August 10, 2022

On August 1, 2022, the Centers for Medicare & Medicaid Services (CMS) released its Medicare Hospital Inpatient Prospective Payment System (IPPS) Final Rule (FR) for fiscal year (FY) 2023, which begins October 1, 2022.  Along with the publication of the FR, CMS also issued a fact sheet that helps to summarize the key provisions of the 2,087-page rule.  The content below will direct our readers to some of the more important highlights arising from the FR, based on the fact sheet, as well as other sources.

Payment Rates

According to the CMS fact sheet, the increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital IQR Program and are meaningful electronic health record (EHR) users is 4.3 percent.  This reflects a FY 2023 hospital market basket update of 4.1 percent reduced by a 0.3 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by statute.  This update reflects the most recent data available, including a revised outlook regarding the U.S. economy and, as a result, is 1.1 percentage point higher than the proposed update for FY 2023.

Hospitals may be subject to other payment adjustments under the IPPS rule, including:

• Payment reductions for excess readmissions under the HRRP;
• Payment reduction (1 percent) for the worst-performing quartile under the HAC Reduction Program;
• Upward and downward adjustments under the Hospital VBP Program.

The increase in operating and capital IPPS payment rates, partially offset by decreases in outlier payments for extraordinarily costly cases, will generally increase hospital payments in FY 2023 by $2.6 billion.  In addition, CMS projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2023 by approximately $0.3 billion.  CMS also estimates that additional payments for inpatient cases involving new medical technologies will decrease by $0.75 billion in FY 2023.  Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low volume hospitals are set to expire in FY 2023.  In the past, these payments have been extended by legislation, but if they were to expire, CMS estimates that payments to these hospitals would decrease by $0.6 billion. 

Wage Index

The FR applies a 5 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, under this policy, a hospital’s wage index will not be less than 95 percent of its final wage index for the prior FY.  CMS is also applying this wage index cap policy in a budget neutral manner through a national adjustment to the standardized amount.

In addition, based on the Citrus HMA, LLC decision (federal district court, no. 1:20-cv-00707), CMS is not finalizing the rural floor wage index policy as proposed (which would have excluded hospitals that have reclassified from urban to rural from the calculation of the rural floor) and the wage index for rural areas in the state in which the county is located as referred to in section 1886(d)(8)(C)(iii) of the Social Security Act.  Rather, CMS is finalizing a policy that calculates the rural floor as it was calculated before FY 2020.  For FY 2023 and subsequent years, CMS is finalizing a policy to include the wage data of hospitals that have reclassified from urban to rural in the calculation of the rural floor, and the wage index for rural areas in the state in which the county is located as referred to in section 1886(d)(8)(C)(iii) of the Act.

Changes Related to MS-DRGs

CMS did not propose any new MS-DRGs for FY 2023, which means the number of MS-DRGs is maintained at 767 for FY 2023.  The agency finalized the reclassification of laser interstitial thermal therapy (LITT) procedures under the MS-DRGs in connection with the creation of new procedure codes to describe LITT.  CMS is finalizing our proposal to further delay implementation of the “three-way split criteria” because of the magnitude of the impact during the ongoing PHE.

Graduate Medical Education

The FR finalizes a modified policy addresses 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 0.5.  Specifically, effective for cost reporting periods beginning on or after October 1, 2022, 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 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 indirect medical education (IME) adjustment 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).  Current regulations do not allow GME affiliation agreements for RTPs.  With this final rule, CMS is allowing 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.

Establishment of New Hospital Designation

In an effort to reduce maternal morbidity and mortality, CMS will establish a “Birthing-Friendly” hospital designation, beginning in Fall 2023.  This will be a publicly reported, public-facing hospital designation on the quality and safety of maternity care.  As finalized, CMS will award this designation to hospitals that report “Yes” to both questions in the Maternal Morbidity Structural Measure, reporting that the hospital participated in a national or statewide quality collaborative and implemented all recommended interventions.

For a fact sheet on the final payment rule, visit https://www.cms.gov/newsroom/fact-sheets/fy-2023-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-hospital-prospective.  If you have questions for us about our hospital-specific services, you reach us at info@miramedgs.com.