CMS Releases 2023 Inpatient Prospective Payment System Proposed Rule

  • Regulations
  • 6/8/2022
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Key insights

  • For operating payments rates, CMS proposed an increase of 3.2% over the prior year.
  • CMS is proposing a 5% cap on wage index-related change to payments.
  • The comment period for the 2023 IPPS proposed rule closes June 17, 2022.

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On April 18, 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 proposed 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. Reporting standards for COVID-19 and future public health emergencies (PHE)
    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
  3. Requests for information

Payment provisions

2023 IPPS updates

CMS proposed to increase operating payment rates by 3.2% 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 3.1%, less a .4% productivity adjustment, plus a .5% documentation and coding adjustment required under the Medicare Access and CHIP Reauthorization Act of 2015.

Hospitals not submitting quality data are subject to a one-quarter reduction of initial market basket, with a resulting increase of 2.43%, while hospitals not utilizing electronic health records are subject to a three-quarter reduction of the initial basket, resulting in an adjustment of .88%. Hospitals that do not submit quality data and do not use an EHR would receive an adjustment of .1%.

The labor related share is 67.6.

CMS proposes to adopt an outlier threshold for fiscal year (FY) 2023 of $43,214, an increase of 39.5% and $12,266 from the FY 2022 amount.

CMS proposes 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 proposes to change the date by which MS-DRG changes may be requested. The new date is by October 20 each year.

Low-volume adjustment (LVA)

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

Wage index

In the proposed rule, CMS continues the low-wage index policy in FY 2023 even though it is the subject of pending litigation. 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. CMS determines the 25th percentile wage index value as 0.8401. To remain budget neutral, CMS will decrease the FY 2023 standard amount for all hospitals. To mitigate potentially significant disruption to payments for stakeholders resulting from changes in the wage index, CMS additionally proposed 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 is proposing a permanent 5% cap on annual reductions to hospital wage indexes effective FY 2023.

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 proposes the following for 2023:

  • Factor 1: $9.949 billion
  • Factor 2: 0.6571 or 65.71%. Therefore, the uncompensated care amount for FY 2023 is $9.949 billion x 0.6571 = $6.538 billion.
  • Factor 3: CMS proposes 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 proposes 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 proposed to establish a new supplemental payment system for these hospitals.

Additionally, CMS proposed to change calculation of the Medicaid fraction of the DSH calculation by revising the definition of patients that are “regarded as eligible for Medicaid” to include only patients who receive health insurance through or purchase health insurance with premium assistance authorized under a Section 1115 demonstration.

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 also received applications for payment for 13 new technologies.

Beginning in 2024, CMS proposed that completed NTAP applications would be publicly posted online. CMS additionally proposed to use National Drug Codes instead of ICD-10-PCS codes to identify cases involving use of therapeutic agents approved for NTAPs beginning with a transitional period in FY 2023.

Urban to rural reclassifications

CMS finalized 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 a Medicare Geographic Classification Review Board (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 proposed 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 proposes allowing urban and rural hospitals that participate in the same separately accredited 1 – 2 family medicine RTP to enter affiliation agreements for the RTP. CMS proposes 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 1 – 2 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.

Reporting standards for COVID-19 and future public health emergencies (PHE)

CMS proposed to require hospitals, including Critical Access Hospitals, to continue to contribute COVID-19 and seasonal influenza reporting after the COVID-19 PHE ends. Beginning at the end of the current COVID-19 PHE declaration or the effective date of the IPPS proposed rule, whichever is later, and continuing through April 30, 2024, hospitals must electronically report information daily.

CMS included a proposal to create a future reporting framework based on the National Healthcare Safety Network (NHSN), in the event of a future local, state, or federal PHE. The daily reporting requirement would also apply to future PHEs unless the Secretary of Health and Human Services specifies a lesser frequency based on the state of the PHE.

2023 LTCH payment update

CMS proposed a 3.2% update for LTCHs. With the .4% productivity adjustment, the update will be 2.7% for 2023. The labor-related share for 2023 is 68.2%. 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 proposes several policy changes:

  • Resume use of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FY24 program year
  • Modify the Hospital 30-Day, All-Cause, RSRR following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed patients from the measure denominator, beginning with the Hospital-
  • Specific Reports for the FY 2023 program year
  • Modify all six condition/procedure-specific measures to include a covariate adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FY 2023 program year

Hospital Value-Based Purchasing Program

CMS proposed 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. CMS proposed revisions to the scoring and payment methodology for the FY 2023 program year. As a result, hospitals will not receive Total Performance Scores. Rather, CMS proposed to 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 proposed to suppress 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 proposed the following measures:

  1. Publicly and confidentially report CDC NHSN HAI measure results but not calculate or report measure results for the CMS PSI 90 measure for the HAC Reduction Program FY 2023 program year (PY)
  2. Suppress calendar year (CY) 2021 CDC NHSN HAI measures data from the FY 2024 HAC Reduction PY
  3. Update measure specification to the minimum volume threshold for the CMS PSI 90 measure beginning with the FY 2023 PY
  4. 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
  5. Request information from stakeholders on the potential adoption of two digital NHSN measures, the NHSN Healthcare-Associated Clostridioides difficile Infection Outcome measure and NHSN Hospital-Onset
  6. Bacteremia and Fungemia Outcome measure
  7. Request information on overarching principles for measuring health care quality disparities across CMS quality programs
  8. Update the CDC NHSN HAI data submission requirements for newly opened hospitals beginning in the FY 2024 HAC Reduction PY
  9. Clarify the removal of the no mapped location policy beginning with the FY 2023 PY

Hospital Inpatient Quality Reporting (IQR) Program

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

  • Hospital‐Level, Risk‐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 proposed changes to current policies related to eCQMs and hybrid measures:

  1. A proposal to 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. A proposal to remove the zero denominator declarations and case threshold exemption policies for hybrid measures beginning with the FY 2026 payment determination
  3. A proposal for the data submission and reporting requirements for patient-reported outcome-based performance measures beginning with the FY 2026 payment determination
  4. A proposal to 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 proposed to establish a hospital designation related to maternity care to be reported on a public-facing website beginning in fall 2023. The Cesarean Birth and Severe Obstetric Complication eCQMs are also a part of this initiative. CMS is also seeking comments on other potential associated activities regarding this designation.

PPS-Exempt Cancer Hospital Quality Reporting Program

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

  • 30-Day Unplanned Readmissions for Cancer Patients measure, the 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 measure, the 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

CMS is also requesting comment on potential adoption of two digital NHSN measures:

  • NHSN Healthcare-Associated C. diff Infection Outcome measure
  • NHSN Hospital-Onset Bacteremia and Fungemia Outcome measure

Medicare Promoting Interoperability Program

CMS proposed to adopt two new eCQMs in the Medicare Promoting Interoperability Program’s measure set beginning in 2023, two new in 2024, and to modify data reporting and submission requirements to increase the number of required eCQMs starting in the 2024 period. In addition, CMS proposed the following changes to the 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. Modify the scoring methodology for the Medicare Promoting Interoperability Program beginning in CY 2023
  7. Institute public reporting of certain Medicare Promoting Interoperability Program data beginning with the CY 2023 EHR reporting period
  8. 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

Requests for information

In the proposed rule, CMS has multiple requests for information from stakeholders. Those include:

  • Social determinants of health and Z codes
  • Assessment of climate change impacts on outcomes, care, and health equity
  • Principles for measuring healthcare quality disparities across CMS quality programs
  • Advancing to digital quality measurement and the use of Fast Healthcare Interoperability Resources in hospital quality programs
  • Advancing the Trusted Exchange Framework and Common Agreement

How we can help

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

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