CMS Releases 2023 Inpatient Prospective Payment System Final Rule

  • Regulations
  • 8/25/2022
Two doctors speaking to businessman while walking down hallway.

Key insights

  • For operating payments rates, CMS proposed an increase of 4.3% over the prior year.
  • CMS is proposing a 5% cap on wage index-related change to payments.
  • Without Congressional action, CMS indicates the Medicare Dependent Hospitals designation will no longer be in effect and the low-volume adjustment reverts to its previous criteria.

Need additional clarity or guidance on CMS payment rules?

Talk to an Advisor

On August 1, the Centers for Medicare & Medicaid Services (CMS) released the 2023 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System proposed rule. This regulatory advisor will summarize some of the key changes but does not include all provisions. To review the entire final rule, visit the Federal Register.

Table of Contents

  1. Payment provisions
    1. 2023 IPPS updates
    2. Wage index
    3. Disproportionate share hospital (DSH) uncompensated care payments
    4. New technology add-on payment (NTAP)
    5. Urban to rural reclassifications
    6. Graduation medical education payments
    7. Conditions of Participation: Reporting standards for COVID-19
    8. 2023 LTCH payment update
  2. Quality programs
    1. Hospital Readmission Reduction Program
    2. Hospital Value-Based Purchasing Program
    3. Hospital-Acquired Condition Reduction Program
    4. Hospital Inpatient Quality Reporting (IQR) Program
    5. PPS-Exempt Cancer Hospital Quality Reporting Program
    6. Medicare Promoting Interoperability Program

Payment provisions

2023 IPPS updates

CMS finalizes an increase in operating payment rates by 4.3% for hospitals paid through IPPS that utilize an electronic health record (EHR) and participate in the Inpatient Quality Reporting program (IQR). This adjustment reflects a market basket update of 4.1%, less a .3% productivity adjustment, plus a 0.5% documentation and coding adjustment required under the Medicare Access and CHIP Reauthorization Act of 2015.

CMS finalizes a permanent cap of 10% starting in 2023 for any Medicare Severity-Diagnosis Related Group’s (MS-DRG) relative weights if changes to those cause reductions. It would be budget neutral and applied only to existing MS-DRGs from one year to the next, not to new or renumbered MS-DRGs.

CMS also finalizes a change in the date by which MS-DRG changes may be requested. The new date is by October 20 each year beginning in FY 2024.

Low-volume adjustment (LVA)

Due to statute and without Congressional intervention, the LVA policy will revert to earlier levels on October 1. This means the more expansive qualifying criteria will become quite restrictive unless Congress acts. CMS has set these criteria as 200 total discharges in the fiscal year and the hospital must be 25 miles from another subsection (d) hospital. Hospitals must still apply to their Medicare Administrative Contractor for the LVA.

Medicare Dependent Hospitals (MDH)

CMS alerts announced that beginning October 1, 2022, the MDH program will no longer be in effect. Unless Congress acts, the MDH program is not authorized by statute beyond September 30, 2022. Therefore, beginning October 1, 2022, all hospitals that previously qualified for MDH status will no longer have MDH status and will be paid based on the IPPS federal rate.

CMS indicates an MDH may apply to become a Sole Community Hospital (SCH). For an MDH to receive SCH status effective October 1, 2022, the MDH must apply for SCH status at least 30 days before the expiration of the MDH program, which would be by September 1, 2022. The MDH also must request that, if approved as an SCH, the SCH status be effective with the expiration of the MDH program, October 1, 2022, immediately after its MDH status expires on September 30, 2022.

Wage index

Low wage index policy. CMS continues the low-wage index policy in FY 2023. For hospitals with a wage index that is less than the 25th percentile, CMS will continue to increase the wage index by half the difference between the applicable wage index for the hospital and the 25th percentile wage index value for all hospitals. For purposes of the low -wage index hospital policy, based on the data for this final rule, CMS determines the FY 2023 25th percentile wage index value is 0.842.

Rural floor. As a result of litigation, CMS states that setting the rural floor lower than the rural wage index for a state is inconsistent with the district court’s decision in Citrus (Citrus HMA, LLC d/b/a Seven Rivers Regional Medical Center, et al. v. Becerra). Therefore, CMS finalizes a policy that calculates the rural floor as it was calculated before FY 2020.

As such, CMS is finalizing a policy to include the wage data of hospitals that have reclassified from urban to rural and have no additional form of reclassification (Medicare Geographic Classification Review Board (MGCRB) or Lugar) in the calculation of the rural floor, and to include the wage data of such hospitals in the calculation of “the wage index for rural areas in the Sstate in which the county is located.’’ CMS will apply the same policy as prior to the FY 2020 final rule for calculating the rural floor, in which the rural wage index sets the rural floor. CMS estimates 275 hospitals could see an increase in their FY 2023 wage index due to the application of the rural floor.

Wage index reduction cap. To mitigate potentially significant disruption to payments for stakeholders resulting from changes in the wage index, CMS finalizes a 5% cap on any decrease to a hospital’s wage index over prior year beginning in FY 2023. As a result, a hospital’s wage index could not be less than 95% of the prior year’s value, regardless of circumstances causing the decrease. CMS will apply the cap in a budget -neutral manner through a national adjustment to the standardized amount each fiscal year.

Disproportionate share hospital (DSH) uncompensated care payments

CMS proposed to distribute roughly $6.5 billion in uncompensated care payments for FY 2023, which is a decrease of $654 million over FY 2022. CMS uses three factors to determine these payments and finalizes the following for 2023:

  • Factor 1: $10,461,731,029.40.
  • Factor 2: 65.71% or 0.6571. The final FY 2023 uncompensated care amount is $10,461,731,029.40* 0.6571 = $6,874,403,459.42. Final FY 2023 uncompensated care amount is $6,874,403,459.42.
  • Factor 3: CMS finalizes using the average of the audited FY 2018 and FY 2019 Worksheet S-10 reports instead of basing it on a single year. Further, starting FY 2024, CMS finalizes using a three-year average of the uncompensated care data from the three most recent fiscal years for which audited data are available to determine factor 3.

Beginning in FY 2023, CMS will cease use of low-income insured days as a proxy for uncompensated care payments for Indian Health Service and Tribal Hospitals, along with hospitals located in Puerto Rico. CMS also finalizes the establishment of a new supplemental payment system for these hospitals.

New technology add-on payment (NTAP)

Dozens of NTAPs that have reached their three-year anniversary date or one-year extension after those three years will be discontinued. Fifteen technologies will continue to receive add-on payments. CMS approved 10 new technology payments.

Beginning in 2024, CMS finalizes that completed NTAP applications would be publicly posted online, though it allows for certain items to remain confidential.

Urban to rural reclassifications

CMS finalizes several changes in its FY 2022 rule related to reclassifications. It is now clarifying that the urban to rural reclassification applies to the main campus and any remote location located in an urban area (or deemed to be located in an urban area), not to a remote location in a rural area.

If a multi-campus hospital applies for urban to rural reclassification, all of its urban campuses will be reclassified as rural and receive the same rural wage index. If the hospital then applies and is approved for an MGCRB reclassification, all campuses of the multi-campus hospital will be reclassified and receive the same wage index. If the hospital then cancels the MGCRB reclassification, each of its campuses will then be paid the rural wage index for the state in which it is located.

Graduate medical education payments

In Milton S. Hershey Medical Center, et al. v. Becerra, a case decided by the U.S. District Court for the District of Columbia in 2021, teaching hospitals challenged a 1997 Medicare regulation setting the formula for counting the number of full-time residents and fellows and assigning reimbursement. Medicare statute contains a formula that weights full-time equivalent (FTE) residents based on length of their employment, while also imposing a cap on the number of resident FTEs that can be considered for Medicare reimbursement. Regulation established in 1997, however, mandated that in cases where the hospital exceeds its FTE resident cap, the FTE count would be reduced “in the same proportion that the number of FTE residents exceeds the number of FTE residents for the most recent cost reporting period ending on or before December 31, 1996.” (42 CFR § 413.79) The result of this regulation meant that hospitals’ FTEs could be calculated at levels less than would be applicable under Medicare statute. Several teaching hospitals argued that this reduction was an unlawful reduction to Medicare reimbursement, and the court agreed.

As a result of this decision, CMS finalizes a modified policy to be applied prospectively for all teaching hospitals, as well as retroactively to the providers and cost years discussed in Hershey. The modified policy would address situations for applying the FTE cap when a hospital’s weighted FTE count is greater than its FTE cap but would not reduce the weighting factor of residents that are beyond their initial residency period to an amount less than .5. If a hospital’s unweighted number of FTE residents exceeds the FTE cap, primary care and obstetrics and gynecology FTE counts are adjusted to make the total weighted FTE count equal the cap.

With respect to rural training track programs (RTP), CMS will allow urban and rural hospitals that participate in the same separately accredited family medicine RTP to enter affiliation agreements for the RTP. CMS finalizes the following requirements for RTP affiliated groups:

  • Representatives of each urban and rural hospital must attest that the affiliated group is only for residents in the RTP and no other programs.
  • Only separately accredited family medicine programs that have rural track FTE limitations in place prior to October 1, 2022, are eligible.
  • These affiliated group arrangements may become effective July 1, 2023 — the beginning of the first residency training year after the October 1, 2022, effective date of this IPPS rule.

Conditions of Participation: Reporting standards for COVID-19

CMS modifies and finalizes to require hospitals, including Critical Access Hospitals (CAHs), to continue to contribute COVID-19 and seasonal influenza reporting after the COVID-19 public health emergency (PHE) ends. Beginning at the end of the current COVID-19 PHE declaration or the effective date of the IPPS rule, whichever is later, hospitals will continue to report through April 30, 2024.

2023 LTCH payment update

CMS finalizes a 4.1% update for LTCHs with the 0.4% productivity adjustment, for a 3.8% update for 2023. CMS will also apply its proposal of a 5% permanent cap on any wage index reductions from the previous year.

Quality programs

Hospital Readmission Reduction Program

CMS finalizes several policy changes and will:

  • Resume use of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FY 2024 program year
  • Modify the Hospital 30-Day, All-Cause, RSRR following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed present on admission patients from the measure numerator and denominator, beginning with the Hospital-Specific Reports for the FY 20234 program year. Note CMS will still calculate and publicly reporting this measure in FY 2023, though it will not be used in payment calculations.
  • Modify all six condition/procedure-specific measures to include a risk adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FY 2024 program year

Hospital Value-Based Purchasing Program

CMS finalizes suppressing the Hospital Consumer Assessment of Healthcare Providers and Systems, along with five hospital acquired infection (HAI) measures for the FY 2023 year. In addition, CMS will adjust the baseline periods for certain measures for the FY 2025 year. For FY 2023, hospitals will not receive Total Performance Scores. Rather, CMS will award each hospital a payment incentive multiplier to create a value-based incentive payment equal to the amount withheld for the fiscal year (2%).

Hospital-Acquired Condition (HAC) Reduction Program

CMS will pause the CMS Patient Safety and Adverse Events composite measure (CMS PSI 90) and the five Centers for Disease Control and Prevention (CDC) NHSN HAI measures from the calculation to measure scores and the total HAC score. As a result, no hospital will be penalized under the HAC Reduction Program FY 2023 program year. In addition, CMS also finalizes the following measures:

  1. Publicly and confidentially report CDC NHSN HAI measure results but not calculate or report measure results
  2. Calculate and publicly report CMS PSI 90 measure after confidentially reporting results to hospitals with a 30-day review period
  3. Pause calendar year (CY) 2021 CDC NHSN HAI measures data from the FY 2024 HAC Reduction PY
  4. Update measure specification to the minimum volume threshold for the CMS PSI 90 measure beginning with the FY 2023 PY
  5. Update the measure specifications to risk-adjust for COVID-19 diagnosis in the CMS PSI 90 measure beginning with the FY 2024 HAC Reduction PY
  6. Update the CDC NHSN HAI data submission requirements for newly opened hospitals beginning in the FY 2024 HAC PY
  7. Clarify the removal of the no mapped location policy beginning with the FY 2023 PY

Hospital Inpatient Quality Reporting (IQR) Program

CMS finalizes multiple changes to the Hospital IQR Program, including the adoption of 10 new measures over the course of several years:

  • Hospital Commitment to Health Equity (mandatory in 2023)
  • Screening for Social Drivers of Health (voluntary in 2023, mandatory in 2024)
  • Screen Positive Rate for Social Drivers of Health (voluntary in 2023, mandatory in 2024)
  • Cesarean Birth electronic clinical quality measure (eCQM) (voluntary in 2023, mandatory in 2024)
  • Severe Obstetric Complications eCQM (voluntary in 2023, mandatory in 2024)
  • Hospital-Harm — Opioid-Related Adverse Events eCQM (NQF #3501e) (beginning in 2024)
  • Global Malnutrition Composite Score eCQM (NQF #3592e) (beginning in 2024)
  • Hospital Level, Risk Standardized Patient-Reported Outcomes Performance Measure Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #3559) (voluntary in 2023 and 2024, mandatory beginning in 2025)
  • Medicare Spending Per Beneficiary — Hospital (NQF #2158) (beginning in 2024)
  • Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA/TKA (NQF #1550) (beginning in 2024)

CMS finalizes refinements to two current measures beginning with the FY 2024 payment determination:

  • Hospitalā€Level, Riskā€Standardized Payment Associated with an Episode-of-Care for Primary Elective THA/TKA
  • Excess Days in Acute Care After Hospitalization for Acute Myocardial Infarction (NQF #2881)

CMS additionally finalizes changes to current policies related to eCQMs and hybrid measures:

  1. Modify the eCQM reporting and submission requirements to increase the number of eCQMs to be reported beginning with the CY 2024 reporting period/FY 2026 payment determination
  2. Remove the zero denominator declarations and case threshold exemption policies for hybrid measures beginning with the FY 2026 payment determination
  3. Data submission and reporting requirements for patient-reported outcome-based performance measures beginning with the FY 2026 payment determination
  4. Modify the eCQM validation policy to increase the requirement from 75% to 100% of requested medical records, beginning with the FY 2025 payment determination

In response to the Biden-Harris administration’s focus on maternal health, CMS will establish a "birthing-friendly" hospital designation related to maternity care to be reported on a public-facing website beginning in fall 2023. CMS will award this designation to hospitals that report “Yes” to both questions in the Maternal Morbidity Structural Measure, reporting that the hospital participated in a national or statewide quality collaborative and implemented all recommended interventions. The Cesarean Birth and Severe Obstetric Complication eCQMs are also a part of this initiative.

PPS-Exempt Cancer Hospital Quality Reporting Program

CMS adopted a patient safety exception into the measure removal policy for FY 2023. CMS also will begin public display of the following measures:

  • 30-Day Unplanned Readmissions for Cancer Patients
  • Proportion of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life
  • Proportion of Patients Who Died from Cancer Not Admitted to Hospice
  • Proportion of Patients Who Died from Cancer Admitted to the ICU in the Last 30 Days of Life
  • Proportion of Patients Who Died from Cancer Admitted to Hospice for Less Than Three Days

Medicare Promoting Interoperability Program

CMS finalizes various changes to the Medicare Promoting Interoperability Program:

  1. Require and modify the Electronic Prescribing Objective’s Query of Prescription Drug Monitoring Program (PDMP) measure while maintaining the associated points at 10 points beginning with the EHR reporting period in CY 2023
  2. Expand the Query of PDMP measure to include Schedule II, III, and IV drugs beginning with the CY 2023 EHR reporting period
  3. Add a new Health Information Exchange Objective option, the Enabling Exchange under the Trusted Exchange Framework and Common Agreement measure (requiring a yes/no response), as an optional alternative to fulfill the objective, beginning with the CY 2023 EHR reporting period
  4. Modify the Public Health and Clinical Data Exchange Objective by adding an Antibiotic Use and Antibiotic Resistance measure in addition to the current four required measures (Syndromic Surveillance Reporting, Immunization Registry Reporting, Electronic Case Reporting, and Electronic Reportable Laboratory Result Reporting) beginning in the CY 2023 EHR reporting period
  5. Consolidate the current options from three to two levels of active engagement for the Public Health and Clinical Data Exchange Objective and to require the reporting of active engagement for the measures under the objective beginning with the CY 2023 EHR reporting period
  6. Require eligible hospitals and CAHs to limit the duration of their time on level of active engagement option one to a single EHR reporting period, beginning with CY 2024 EHR reporting.
  7. Modify the scoring methodology for the Medicare Promoting Interoperability Program beginning in CY 2023
  8. Institute public reporting of certain Medicare Promoting Interoperability Program data beginning with the CY 2023 EHR reporting period
  9. Remove regulation text for the objectives and measures in the Medicare Promoting Interoperability Program from paragraph (e) under 42 CFR 495.24 and add new paragraph (f) beginning in CY 2023
  10. Adopt two new eCQMs to the program’s measure set beginning with the CY 2023 reporting period, and two new eCQMs beginning with the CY 2024 reporting period, in alignment with the Hospital IQR Program.
  11. Modify the eCQM reporting and submission requirements to increase eCQM reporting from four to six eCQMs (three mandatory, three self-selected), beginning with CY 2024 reporting. This is in alignment with the Hospital IQR program.

How we can help

Wondering how new payment and policies may affect you and your organization? CLA is here to help interpret the impact of CMS's changes in this update. Our team of health care professionals works to keep you informed, offer guidance, and help you identify opportunities for your organization.

Experience the CLA Promise