April 27, 2022

Last week, the Centers for Medicare and Medicaid Services (CMS) released a preliminary version of the Hospital Inpatient Prospective Payment Systems (IPPS) Proposed Rule (PR) for fiscal year (FY) 2023 (beginning October 1, 2022).  The following will act to summarize some of the key proposals that would have a material impact on the nation’s hospitals.

Payment Rates

The proposed increase in operating payment rates 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 is projected to be 3.2 percent.  Hospital executives should keep in mind, however, that their facilities may be subject to certain payment adjustments under the IPPS, including those related to the following categories:

• Excess readmissions under the Hospital Readmissions Reduction Program
• Worst-performing quartile under the Hospital-Acquired Condition Reduction Program
• Hospital Value-Based Purchasing Program

CMS estimates that the proposed increase in operating and capital IPPS payment rates, will generally increase hospital payments in FY 2023 by $1.6 billion.

Graduate Medical Education

Effective for cost reporting periods beginning on or after October 1, 2022, CMS is proposing that if the hospital’s unweighted number of FTE residents exceeds the FTE cap, and the number of weighted FTE residents also exceeds that FTE cap, the respective primary care and obstetrics and gynecology weighted FTE counts and other weighted FTE counts are adjusted to make the total weighted FTE count equal the FTE cap.  If the number of weighted FTE residents does not exceed that FTE cap, then the allowable weighted FTE count for direct graduate medical education (GME) payment is the actual weighted FTE count.

The law requires caps on the number of FTE residents that each teaching hospital may include in its IME and direct GME payment formulas. To provide flexibility to teaching hospitals that cross-train residents, CMS allows teaching hospitals to enter into “Medicare GME affiliation agreements” to share and redistribute those cap slots to accommodate the actual rotations of their residents. The law also includes a provision allowing additional cap slots for urban hospitals that establish “rural training tracks” with rural hospitals (now called Rural Training Programs (RTPs)).  The current regulations do not allow GME affiliation agreements for RTPs. Stakeholders have requested that RTPs be afforded the same flexibility as other teaching hospitals to share their RTP cap slots via special RTP affiliation agreements.  CMS is proposing to allow an urban and a rural hospital participating in the same RTP to enter into an “RTP Medicare GME affiliation agreement” effective for the academic year beginning July 1, 2023.

Cap on Wage Index Decreases

CMS is proposing a five-percent cap on any decrease to a hospital’s wage index from its wage index in the prior FY, regardless of the circumstances causing the decline.  That is, a hospital’s wage index would not be less than 95 percent of its final wage index for the prior FY.  CMS is also proposing to apply the proposed wage index cap policy in a budget-neutral manner through a national adjustment to the standardized amount.

Uncompensated Care Payments

CMS distributes a prospectively determined amount of uncompensated care payments to Medicare disproportionate share hospitals (DSHs) based on their relative share of uncompensated care nationally.  As required under law, this amount is equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, adjusted for the change in the rate of uninsured individuals.  CMS is proposing to distribute roughly $6.5 billion in uncompensated care payments for FY 2023, a decrease of approximately $654 million from FY 2022.  This total uncompensated care payment amount reflects the estimated impact of the COVID-19 pandemic.

In response to concerns expressed by commenters that the use of only one year of data would lead to significant variations in year-to-year uncompensated care payments, for FY 2023, CMS is proposing to use the two most recent years of audited data on uncompensated care costs from Worksheet S-10 of hospitals’ FY 2018 and FY 2019 cost reports to distribute these funds. In addition, CMS is proposing to use a three-year average of the uncompensated care data from the three most recent fiscal years for which audited data are available.  For example, for FY 2024, the agency expects to use audited data on uncompensated care costs from FY 2018, FY 2019, and FY 2020 cost reports to determine eligible hospitals’ uncompensated care payments

Coming Up

We will provide additional details arising from the 2023 IPPS PR in a future alert, specifically as they concern changes to the various quality and incentive programs.  If you have questions for us, you can contact us at the following site: info@miramedgs.com.