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  • Washington Highlights

    CMS Releases the FY 2023 IPPS Final Rule

    Mary Mullaney, Director, Hospital Payment Policies
    Phoebe Ramsey, Director, Physician Payment & Quality
    Brad Cunningham, Sr. Regulatory Analyst, Graduate Medical Education
    For Media Inquiries

    The Centers for Medicare & Medicaid Services (CMS) Aug. 1 released the fiscal year (FY) 2023 Inpatient Prospective Payment System (IPPS) final rule.

     The following key points were finalized in the rule;

     Graduate Medical Education (GME) Provisions

    The CMS updated the direct graduate medical education (DGME) calculation for hospitals whose weighted full-time equivalent (FTE) count is greater than the FTE cap (Milton S. Hershey Medical Center v. Becerra). The agency finalized the proposal that, effective for cost-reporting periods beginning on or after Oct. 1, 2022, if the hospital’s number of weighted FTE residents exceeds the FTE cap, the weighted FTE count is adjusted to equal the FTE cap. If the number of weighted FTE residents does not exceed that cap, then the allowable weighted FTE count for DGME payment is the actual weighted FTE count. The rule was also established retroactive to Oct. 1, 2001, which means that hospitals with open or reopenable cost reports may take advantage of the adjustment.

    The CMS finalized, without change, updates to certain 1-2 Rural Training Track Programs. Specifically, the final rule allows urban and rural hospitals that jointly train residents in a 1-2 separately accredited family medicine program to aggregate their respective indirect medical education and direct GME rural track FTE limitations and enter into a Rural Track Medicare GME Affiliation Agreement to share those caps slots beginning July 1, 2023.  

    Payment Provisions

    The CMS finalized an increase to FY 2023 operating payment rates of 4.3% 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. This reflects the projected hospital market basket update of 4.1%, reduced by a 0.3 percentage point productivity adjustment and increased by a statutorily required 0.5 percentage point adjustment.

    The agency will utilize FY 2021 Medicare Provider Analysis and Review claims data and FY 2020 Healthcare Cost Report Information System data to calculate FY 2023 IPPS ratesetting. The CMS modified its methodology for determining FY 2023 Medicare Severity-Diagnosis Related Groups (MS-DRG) relative weights by calculating two sets of weights — one including COVID-19 claims and one excluding COVID-19 claims — and then averaging the two sets of relative weights to determine the final relative weight values.

    For FY 2023, the agency will calculate the outlier fixed-loss amounts by calculating and averaging two fixed-loss amounts — one including COVID-19 claims and one excluding COVID-19 claims — and utilizing charge inflation factors and cost-to-charge ratio adjustment factors based on data from prior to the COVID-19 public health emergency. The outlier fixed-loss threshold for FY 2023 is $38,859.

    The CMS finalized the proposal to limit the reductions to 10% for MS-DRG relative weight decreases each year to mitigate financial impacts resulting from significant fluctuations in the relative weights, particularly for low-volume MS-DRGs.

    The agency finalized the proposal to utilize the two most recent years of hospitals’ FY 2018 and FY 2019 cost reports to calculate and distribute Disproportionate Share Hospital (DSH) and uncompensated care payments. The CMS will also discontinue use of low-income insured days as proxy for uncompensated care to determine Factor 3 for Indian Health Service and Tribal Hospitals and hospitals located in Puerto Rico.

    The CMS did not finalize the change to the calculation of the Medicaid fraction of the DSH calculation by revising the definition of patients that are “regarded as eligible for Medicaid” to only include patients who receive health insurance through a section 1115 demonstration itself or purchase such insurance with the use of premium assistance authorized under an 1115 demonstration.

    The agency finalized the proposal positing that beginning FY 2024, completed applications for new technology add-on payment will be publicly posted online. The CMS did not finalize the proposal to use National Drug Codes instead of ICD-10-PCS Section X codes to identify cases involving the use of therapeutic agents approved for new technology add-on payments beginning with a transitional period in FY 2023.

    The CMS finalized the proposal to continue the low wage index policy in FY 2023 in a budget neutral manner by applying an adjustment to the standardized amount. Beginning in FY 2023 and subsequent years, the agency will apply a 5% cap on any decrease to a hospital’s wage index from its wage index in the prior fiscal year, regardless of the circumstances causing the decline.

    Hospital Quality Provisions

    Pay-for-Performance Programs

    For the Hospital-Acquired Condition Reduction Program, the CMS finalized a policy of suppressing all measures and not assessing any penalties for FY 2023 but will publicly report the measure results for full transparency of the pandemic’s impact on measure performance. Going forward, the agency will continue to suppress calendar year (CY) 2021 performance on the Healthcare Associated Infection (HAI) measures. Additionally, the CMS updated the minimum volume threshold for PSI-90 measure beginning with FY 2023 and PSI-90 measure specifications to risk-adjust for COVID-19 diagnosis beginning with FY 2024.

    Under the Hospital Readmissions Reduction Program, the agency finalized a policy to resume use of the Pneumonia Readmissions measure in FY 2024, following pandemic-related suppression in FY 2023. The CMS also will begin to include a covariate adjustment for patient history of COVID-19 within 12 months prior to the index admission beginning with FY 2023 for all measures in the program.

    For the Hospital Value-Based Purchasing Program, the CMS will suppress the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) measure and five HAI measures and apply a neutral payment adjustment (no bonus or penalty) for FY 2023 in response to the COVID-19 pandemic. Additionally, recognizing the impacts of the related public health emergency, the CMS finalized an update to the baseline periods for certain measures for FY 2025.

    Hospital IQR Program

    The CMS finalized the adoption of ten new quality measures and refinement of two existing measures in the pay-for-reporting program. As part of the new measures adopted, the agency increased the number of mandated electronic clinical quality measures (eCQMs) hospitals must report to three, in addition to retaining the requirement that hospitals report three self-selected eCQMs, beginning with CY 2024 eCQM reporting.

    Specific to maternal health, the CMS finalized the adoption of a birthing-friendly hospital designation to be publicly reported on the Care Compare website, beginning in fall 2023. The designation will initially be based on hospital attestations for the Maternal Morbidity Structural Measure (adopted for FY 2022 reporting). The agency noted its plans to expand the criteria for the designation in the future.

    Medicare Promoting Interoperability Program (“Meaningful Use”)

    The CMS finalized modifications to the program’s scoring methodology to increase points associated with the Public Health and Clinical Data Exchange and Electronic Prescribing Objectives and reduce points associated with the Health Information Exchange and Provide Patients Electronic Access to Their Health Information Objectives beginning with the CY 2023 EHR reporting period. Additionally, the agency will begin requiring the e-Prescribing measure beginning with the CY 2023 EHR reporting period and a new Antimicrobial Use and Resistance Surveillance measure beginning with the CY 2024 EHR reporting period. Finally, the CMS adopted a new optional measure, Enabling Exchange under the Trusted Exchange Framework and Common Agreement, beginning with CY 2023 reporting.