CMS on Monday released a final rule updating the Inpatient Prospective Payment System (IPPS) and the long-term care hospital (LTCH) prospective payment system (PPS) for fiscal year (FY) 2023. The rule gives hospitals the largest payment increase in 25 years.

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Payment updates

According to the rule, Medicare payments for hospital inpatient services will increase by 4.3% in FY 2023, which will amount to roughly a $2.6 billion pay increase. This is a higher reimbursement rate than the 3.2% increase CMS proposed in April.

Following the proposed rule, hospital lobbying groups, including the American Hospital Association and the Federation of American Hospitals, told CMS the increase was "woefully inadequate" since it didn't account for the "unprecedented inflationary environment."

The new rate includes a projected hospital market basket update of 4.1%, a 0.3 percentage point reduction resulting from a statutorily required productivity adjustment, and a 0.5 percentage point increase, also required by statute.

CMS noted this is the highest market basket update in the past 25 years, "primarily due to higher expected growth in compensation prices for hospital workers."

The rates for FY 2023 will apply to general acute care hospitals that use EHRs and are participating in the Hospital Inpatient Quality Reporting Program. Meanwhile, CMS' update to the LTCH PPS will include a 2.3% payment increase, a roughly $71 million increase.

In addition, Medicare Disproportionate Share Hospital and Medicare uncompensated care payments will drop roughly $300 million in FY 2023, according to the rule—an adjustment from the $800 million cut proposed in April. CMS will also distribute around $6.8 billion in payments for uncompensated care in FY 2023.

Other provisions

CMS will continue to suppress and edit measures for its Hospital Readmissions Reduction Program, Hospital-Acquired Condition Reduction Program, and Hospital Value-Based Purchasing Program to avoid rewarding or penalizing hospitals during pandemic circumstances. Hospitals must continue to report Covid-19 and seasonal flu data through April 2024.

The rule also finalizes a "birthing-friendly" designation for hospitals participating in a statewide or national perinatal quality improvement collaborative program that have also implemented any quality interventions recommended to the hospital.

CMS also said it will no longer use proxy data for uncompensated care costs in determining payments for Indian Health Service and Tribal hospitals, as well as hospitals in Puerto Rico. CMS will establish a new supplemental payment system for those hospitals to prevent long-term financial disruption and promote long-term payment stability.

In addition, CMS is finalizing new flexibilities for graduate medical education for rural hospitals participating in rural track programs to promote workforce development in underserved rural areas.

"CMS is taking action to support hospitals, including updating payments to hospitals by a significantly higher rate than in the proposed IPPS rule. This final rule aligns hospital payments with CMS' vision of ensuring access to health care for all people with Medicare and maintaining incentives for our hospital partners to operate efficiently," said CMS Administrator Chiquita Brooks-LaSure. "It also takes important steps to advance health equity by encouraging hospitals to implement practices that reduce maternal morbidity and mortality." (Goldman, Modern Healthcare, 8/1; Morse, Healthcare Finance News, 8/1; Herman, STAT+ [subscription required], 8/1)