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2024 IPPS Proposed Rule: Part 2

May 3, 2023

Last week, we began a three-part series of articles outlining some of the key provisions of the FY 2024 Inpatient Prospective Payment System (IPPS) Proposed Rule (PR).  In this week’s alert, readers will be provided additional highlights arising from the associated fact sheet published by the Centers for Medicare and Medicaid Services (CMS), which acts to summarize some of the key elements of the PR. 

Physician-Owned Hospitals

Physician ownership of hospitals is becoming a topic of conversation of late, and CMS did not hesitate to address this issue in its 2024 IPPS PR.  According to the CMS PR fact sheet, in order for a hospital to submit claims and receive Medicare payment for services referred by a physician owner or investor (or a physician whose family member is an owner or investor), the hospital must satisfy all of the requirements of either the whole hospital exception or the rural provider exception to the physician self-referral law, i.e., the Stark Law.

To use the rural provider or whole hospital exception, a hospital may not increase the aggregate number of operating rooms, procedure rooms, and beds above that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such agreement), unless CMS has granted an exception to the prohibition on expansion.  A hospital may request an exception to the prohibition on expansion of facility capacity using the process established in the 2012 Hospital Outpatient Prospective Payment System (OPPS) Final Rule.

In the 2024 IPPS PR, CMS proposes the following:

  • Revise regulations to clarify that CMS will only consider expansion exception requests from eligible hospitals, clarify the data and information that must be included in an expansion exception request, identify factors that CMS will consider when making a decision on an expansion exception request, and revise certain aspects of the process for requesting an expansion exception.
  • Reinstate, with respect to hospitals that meet the criteria for “high Medicaid facilities,” program integrity restrictions on the frequency of expansion exception requests, maximum aggregate expansion of a hospital, and location of expansion facility capacity that were removed in the 2021 OPPS Final Rule.

Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program is a value-based initiative that financially penalizes hospitals with excess readmissions.  The program also supports CMS’ goal of improving healthcare for patients by linking payment to the quality of hospital care.  No changes to this program are being proposed by CMS in the 2024 PR.  All previously finalized policies under this program will continue to apply.  Readers should refer to the 2023 IPPS Final Rule (87 FR 49081 through 49094) for information on these policies.

Hospital-Acquired Condition Reduction Program

The Hospital-Acquired Condition Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions that are detrimental to a patient’s health by reducing payment one percent for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions.  In the 2024 IPPS PR, CMS is proposing 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.  

Hospital Value-Based Purchasing Program

The Hospital Value-Based Purchasing (VBP) Program reduces participating hospitals’ base operating DRG payments each year by two percent, but then redistributes the entire amount back to hospitals as value-based incentive payments.  In the 2024 IPPS PR, CMS plans to:

  • Adopt measure modifications to the MSPB Hospital measure, including allowing readmissions to trigger new episodes, beginning with the FY 2028 program year.
  • Adopt measure modifications to the Hospital-level Risk-standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure, including adding additional mechanical complication ICD-10 codes to the measure, beginning with the FY 2030 program year.
  • Adopt the Severe Sepsis and Septic Shock: Management Bundle measure in the Safety Domain beginning with the FY 2026 program year.
  • Adopt changes to the administration and submission requirements of the HCAHPS survey measure beginning with the FY 2027 program year.
  • Adopt a health equity scoring change for rewarding excellent care in underserved populations, such that a health equity adjustment would be added to hospitals’ Total Performance Scores (TPS) based on both a hospital’s performance on existing Hospital VBP Program measures and the proportion of individuals with dual eligibility status that a hospital treats. As part of this proposal, the TPS maximum is 110, such that the numeric score range would be 0 to 110.


We will provide a final alert relating to the 2024 IPPS Proposed Rule next week.  It will focus on CMS quality measure programs.

With best wishes,

Chris Martin
Senior Vice President—BPO

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