CMS locks in 3.1% pay bump for hospitals, new equity requirements for fiscal 2024

The Centers for Medicare & Medicaid Services (CMS) has locked in a 3.1% pay bump for inpatient payments to eligible hospitals during fiscal year 2024, which the agency said translates to a $2.2 billion increase in hospital payments.

The baseline inpatient pay rate the agency listed Tuesday afternoon in the FY 2024 Inpatient Prospective Payment Systems (IPPS) and Long-term Care Hospital Prospective Payment System (LTCH PPS) final rule is higher than the 2.8% proposed back in April. However, the listed $2.2 billion payout increase is well below the $3.3 billion boost CMS had said in the proposed rule’s fact sheet that hospitals would receive starting this October.

The final rule’s inpatient payment rate reflects a projected FY 2024 IPPS hospital market basket update of 3.3%, reduced by a statutory 0.2 percentage point productivity adjustment intended to reflect longitudinal gains in care delivery efficiency. This applies to general acute hospitals that participate in the IPPS Quality Reporting Program and meaningfully use electronic records.

Additionally, CMS now projects that Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments will decline by about $957 million in FY 2024 under the final rule, while additional payments for inpatient cases involving new medical technologies would drop by $364 million. Those respective payment decline estimates were $115 million and $460 million back in April.

“This change reflects the CMS Office of the Actuary’s use of updated estimates and data in its projections,” the agency wrote in a fact sheet accompanying the final rule.

For long-term care hospitals, the final rule outlines a standard payment rate increase of 3.3% and for payments for discharges to decrease by about 0.2%, or $6 million “due primarily to a projected 2.9% decrease in high-cost outlier payments as a percentage of total LTCH PPS standard federal payment rate payments.”

CMS, which had proposed a 2.9% standard payment rate back in April, noted that it "made modifications to the methodology used to determine the LTCH PPS high-cost outlier threshold for discharges paid the LTCH standard federal payment rate and finalized a threshold that is notably lower than in the proposed rule” in response to public comment.

Hospitals "deeply disappointed" with FY 2024 pay rates

Provider groups and lawmakers alike had put CMS on blast for the pay rates outlined in the proposed rule, which they said were “woefully inadequate” in light of cost pressures that have persisted since the height of the pandemic. They had also highlighted a 2.7% market basket update for fiscal year 2022 that turned out to be well below the 5.7% rate projections of June.

The final pay rates earned a similarly cold reception from the hospital industry. In Tuesday evening statements, leadership across several hospital groups said they were "deeply disappointed" and "deeply concerned" with the updates.

"The agency continues to finalize rate increases that are not commensurate with the near decades-high inflation and increased costs for labor, equipment, drugs and supplies that hospitals across the country are experiencing," American Hospital Association (AHA) Senior Vice President Ashley Thompson said in a statement.

Soumi Saha, senior vice president of government affairs at group purchasing network Premier Inc., said in a statement that "the chasm between a 3.1% payment update and reality, coupled with uncomfortably high inflation, is unsustainable and threatens the viability of the American healthcare system."

Chip Kahn, president and CEO of the Federation of American Hospitals, said the "modest increase … falls far short" of hospitals' real-world inflationary challenges, particularly following 2022's roughly 3% forecast error.

Multiple groups also highlighted the $957 million cut to DSH and Medicare uncompensated care payments. 

Bruce Siegel, M.D., president and CEO of America's Essential Hospitals, said the final rule's "harmful policies" related to DSH funding would "undermine" safety-net care for low-income and marginalized patients. 

"Further, the finalization of a new policy to exclude uncompensated care pool days from the Medicare DSH calculation will disproportionately harm essential hospitals in states with [uncompensated care] pools and ultimately decrease DSH payments to hospitals nationwide," he said in a statement. "The cumulative damage of these policy changes will weaken health equity efforts and, ultimately, hospitals that rely on Medicare DSH funds."

AHA's Thompson said CMS actuary's estimate that uninsured rates would decline from FY 2023's 9.2% to 8.3% in FY 2024 "is an inexplicable assumption given that the Department of Health and Human Services itself estimates that 15 million individuals will leave Medicaid once the continuous enrollment provision comes to an end, only one-third of whom will be eligible for Marketplace subsidies."

CMS' final rule brings equity, quality measure updates

Alongside the payment rate updates, CMS’ final rule modifies measures for its Inpatient Quality Reporting Program related to preventable harm in the hospital setting.

The final rule adds 15 new health equity hospital categorizations for IPPS payment impacts and finalizes changes to the severity of three diagnosis codes describing homelessness “to recognize the higher costs that hospitals incur when treating people experiencing homelessness,” the agency said.

The agency also is finalizing a health equity adjustment in the scoring methodology of the Hospital Value-Based Purchasing Program that benefits facilities caring for a higher proportion of dual-eligible patients.

“As part of CMS’ health equity goals, we are rewarding hospitals that deliver high-quality care to underserved populations and, for the first time, also recognizing the higher costs that hospitals incur when treating people experiencing homelessness,” CMS Administrator Chiquita Brooks-LaSure said in a release. “With these changes, CMS is laying the foundation for a health system that delivers higher quality, more equitable, and safer care for everyone.”

Editor's note: This story has been updated with reactions and commentary from hospital industry organizations.