CMS makes widespread hospital payment updates for FY 2023 Proposed Rule

April 19, 2022

The Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2023 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospital (LTCH) Prospective Payment System (PPS) proposed rule.

The proposed rule would update Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for fiscal year (FY) 2023. CMS is publishing this proposed rule to meet the legal requirements to update Medicare payment policies for IPPS hospitals and LTCHs on an annual basis.

The proposed policies in the IPPS and LTCH PPS rule also build on key priorities to better measure healthcare quality disparities and to improve the safety and quality of maternity care.

CMS proposes to establish new requirements and revise existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program. In addition, it is providing estimated and newly established performance standards for the Hospital Value-Based Purchasing (VBP) Program and proposing updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting (IQR) Program, Hospital VBP Program, Hospital-Acquired Condition (HAC) Reduction Program, PPS-Exempt Cancer Hospital Reporting Program, and Long-Term Care Hospital Quality Reporting Program. Additionally, due to the impact of the COVID-19 PHE on measure data, several measures are being proposed in the Hospital VBP and HAC Reduction Programs.  In addition to these measure suppressions for the Hospital VBP Program, it is being proposed to implement a special scoring methodology for FY 2023 that results in each hospital receiving a value-based incentive payment amount that matches their 2 percent reduction to the base operating DRG payment amount.  Similarly, it is being proposed to suppress all six measures in the HAC Reduction Program for the FY 2023 program year.  If finalized as proposed, for the FY 2023 program year, hospitals participating in the HAC Reduction Program will not be given a measure score, a Total HAC score, nor will hospitals receive a payment penalty.

Consistent with Executive Order 13985 on Advancing Racial Equity and Support for Underserved Communities through the Federal Government, CMS is seeking stakeholder feedback on ways to advance health equity. Specifically, CMS is seeking comment on key considerations to inform the approach to improve data collection to better measure and analyze disparities across programs and policies, and approaches for updating the Hospital Readmissions Reduction Program to encourage providers to improve performance for socially at-risk populations.

CMS also proposes to continue policies finalized in the FY 2020 IPPS/LTCH PPS final rule to address wage index disparities affecting low wage index hospitals and also proposes to limit year-to-year decreases in hospitals’ wage indexes. Additionally, this proposed rule includes a proposal to establish a new supplemental payment for Indian Health Service (IHS)/Tribal hospitals and hospitals located in Puerto Rico, recognizing that the proposal to discontinue the use of the low-income insured days proxy to calculate uncompensated care payments for these hospitals could result in significant financial disruption.

This proposed rule also includes proposed changes to graduate medical education (GME) policies, including a proposal to increase flexibility to rural hospitals that participate in a rural track program (RTP). In addition, this proposed rule includes a proposal regarding the treatment of Medicaid section 1115 demonstration days in the Medicaid fraction that is used in the calculation of Medicare disproportionate share hospital (DSH) payments.

This rule also includes proposed revisions to the hospital and critical access hospital (CAH) conditions of participation (CoPs) for infection prevention and control and antibiotic stewardship programs.  These proposed revisions would require hospitals and CAHs, after the conclusion of the current COVID-19 public health emergency (PHE), to continue COVID-19 and seasonal influenza reporting, and would establish new reporting requirements for future declared public health emergencies related to a specific infectious disease or pathogen.

CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays based on the patient’s diagnoses and any services performed. Subject to certain adjustments, a hospital receives a single payment for the case based on the payment classification assigned at discharge. The classification systems are: IPPS: Medicare Severity Diagnosis-Related Groups (MS-DRGs) and LTCH PPS: Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).

The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services used by these hospitals in treating Medicare patients, as well as for other factors. This is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. CMS updates LTCHs’ payment rates annually according to a separate market basket based on LTCH-specific goods and services.

The proposed increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users is projected to be 3.2%. This reflects a FY 2023 projected hospital market basket update of 3.1% reduced by a projected 0.4 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by statute.

CMS release