IPPS /LTCH Final Rule – Increasing Operating Payment Rates by 3.1%


Hospitals contend that the 3.1 percent increase in payments linked to quality reporting is insufficient to address the rising inflationary pressures. The Centers for Medicare & Medicaid Services (CMS) has officially published the final rule for the Hospital Inpatient Prospective Payment System (IPPS) and Long-term Care Hospital Prospective Payment System (LTCH PPS) in the Federal Register on August 28.

Effective from October 1 for fiscal year (FY) 2024, there will be a 3.1 percent rise in operating payment rates for general acute hospitals falling under IPPS. This marks a 0.3 percent increase over the agency’s initially proposed 2.8 percent increase in April. The 3.1 percent hike applies to general acute hospitals that actively participate in the Hospital Inpatient Quality Reporting (IQR) Program and demonstrate meaningful use of electronic health records (EHRs).

According to the CMS’ FY 2024 IPPS and LTCH PPS final rule Newsroom Fact Sheet, hospitals will experience various payment adjustments under IPPS, including:

  1. Payment reductions for excessive readmissions through the Hospital Readmissions Reduction Program (HRRP).
  2. A 1 percent payment reduction for hospitals in the worst-performing quartile under the Hospital Acquired Condition (HAC) Reduction Program.
  3. Adjustments, both positive and negative, under the Hospital Value-Based Purchasing (VBP) Program.

What is the financial impact of this?

The CMS Fact Sheet reports that hospital payments for FY 2024 will increase by $2.2 billion due to a 3.1 percent increase in operating and capital IPPS payment rates. The increase is based on a 3.3 percent rise in the Hospital Market Basket and a 0.2 percent cut in productivity. CMS is legally obligated to update payment rates for IPPS hospitals annually, taking into account changes in prices of goods and services used by hospitals when treating Medicare patients, and other factors.

However, CMS expects that payments for inpatient services using new medical technologies will decrease by $364 million in FY 2024 because new technology add-on payments will expire.

CMS also anticipates that Medicare disproportionate share hospital (DSH) payments, combined with Medicare uncompensated care payments, will decrease by approximately $957 million in FY 2024 based on Office of the Actuary data and projected estimates.

Hospitals Raise Concerns

Hospitals are expressing their concerns that the payment updates are insufficient to keep up with the continuous inflation hikes. The American Hospital Association (AHA) has been particularly vocal about the disproportionate share hospital cut.

The Senior Vice President for Public Policy at AHA expressed that they are deeply concerned with CMS’ inadequate inpatient and long-term care hospital payment updates. According to AHA, CMS is finalizing rate increases that do not match the high inflation rates and increased costs for labor, equipment, drugs, and supplies that hospitals across the country are facing.

Furthermore, CMS has finalized a cut in inpatient hospital disproportionate share hospital payments for hospitals that treat many of the most vulnerable patients, which amounts to almost $1 billion. This cut is based on CMS’ Office of the Actuary’s projection that the rate of uninsured individuals will decrease from 9.2% in FY 2023 to 8.3% in FY 2024, which AHA finds staggering.

Strategies for Hospitals to Increase Revenue

CMS has increased the severity of codes associated with homeless patients, resulting in higher payments for hospitals that treat them. Additionally, the Hospital Value-Based Purchasing (VBP) Program has been updated to include a health equity adjustment that rewards hospitals serving higher proportions of dual-eligible patients. Hospitals can now earn up to 10 bonus points based on their population makeup and quality measure performance, according to a healthcare news provider.

Conditions for Hospitals to Participate in the IQR Program

Hospitals that fail to submit quality data or meet all requirements for the Hospital Inpatient Quality Reporting (IQR) Program, a pay-for-reporting quality program, will receive a one-fourth reduction in their annual payment update under the IPPS. The final rule also includes the adoption of three new quality measures, removal of three existing measures, and modification of three current measures by CMS.

CMS has introduced three new electronic clinical quality measures (eCQMs) which are:

  1. Hospital Harm – Pressure Injury eCQM, which will be included in the eCQM measure set starting from the CY 2025 reporting period/FY 2027 payment determination.
  2. Hospital Harm – Acute Kidney Injury eCQM, which will be included in the eCQM measure set starting from 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, which will be included in the eCQM measure set starting from the CY 2025 reporting period/FY 2027 payment determination.

CMS is modifying three current measures, which are:

  1. Hybrid Hospital-Wide All-Cause Risk Standardized Mortality measure, beginning with the FY 2027 payment determination. The modification includes Medicare Advantage (MA) admissions.
  2. Hybrid Hospital-Wide All-Cause Readmission measure, beginning with the FY 2027 payment determination. The modification includes Medicare Advantage (MA) admissions.
  3. COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure, beginning with the FY 2025 payment determination. The modified measure includes the cumulative number of HCP who are up to date with recommended Centers for Disease Control and Prevention’s (CDC’s) definition of “up to date.”

Additionally, three measures are being removed.

  1. Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure, beginning with the April 1, 2025 – March 31, 2028 reporting period/FY 2030 payment determination.
  2. Medicare Spending Per Beneficiary (MSPB) Hospital measure, beginning with the CY 2026 reporting period/FY 2028 payment determination. CMS is removing this measure under the Hospital IQR Program in conjunction with the adoption of the recent updates to this measure in the Hospital VBP Program.
  3. Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of Babies Electively Delivered Prior to 39 Completed Weeks Gestation measure, beginning with the CY 2024 reporting period/FY 2026 payment determination.

The American Hospital Association (AHA) has identified additional IPPS/LTCH provisions in the 2024 IPPS final rule, which include:

Additional Changes to the IPPS/LTCH Programs

According to the AHA, the 2024 IPPS final rule includes several other noteworthy provisions, such as:

  1. Modifications to graduate medical education payments for rural emergency hospitals to better support graduate medical training in rural areas.
  2. Continuation of the low wage index hospital policy for FY 2024, which will consider rural reclassified hospitals as geographically rural when calculating the wage index.
  3. Termination of new COVID-19 treatment add-on payments due to the program’s expiration on September 30.
  4. Revisions to the data and information required under the physician self-referral law, and reinstatement of program integrity restrictions that were previously removed in the 2021 Outpatient Prospective Payment System final rule for physician-owned hospitals meeting “high Medicaid facilities” requirements.