By SHEA MACE & DANIEL AYYASH
Wachler & Associates, P.C.

Overview

On Aug. 1 the Centers for Medicare and Medicaid Services (CMS) issued a final rule establishing the Medicare hospital inpatient prospective payment system (IPPS) rates and long-term care hospital prospective payment system (LTCH PPS) rates for the 2024 fiscal year (FY). CMS is required to publish annual payment rates by law, which are based on factors such as diagnosis, patient condition, treatment provided, and the local cost of labor. Inpatient hospitals who participate in the Hospital Inpatient Quality Reporting (IQR) program and show adequate utilization of an electronic health record (EHR) will see a payment increase of 3.1%. Long-term care hospitals will see an increase of 3.3% in the standard payment rate but actual payments for discharges will only increase by approximately 0.2%. The rule is slated to be published in the Federal Register on August 28 and will take effect October 1, 2023.

The Hospital Inpatient Prospective Payment System (IPPS)
The IPPS, establishes prospective rates of payment for Medicare Part A beneficiaries requiring acute care hospital inpatient stays. Each stay is categorized into a Medicare Severity Diagnosis-Related Group (MS-DRG), which then has a payment weight assigned to it. MS-DRGs are based on factors such as the patient’s diagnosis, comorbidities, prognosis, age, gender, and discharge status. The MS-DRG payment weight is then calculated based on the average resources needed to treat Medicare patients within that specific MS-DRG.

Hospitals typically receive a single payment from CMS for each hospital stay based on the payment classification assigned to the beneficiary at discharge. This payment is established annually for the following fiscal year in the IPPS final rule. The 2024 FY IPPS Rule will increase payment rates by 3.1% (estimating an increase in hospital payments of $2.2 billion) for acute care hospitals participating in the IQR program and demonstrate meaningful EHR use. The Final Rule also projects that payments to disproportionate share hospitals (DSHs) and uncompensated care will decrease by $957 million. This is much higher than the $115 estimated in the proposed rule, which CMS states is based on updated estimated and data used by the Office of the Actuary.

IPPS Payments are subject to reductions for excess readmissions under the Hospital Readmissions Reduction Program (HRRP), and a 1% reduction for the worst-performing quartile under the Hospital Acquired Condition (HAC) Reduction Program. There were no changes to the HRRP with the new rule, but the HAC will see the establishment of a validation reconsideration process for hospitals failing to meet validation requirements (affecting 2022 calendar year discharges). There will also be a modification of the data validation targeting criteria to include hospitals that received Extraordinary Circumstances Exceptions (affecting 2024 calendar year discharges).

Payment adjustments (upward and downward) may also be made under the Hospital Value-Based Purchasing (VBP) Program. The VBP incentivizes hospitals to improve the quality of care in hospitals by increasing or decreasing payments based on outcomes. The new rule will see the finalization of several changes to the VBP program, including adoption of the Severe Sepsis and Septic Shock Management Bundle measure beginning with the FY 2026 program year and a health equity adjustment for rewarding exceptional care in underserved areas.

The Long-Term Care Hospital Prospective Payment System (LTCH PPS)

CMS annually updates the LTCH payment rates based on LTCH-specific goods and services markets. While the LTCH standard payment rate will increase by 3.3% for FY 2024, payments for discharges will increase by only 0.2% (estimated at $6 million). This is due to a CMS projection of a 2.9% reduction in high-cost outlier payments. Notably, CMS modified the methodologies used to determine the high-cost outlier threshold after consideration of public comments. This changed the projection in the proposed rule for LTCH payments from a $24 million cut to a $6 million increase.

Long-term care hospitals are subject to a 2% reduction in their Annual Increase Factor if they do not meet the reporting requirements of the Long-Term Care Hospital Quality Reporting Program (LTCH QRP). The new rule will amend the LTCH QRP by adopting measures aimed at increasing COVID-19 vaccination of LTCH patients and employees. It will also adopt a Functional Discharge measure which identifies the percentage of patients who meet or exceed an expected function score.

The Inpatient Quality Reporting (IQR) Program

The IQR program collects and publishes data from participating hospitals in order to increase quality improvement and facilitate transparency to help beneficiaries make informed healthcare decisions. Hospitals that do not meet all the requirements of the IQR program will have their IPPS Annual Payment Update reduced by one-fourth.

Three IQR measures will be modified and three will be removed with the new Rule. The modifications include adding Medicare Advantage (MA) admissions to the Hybrid Hospital-Wide All-Course Risk Standardized Mortality and the Hybrid Hospital-Wide All-Cause Readmission measures, beginning with the FY 2027 payment determinations. Beginning with the FY 2025 payment determination, CMS is modifying the COVID-19 Vaccination Coverage among Healthcare Personnel measure to include the cumulative number of personnel who are up to date with COVID-19 vaccination (as defined by the CDC) as opposed to reporting percentage of personnel having the primary vaccination series only.

Measures to be removed from the IQR are the Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty and the Medicare Spending Per Beneficiary (MSPB), which will now be addressed in the Hospital Value-Based Purchasing Program. The Elective Delivery Prior to 39 Completed Weeks Gestation is being removed due to extremely high-performance levels such that meaningful improvements can no longer be made.

Medicare Promoting Interoperability Program

The Medicare Promoting Interoperability Program encourages hospitals to meaningfully utilize electronic health record (EHR) technology. The new Rule will amend the definition of “EHR reporting period for a payment adjusted year” to a minimum of any continuous 180-day period within the 2025 calendar year and require hospitals to attest that they have completed an annual self-assessment of all nine Safety Assurance Factors for EHR Resilience (SAFER) Guides.

The new Rule added three new electronic clinical quality measures (eCQMs) to the program including the Pressure Injury eCQM, the Acute Kidney Injury eCQM, and the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography in Adults eCQM. Hospitals may select from a broader inventory of eCQMs in order to meet the IQR and Medicare Promoting Interoperability Program requirements.

Furtherance of Health Equity

The Final Rule aims to advance the CMS goal of health equity by measuring policy impact on this goal more accurately. CMS will be adding 15 new health equity hospital categories to the payment impacts for FY 2024 and plans to make expansion of the collection, reporting, and analysis of health equity data a priority. The addition of the Pressure Injury and Acute Kidney Injury eCQMs will also aim to improve health equity outcomes, as data shows increased prevalence of acute kidney injury in black hospitalized patients and increased risk of pressure injuries in those with darker skin tones. The increase in payments to underserved areas under the VBP Program is also expected to further the goal of health equity.

Mixed Reviews

While CMS’s goals of improving health equity and patient safety are certainly admirable, the means with which they plan to achieve these goals have come with mixed reviews. American Hospital Association Senior Vice President Ashley Thompson issued a statement expressing deep concern over payment updates which she deemed “woefully inadequate” due to issues such as “near-decades high inflation and increased costs for labor, equipment, drugs, and supplies that hospitals across the county are experiencing.” Ms. Thompson also expressed concern over the significant cut in DSH payments, citing the Office of the Actuary’s “inexplicable assumption” that the rates of uninsured will decrease in FY 2024. Given the increasing complexities of the current healthcare landscape and the unfolding long term effects of the COVID-19 pandemic, providers and stakeholders should continue to stay well-informed about CMS’s response to the evolving demands of the healthcare industry and be vocal about their needs on behalf of patients’ interests.