthcare data. In the final rule CMS expanded and/or adopted nine new measures
CMS also plans to continue to align the Clinical Quality Measures (“CQM”) reporting requirements with similar requirements under the IQR.
INPATIENT PSYCHIATRIC FACILITIES (“IPF”)
On July 27, 2022 CMS issued the FFY 2023 final rule for inpatient Psychiatric facilities. In the rule, Medicare payments are estimated to increase by 2.5%, or $90 million in FFY 2023. The increase in the market basket of 4.1% adjusted by the productivity adjustment of -0.3% will result in a Federal per diem base rate for FFY 2023 of $865.63, an increase over the FFY 2022 per diem of $832.94. The final rule sets the FFY 2023 fixed dollar threshold to $24,630, an increase from the FFY 2022 rate of $16,040 to maintain the estimated outlier payments of 2% of the total IPF PPS payments.
CMS is not proposing any changes to the psychiatric quality reporting program for FFY 2023.
LONG TERM ACUTE CARE (“LTCH”)
CMS will update the LTCH payments by approximately $71 million in FY 2023. This increase is comprised of a productivity adjusted market basket of 3.8% along with a projected decline in high- cost outlier payments. The Long Term Care Hospital Quality Reporting Program (“LTCH QRP”) continues to subject LTCH to a 2% penalty reduction in the annual payment update if they fail to meet reporting requirements.
INPATIENT REHABILITATION FACILITIES (“IRF”)
On July 27, 2023, CMS published the final rule for IRF’s that will provide an increase of 3.9% to the IRF PPS rates. Based on a market-basket increase of 4.2% reduced by a -0.3% multifactor productivity adjustment, IRF payments are estimated to increase $275 million in FFY 2023. The final rule also maintains outlier payments at 3.0% of total payments.
CMS finalized its policy to expand the IRF quality data reporting requirements to all admitted IRF patients regardless of payer. Currently CMS collects only Medicare fee-for-services and Medicare Advantage claim data. Collecting the data for all patients will provide CMS with a complete picture of the quality of care for all patients admitted to IRFs.
SKILLED NURSING FACILITIES (“SNF”)
SNF payment rates will increase by 2.7% or $904 million based on the final rule published on July 29, 2022. CMS continues to monitor the impact of the Patient-Driven Payment Model (“PDPM”) implemented on October 1, 2019. The PDPM system focuses on a patient’s condition and care needs, rather than the amount of care provided in order to determine payment. The PDPM model was implemented in a budget neutral manner meaning that the transition from the Resource Utilization Group (RUG-IV) payment system would not result in additional or decreased SNF payments. Since its implementation in FY 2020, CMS incurred an increase in payments of approximately $1.7 billion per year.
SunStone Consulting offers comprehensive services geared to help hospitals, health systems, and physicians evaluate and navigate the ever-changing reimbursement and regulatory environment. If you have any questions, please contact: Linda Randall or Brian Barbera.