CMS Proposes Modest Increase to Hospital IPPS Rates

With current inflation at 8.5 percent, the Centers for Medicare and Medicaid Services (CMS) has proposed increasing acute care hospital Part A Medicare inpatient reimbursements by only 3.2 percent in 2023. Not surprisingly, the American Hospital Association (AHA) and other industry groups don’t think that’s anywhere near adequate.  

CMS doesn’t reimburse acute care hospitals for inpatient stays on a fee-for-service basis. Under the Hospital Inpatient Prospective Payment System (IPPS), hospitals instead receive a prospective payment at a predetermined rate based on their operating costs and the type of case per discharge, expressed as a diagnosis-related group (DRG). The base payment rate is comprised of a standardized amount that’s divided into a labor-related and non-labor related share, which is then multiplied by the DRG relative weight. The IPPS payment includes all services provided to the inpatient, including lab tests. Billing such tests separately, or “unbundling,” is illegal.

The CMS Proposal

CMS updates the Part A IPPS rate each year based on a market basket factor, reflecting changes in the prices of goods and services. The 2023 proposed rate, published on April 18, reflects a market basket adjustment of 3.1 percent. The agency then reduced things by a projected 0.4 percentage point productivity and an increase of 0.5 percent required by law. The resulting 3.2 percent increase will result in a $1.6 billion hospital payments increase, the agency projects.

In addition to the DRG payment, hospitals that treat a high percentage of low-income patients receive an add-on “disproportionate share hospital” (DSH) payment. Hospitals also receive adjustments for cases in which they receive no compensation from a patient or insurer. Combined, DSH and Medicare uncompensated care payments will decrease by roughly $0.8 billion in 2023.

It gets worse. Additional payments for Medicare-dependent hospitals and the temporary change in payments for low‑volume hospitals are set to expire in 2023. In previous years, legislation has been passed to extend these payments for another year. But there’s no guarantee that the same thing will happen this year. And if the payments do actually expire, Part A acute care payments to hospitals will decrease by an estimated $0.6 billion.

Meanwhile, long-term care hospitals’ payments are projected to increase by 0.7 percent, or about $25 million in 2023, due primarily to the annual standard federal rate update of 2.7 percent and a projected decrease in high-cost outlier payments.

The Other Potential Adjustments

Even the modest 3.2 percent IPPS increase comes with strings attached. To qualify for the increase, acute care hospitals must successfully participate in the Hospital Inpatient Quality Reporting Program and be meaningful electronic health record (EHR) users. In addition, hospitals will be subject to other IPPS payment adjustments, including:

• Adjustments under the Hospital Value-Based Purchasing Program (for which CMS has recently proposed new performance standards), which can be upward or downward;
• Reductions for excess readmissions under the Hospital Readmissions Reduction Program; and
• A 1 percent reduction for the worst-performing quartile under the Hospital-Acquired Condition Reduction Program. 

The Promoting Interoperability Program

It’s not just the reimbursement rates. CMS is also proposing significant changes to the Promoting Interoperability Programs designed to encourage adoption, implementation, upgrade, and demonstrated meaningful use of certified EHR technology, including:

• Making the Electronic Prescribing Objective’s Query of Prescription Drug Monitoring Program measure mandatory;
• Adding a new Enabling Exchange under the Trusted Exchange Framework and Common Agreement measure under the Health Information Exchange Objective as a yes/no attestation measure as an optional alternative to the three existing measures; and
• Adding a new Antimicrobial Use and Resistance Surveillance measure and requiring that it be reported under the Public Health and Clinical Data Exchange Objective.

Industry Response

Hospital industry response to all of this has been less than enthusiastic. “We are extremely concerned with CMS’ proposed payment update of only 3.2 percent, given the extraordinary inflationary environment and continued labor and supply cost pressures hospitals and health systems face,” noted AHA executive vice president Stacey Hughes in a statement to the media. “Even worse, hospitals would actually see a net decrease in payments from 2022 to 2023 under this proposal because of proposed cuts to DSH and other payments.” The statement characterizes the proposal as “simply unacceptable for hospitals and health systems, and their caregivers, that have been on the front lines of the COVID-19 pandemic for over two years now.”