Back to “Rule”: Key Inpatient Prospective Payment System Policies Affecting Hospitals
While the shift from summer to fall is well known for back to school, one often overlooked period is commonly referred to in D.C. as "rulemaking season" — or the time when the Centers for Medicare & Medicaid Services (CMS) releases proposed and final rules to inform payment policy for the upcoming calendar and fiscal payment years.
Every year our summer "break" is interrupted by the Inpatient Prospective Payment System (IPPS) final rule, the Physician Fee Schedule (PFS) for CY 2024 proposed rule, and the Outpatient Prospective Payment System (OPPS) proposed rule, and this year, we also got a special proposed rule on the 340B reimbursement remedy.
Jealous yet?
This (summer reading) blog focuses on how the IPPS final rule impacts overall payments to providers and key changes related to Medicare Disproportionate Share Hospital (DSH) payments and policy. With most changes slated to go into effect Oct. 1, 2023 … fall break will be here before you know it!
Overall payment rate updates continue to raise concerns
Much like the high-level overview of a course that comes with a class syllabus, the IPPS rule prospectively lays out the overall payment rates for the upcoming FY. For FY 2024, CMS finalized a 3.1% increase in payment operating rates, which relies on a 3.3% increase to the market basket with a .2% decrease for a productivity adjustment. For those who missed Market Basket 101, the market basket describes the mix of goods and services used in providing healthcare and is adjusted each year to reflect changes in the market.
While CMS initially proposed a 3.0% market basket, the increase of 0.3% from the proposed to final rule is still a sharp decrease from FY 2023's 4.1% market basket, which was still considered inadequate. In its comments, Vizient shared concerns with CMS that these payment updates reflect years of inadequate increases, noting that hospitals continue to struggle with increased costs.
The relatively low payment rate increase under IPPS suggests financial challenges for hospitals will continue this fiscal year.
Reduced Disproportionate Share Hospital (DSH) payments may further strain hospitals
Much like the dread and uncertainty of hearing it's time for a "pop quiz" in the classroom, DSH payment policy can bring about similar emotions, with some years bringing bad news and others passing by with minimal impact. This year … it's the former, with two concerning DSH-related policies going into effect.
1. Cuts to Medicare DSH payments: First, it is important to note the significant reduction in Medicare DSH payments in the final rule. While the projected DSH payment cut of $115 million in the proposed rule was not insignificant, changes in projections, particularly as related to the uninsured rate, have resulted in a $957 million cut in payments to DSH hospitals — $842 million more than what was originally proposed.
In its explanation, CMS cites changes to Medicaid enrollment, number of DSH eligible hospitals, a shift in enrollment from Medicare fee-for-service to Medicare Advantage, and the impact of the COVID-19 pandemic as influencing this percent change in Medicare DSH payments. Also, CMS's Office of the Actuary (OACT) certifies the projections for both the proposed and final rules. The proposed rule's estimate uses data from March 2022, while the final rule's impact uses data from June 2023, and includes a note from the actuary on how the Medicaid unwinding has impacted the number of the uninsured. However, some (us included) may argue that it is unclear how CMS accounted for known changes and trends in its projections and in the final rule.
Also, while this is not the only change impacting the discrepancy in the numbers from the proposed to the final rule, the actuary notes that the reduction in Medicaid enrollment is the primary contributor to the increase in the uninsured from CYs 2023-2025.
2. Changes to how 1115 waiver days are counted in the Medicaid fraction: For those of you who need your kids to help you relearn math … here's your chance. Earlier this year, CMS released a standalone proposed rule changing which 1115 waiver days are counted in the Medicaid fraction of a hospital's disproportionate patient percentage. CMS finalized this ill-conceived policy and, as a result, fewer patients will be counted for the purpose of calculating Medicare DSH payments. This change was not completely unpredictable, however, as CMS attempted to include this policy in prior proposed rules.
Also, as noted in the proposed rule, states such as Florida, Texas, Kansas, New Mexico, Tennessee and Massachusetts may be particularly impacted by this policy change. Vizient remains concerned about the impact of this disruptive change both to hospitals' DSH payments, as well as 340B eligibility.
Reductions in new technology add-on payments loom
Under the IPPS, additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments (known as New Technology Add-On Payments or NTAPs). For FY 2024, CMS anticipates a decrease of $364 million in NTAPs. In addition, impacting future NTAPs, the agency slightly changed the eligibility requirements, including moving the FDA marketing authorization deadline from July 1 to May 1, beginning with applications for FY 2025. Also, CMS reiterated previously finalized policy that the New COVID-19 Treatment Add-in Payments will not be available for FY 2024.
Looking ahead
As we shift to being back in school/Congressional session and at the height of rulemaking season, hospitals and other industry stakeholders should be aware of the IPPS final rule as FY 2024 rapidly approaches. The final rule's breadth of topics has far-reaching implications for hospitals. If you have any questions or concerns, don't hesitate to reach out to Vizient's Office of Public Policy and Government Relations.
Inpatient Prospective Payment System (IPPS) final rule impacts overall payment rates to providers and includes key changes related to Medicare Disproportionate Share Hospital (DSH) payments and policy.
Most changes from the FY 2024 IPPS final rule are slated to go into effect Oct. 1, 2023.
The relatively low payment rate increase and other changes provided in the final rule suggests financial challenges for hospitals will continue in FY 2024.
Discuss the changes outlined to determine if and/or how they will impact your organization.
For questions or concerns, reach out to Vizient’s Office of Public Policy and Government Relations.
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