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Challenging the IPPS Proposed Rule: U.S. Senators Request a Hike in Hospital Pay

June 22, 2023

Government intrigue; agency versus agency—these are the themes that underpin many a Tom Clancy novel or John Frankenheimer film. Political infighting, however, is not just relegated to the realm of fiction; often, the real world provides glimpses of government heavyweights going after each other in a test of political wills and ideological strength. While not exactly the stuff of Woodward and Bernstein, a recent pushback by one branch of the U.S. government against another is offering at least a modicum of melodrama for those on the outside looking in—especially for those in the hospital community.

The American Hospital Association (AHA) is reporting that a letter was sent by a group of United States senators to the head of the Centers for Medicare and Medicaid Services (CMS) that, in effect, challenges the payment update for hospitals as found in CMS’ fiscal year (FY) 2024 Inpatient Prospective Payment System (IPPS) Proposed Rule (PR). The letter, dated June 12 and addressed to CMS Administrator Chiquita Brooks-LaSure, urged the agency to upwardly revise the reimbursement rate listed in the PR.

Strong Support

Significantly, the communication to CMS was signed by a bipartisan group of 34 senators. That’s a potent array of powerbrokers in Washington that the CMS administrator cannot easily ignore. The senators officially requested Brooks-LaSure to reevaluate the proposed payment update over concerns that the reimbursement rate being proposed does not fully account for the current cost of care, which the senators believe will result in an overall payment reduction for hospitals in FY 2024. Here is how the senators’ letter opens:

We write today to express our concern regarding the proposed payment updates included in the Centers for Medicare & Medicaid Services’ (CMS) inpatient prospective payment system (IPPS) proposed rule for fiscal year (FY) 2024. We are concerned that the proposed payment updates do not fully account for the current cost of care and will result in an overall payment reduction for hospitals in FY2024. We request CMS consider using its special exceptions and adjustments authority to update the proposed payment update in the final IPPS rule.

So, two things jump out at us as it pertains to this introductory paragraph. First, there is an expressed concern that hospital payments will be inadequate given the current cost of care, i.e., inflation of supplies, human resources, etc. Second, the senators point to a certain leeway available to CMS that could allow the agency to increase the payment rate as currently proposed.

Rationale for Support

The senators’ request for an increase in the IPPS payment from the current proposed rates does not seem, at least on the surface, to be arbitrary or based on a mere desire to assuage a particular special interest group for political gain. Rather, the reasoning expressed by the legislators for their request is based on what they assert to be a misguided formula currently employed by CMS to calculate an appropriate payment rate. The letter goes on to note the following:

In the FY2024 proposed rule, CMS relies on historical data that does not predict the impact of the current elevated cost of providing care and the increased growth in expenses due to labor and supply chain costs. Additionally, the productivity update included in the proposed rule assumes hospitals can replicate the general economy’s productivity gains. However, in reality the critical financial pressures that hospitals and health systems continue to face have resulted in productivity declines, not gains.

Though the letter does not cite specific data that conflicts with CMS estimates, the point is nevertheless made: these 34 senators believe CMS is using an inadequate methodology for determining a reasonable IPPS rate for the nation’s hospitals. They specifically point to the importance of ensuring that the requested retrospective adjustment “account for the difference between the market basket update that was implemented for FY 2022 and what the market basket actually is for FY 2022.”

We will have to wait and see if this appeal from the legislative branch to the executive branch will have any effect on decision-making over at CMS. However, no one can easily ignore the weightiness of those making the request. After all, these are some of the same individuals who have oversight and spending authority over CMS’ programs. Though not exactly a political thriller, there is at least some drama in seeing which government branch will ultimately have the political muscle to enforce its will on the other, with the hopes and wellbeing of America’s hospitals left hanging in the balance.

With best wishes,

Chris Martin
Senior Vice President—BPO

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