The Centers for Medicare & Medicaid Services (CMS) on Aug. 1, 2023, published its final rule for the federal fiscal year (FY) 2024 inpatient prospective payment system (IPPS) and long-term care hospital (LTCH) prospective payment system (PPS).

The final rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for FY 2024. In this final rule, CMS is also finalizing policies to promote health equity and patient safety, including proposals to make health equity adjustments in the Hospital Value-Based Purchasing Program by incentivizing those who care for high proportions of underserved individuals, as defined by dual eligibility status. 

This rule also finalizes the proposals to address the treatment of Section 1115 demonstration days in the calculation of Medicare disproportionate share hospital (DSH) payments. This change may have a negative financial impact on hospitals in states that utilize uncompensated care pools and premium assistance programs through Section 1115 waivers and could impact 340B program eligibility.

In addition to the final rule, CMS published a fact sheet. Provisions in the final rule generally take effect Oct. 1, 2023. 

Key Takeaways

• The FY 2024 standardized amount for hospitals that successfully participate in the hospital inpatient quality reporting (IQR) program and that are meaningful electronic health record (EHR) users will be $6,497.77, representing a payment increase of 3.1 percent over FY 2023.
• CMS will distribute roughly $5.9 billion in uncompensated care payments (UCP) to eligible disproportionate share hospitals for FY 2024, a decrease of approximately $950 million from FY 2023.
• CMS finalized a proposal to clarify that the Medicaid fraction numerator in a hospital’s DPP includes patients covered by a Section 1115 waiver that provides either insurance covering inpatient care or fully subsidized premium assistance used to purchase such insurance.
• CMS finalized its proposal to continue the policy finalized in the FY 2020 IPPS rule for an additional year to reduce wage index disparities affecting low-wage index hospitals.
• CMS finalized its proposal to treat rural emergency hospitals (REHs) similarly to critical access hospitals (CAHs) for purposes of determining graduate medical education (GME) payments.
• CMS finalized, as proposed, two revisions to the criteria that applicants must meet to apply for new technology add-on payments (NTAP).

IPPS Payment Updates: CMS states that acute care hospitals are estimated to experience an increase of approximately $2.2 billion in FY 2024, primarily driven by 1) a combined $2.6 billion increase in FY 2024 operating payments and capital payments, as well as changes in DSH and uncompensated care payments and 2) a decrease of $364 million resulting from estimated changes in new technology add-on payments, as projected for this final rule:

• +3.3 percent Market Basket Update 
• minus 0.2 percent Productivity Adjustment 
• Total Update Percentage: 3.1 percent 

Changes to Payment Rates Under LTCH PPS: CMS estimates the LTCH standard payment rate to increase by 3.3 percent and LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 0.2 percent, or $6 million, due primarily to a projected 2.9 percent decrease in high-cost outlier payments as a percentage of total LTCH PPS standard federal payment rate payments.

Continuation of the Low-Wage Index Hospital Policy: To help mitigate wage-index disparities between high-wage and low-wage hospitals, CMS adopted a policy in the FY 2020 IPPS/LTCH PPS final rule to increase wage index values for certain hospitals with low-wage index values. In this rule for FY 2024, CMS is finalizing its proposal to continue the low-wage index hospital policy and the related budget neutrality adjustment.

Rural Wage Index Calculation:  Based on public comments and court rulings, CMS finalized its proposal to consider hospitals reclassified as rural under Section 412.103 to be the same as geographically rural hospitals for wage index calculations beginning FY 2024. CMS estimated that this policy will result in 596 hospitals receiving the rural floor in FY 2024. The rule states that the area wage index for any hospital in an urban area may not be less than the area wage index for rural hospitals. This change will affect all hospitals.

DSH and Uncompensated Care: CMS will distribute roughly $5.9 billion in uncompensated care payments to nearly 2,400 DSH-eligible hospitals for FY 2024, a decrease of approximately $950 million from FY 2023. This amount is also substantially lower than the amount in the proposed rule, which was $6.71 billion.

CMS is also updating estimates of the three factors used to determine uncompensated care payments for FY 2024 and finalizing to continue to use uninsured estimates produced by CMS’ Office of the Actuary (OACT) as part of the development of the National Health Expenditure Accounts (NHEA) in conjunction with more recently available data in the calculation of Factor 2.

For FY 2024, CMS is finalizing to use the three most recent years of audited data on uncompensated care costs from Worksheet S-10 of the FY 2018, FY 2019 and FY 2020 cost reports to calculate Factor 3 in the uncompensated care payment methodology for all eligible hospitals. 

Beginning with FY 2023, CMS finalized a supplemental payment for Indian Health Services (IHS) and tribal hospitals and hospitals located in Puerto Rico to help prevent undue long-term financial disruption to these hospitals due to discontinuing the use of the low-income insured days proxy in the uncompensated care payment methodology for these providers.

Counting Section 1115 Demonstration Days in Medicare DSH Payments: CMS is finalizing its proposal on counting days associated with individuals eligible for certain benefits provided by Section 1115 demonstrations for purposes of the Medicare DSH calculation. CMS finalized its definition of patients "regarded as eligible" for Medicaid to include only certain patients who receive health insurance or premium assistance that meets specific additional requirements under a Section 1115 waiver.

For purposes of the Medicare DSH calculations, CMS finalized its proposal to include in the fraction only those patients who receive health insurance or buy health insurance with premium assistance provided under a Section 1115 demonstration where states receive matching funds for such programs. CMS also finalized its definition of patient days to be included in the Medicaid fraction numerator. The new definition includes only patient days associated with patients covered under a Section 1115 demonstration who receive health insurance covering inpatient hospital services or who receive premium assistance covering 100 percent of the patient’s premium cost, including coverage for inpatient services. CMS also finalized its proposal to clarify its interpretation that patient days associated with care funded through a Section 1115 demonstration uncompensated care pool are not viewed as patient days for patients who are "regarded as" Medicaid-eligible.

Changes to Physician-Owned Hospital Expansion: CMS finalized changes governing expansion opportunities for grandfathered physician-owned hospitals. Under its new interpretation of the law, meeting the "applicable hospital" or "high Medicaid facility" criteria merely makes a hospital eligible to request an expansion exception; it does not guarantee approval of such a request.

Allowing Medical Residents to Train in Rural Emergency Hospitals: The Consolidated Appropriations Act of 2021 established rural emergency hospitals (REHs) as a new Medicare provider type to address concerns over increasing closures of rural hospitals. REHs are facilities that convert from either a critical access hospital (CAH) or a rural hospital with 50 or fewer beds that do not provide acute-care inpatient services. Accordingly, CMS finalized its proposal to treat rural emergency hospitals similarly to critical access hospitals for purposes of determining graduate medical education (GME) payments.

Post-Acute Care Medicare Severity Diagnosis-Related Groups (MS-DRGs): CMS finalized several proposals to modify MS-DRGs that are subject to post-acute care transfer policy and MS-DRG special payments policies, including reassignment, creation and deletion of MS-DRGs. CMS will: 

1. reassign thrombolysis for pulmonary embolism procedures from MS-DRGs 166–168 to a proposed new MS-DRG 173 (Ultrasound Accelerated and Other Thrombolysis for Pulmonary Embolism)
2. create a new base MS-DRG 212 (Concomitant Aortic and Mitral Valve Procedures) for certain inpatient episodes with aortic valve repair or replacement procedures
3. reassign cardiac defibrillator implant procedures by deleting MS-DRGs 222–227 (Cardiac Defibrillator Implant, with and without Cardiac Catheterization, with and without AMI/HF/shock) and create new MS-DRGs 275–277

Payment Adjustment for Certain Clinical Trial and Expanded Access Use Immunotherapy Cases: CMS will continue applying the adjustment to the payment amount for expanded access use of immunotherapy and clinical trial cases that would group to MS-DRG 018 and continue to apply the existing calculation methodology as finalized in FY 2021.

Increase to Severity of the Designation of Homelessness: For FY2024, CMS is finalizing to change the severity level designation for three ICD-10 Z codes for social determinants of health (SDOH) diagnosis codes describing homelessness from noncomplication or comorbidity (NonCC) to complication or comorbidity (CC) for FY2024. CMS recognizes homelessness as an indicator of increased resource utilization in the acute inpatient hospital setting. This would mean that reporting these three Z codes as secondary diagnoses on inpatient claims could result in a higher payment.

New Technology Add-On Payment (NTAP) Applications for FY 2024: CMS will continue NTAP payments for 11 technologies still considered new and discontinue NTAP payments for 15 technologies no longer considered new for FY 2024.

NTAP Eligibility: CMS is finalizing its proposal to 1) require NTAP applicants for technologies that are not already FDA market authorized to have a complete and active FDA market authorization application request at the time of NTAP application submission and 2) to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025. 

Hospital Inpatient Quality Reporting (IQR) Program: For FY 2024, CMS is finalizing several recommendations for the Hospital IQR Program. CMS is finalizing the adoption of three new measures: 

1. Hospital Harm – Pressure Injury electronic clinical quality measure (eCQM) beginning with the CY 2025 reporting period/FY 2027 payment determination
2. Hospital Harm – Acute Kidney Injury eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination
3. Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults (Hospital Level – Inpatient) eCQM beginning with the CY 2025 reporting period/FY 2027 payment determination

Additionally, CMS is finalizing two changes to current policies related to data submission, reporting and validation: 

1. modification of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey measure beginning with the CY 2025 reporting period/FY 2027 payment determination
2. modification of the targeting criteria for hospital validation for extraordinary circumstances exceptions (ECEs) beginning with the FY 2027 payment determination

Hospital Readmissions Reduction Program: CMS did not propose and is not finalizing any changes to the Hospital Readmissions Reduction Program For FY 2024. 

Hospital-Acquired Condition (HAC) Reduction Program: For FY2024, CMS is finalizing to establish a validation reconsideration process for hospitals that fail data validation beginning with the FY 2025 program year, affecting calendar year 2022 discharges, as well as finalizing modification of the validation targeting criteria for extraordinary circumstances exceptions (ECEs) beginning with the FY 2027 program year, affecting calendar year 2024 discharges.

Hospital Value-Based Purchasing (VBP) Program: For FY2024, CMS is finalizing several substantive changes, specifically:

• CMS is finalizing changes to the Medicare Spending per Beneficiary (MSPB) Hospital measure, including allowing readmissions to trigger new episodes and updating the calculation methodology, beginning with the FY 2028 program year.
• CMS finalized changes to the Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure beginning in FY2030. Specifically, CMS will include in this measure index admission diagnoses and in-hospital comorbidity data from Part A claims, which will lead to inclusion of 26 additional mechanical complication ICD-10 codes.
• CMS is adopting the Severe Sepsis and Septic Shock: Management Bundle measure in the Safety Domain beginning with the FY 2026 program year.
• CMS is finalizing its proposal to make technical changes to the form and manner of the administration of the HCAHPS survey measure under the Hospital VBP Program beginning with the FY 2027 program year in alignment with the Hospital IQR Program.
• Additionally, CMS is adopting a health equity scoring change for rewarding excellent care in underserved populations beginning with the FY 2026 program year.

LTCH Quality Reporting Program (QRP): CMS is finalizing several proposed changes to the LTCH QRP, specifically: 

• adopting a modified version of the COVID-19 Vaccination Coverage among Healthcare Personnel measures beginning with the FY 2025 LTCH QRP
• adopting the Discharge Function Score measure beginning with the FY 2025 LTCH QRP
• removing the Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function measure beginning with the FY 2025 LTCH QRP
• removing the Application of Percent of LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function measure beginning with the FY 2025 LTCH QRP
• adopting the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure beginning with the FY 2026 LTCH QRP
• increasing the LTCH QRP data completion thresholds for the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) beginning with the FY 2026 LTCH QRP
• beginning public reporting of the Transfer of Health (TOH) Information to the Patient-Post-Acute Care (PAC) and TOH Information to the Provider-PAC measures beginning with the FY 2025 LTCH QRP

Medicare Promoting Interoperability Program: For FY2024, CMS is finalizing five changes to the Medicare Promoting Interoperability Program, including but not limited to:

• amending the definition of "EHR reporting period for a payment adjustment year" at 42 CFR 495.4 for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program, to define the EHR reporting period in CY 2025 as a minimum of any continuous 180-day period within CY 2025
• updating the definition of "EHR reporting period for a payment adjustment year" at Section 4 for eligible hospitals such that, beginning in CY 2025, those hospitals that have not successfully demonstrated meaningful use in a prior year will not be required to attest to meaningful use by Oct. 1 of the year before the payment adjustment year
• adopting three new eCQMs: the Hospital Harm – Pressure Injury, the Hospital Harm – Acute Kidney Injury, and the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults

PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program: For FY2024, CMS is finalizing to adopt four new measures for the PCHQR Program, including: 

• three health equity-focused measures: the Facility Commitment to Health Equity measure, the Screening for Social Drivers of Health measure, and the Screen Positive Rate for Social Drivers of Health measure
• a patient preference-focused measure: the Documentation of Goals of Care Discussions Among Cancer Patients measure
• a modified version of the COVID-19 Vaccination Coverage among Health Care Personnel (HCP) 

Safety-Net Request for Information (RFI): CMS solicited feedback on the challenges faced by safety-net hospitals and potential approaches to help safety-net hospitals meet those challenges. CMS discussed the Safety-Net Index (SNI), which MedPAC developed as a potential measure of the degree to which a hospital functions as a safety-net hospital. In addition, CMS discussed a possible alternative to the SNI in which safety-net hospitals would be identified using area-level indices. CMS solicited feedback and comment on whether either of these approaches would serve as an appropriate basis for identifying safety-net hospitals for Medicare purposes.

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