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2024 IPPS Final Rule Released: What It Means for the Inpatient Hospital Setting

August 16, 2023

Earlier this month, the Centers for Medicare and Medicaid Services (CMS) published its final rule relating to payment and other policies for the inpatient hospital setting. The 2024 Inpatient Prospective Payment System (IPPS) final rule provides regulations on a wide range of issues. The following will act to summarize some of the key provisions.

Payment Rates

The increase in operating payment rates for general acute care hospitals that are paid under the IPPS, successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users is 3.1 percent. This reflects a projected FY 2024 IPPS hospital market basket update of 3.3 percent, reduced by a statutorily required 0.2 percentage point productivity adjustment.

However, hospitals may be subject to other payment adjustments under the IPPS, including:

  • Payment reductions for excess readmissions under the Hospital Readmissions Reduction Program (HRRP).
  • Payment reduction (one percent) for the worst-performing quartile under the Hospital Acquired Condition (HAC) Reduction Program.
  • Upward and downward adjustments under the Hospital Value-Based Purchasing (VBP) Program.

The increase in operating and capital IPPS payment rates will generally increase hospital payments in FY 2024 by $2.2 billion. In addition, CMS projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2024 by approximately $957 million.

Social Determinants of Health Diagnosis Codes

IPPS payment is made based on the use of hospital resources in the treatment of a patient’s severity of illness, complexity of service and/or consumption of resources. Generally, a higher severity level designation of a diagnosis code results in a higher payment to reflect the increased hospital resource use. CMS finalized a change to the severity designation of the three ICD-10-CM diagnosis codes describing homelessness (e.g., unspecified, sheltered and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes. As SDOH diagnosis codes are increasingly added to claims, CMS plans to continue to analyze the effects of SDOH on severity of illness, complexity of services and consumption of resources.

New Technology Add-On Payment

To increase transparency and improve the efficiency of the NTAP program and application process, CMS is finalizing its proposal to (a) require NTAP applicants for technologies that are not already FDA market authorized to have a complete and active FDA market authorization application request at the time of NTAP application submission, and (b) to move the FDA approval deadline from July 1 to May 1, beginning with applications for FY 2025. CMS believes these policy changes will improve the completeness of submitted NTAP applications, improve CMS’s ability to provide a fuller analysis to identify eligibility concerns and allow the public the opportunity to more knowledgeably analyze applications and supporting data to provide public comment.

Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program is a value-based purchasing program that reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving health care for patients by linking payment to the quality of hospital care. CMS did not propose or finalize any changes to the Hospital Readmissions Reduction Program. All previously finalized policies under this program will continue to apply and refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49081 through 49094) for information on these policies.

Hospital-Acquired Condition (HAC) Reduction Program

The HAC Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions by reducing Medicare fee-for-service (FFS) payment by one percent for applicable hospitals that rank in the worst performing quartile on the measures of hospital-acquired conditions. In the FY 2024 IPPS final rule, CMS is finalizing the following proposals to:

  • Establish a validation reconsideration process for hospitals that failed to meet data validation requirements, beginning with the FY 2025 program year, affecting CY 2022 discharges.
  • Modify the targeting criteria for data validation to include hospitals that received an Extraordinary Circumstances Exception (ECE) during the data periods validated beginning with the FY 2027 program year, affecting CY 2024 discharges.  

Over the next two weeks, we will provide IPPS-related alerts that address (a) new rules affecting special classes of hospitals, and (b) the hospital quality program, respectively.

For more on the 2024 IPPS Rule, see one of our earlier alerts here.

With best wishes,

Chris Martin Senior Vice President—BPO

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