Hospitals get $2.9B increase in Medicare inpatient pay

HHS has finalized the fiscal year (FY) 2025 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) rule. The rule will increase operating payment rates for acute care hospitals by about 2.9%, or $2.9 billion, as long as facilities meet quality and EHR reporting requirements.

LTCHs are expected to see a 2.0% increase in payments, translating to about $45 million in extra reimbursements to the hospitals in the upcoming fiscal year.

HHS said the finalized payment updates reflect a projected hospital market basket percentage of 3.4% less a projected 0.5 percentage point productivity adjustment for FY 2025, in addition to other changes in the final rule. Meanwhile, the LTCH PPS standard federal payment rate will actually increase by 3.0%, but total payments will be less after HHS partially offsets a projected decrease in high-cost outliers payments.

Additionally, Medicare uncompensated care payments to disproportionate share hospitals (DSH) will decrease by approximately $0.2 billion in FY 2025 while estimates show a boost of about $0.3 billion for inpatient cases involving new medical technologies.

Payments to Medicare-Dependent Hospitals will also decrease by an estimated $0.4 billion if temporary change in payments for low-volume hospitals expire as scheduled on December 31, 2024.

In the rule, HHS also finalized a separate IPPS payment to mitigate persistent drug shortages, from antibiotics used to treat severe bacterial infections to crash cart drugs. The separate rate will create a buffer stock of essential drugs as a preventive measure for small, independent hospitals, according to the rule.

The final rule will also take steps to support hospitals treating patients experiencing homelessness. The rule will update the severity designation of the seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability from non-complication or comorbidity to complication or comorbidity. The updates will be based on the higher average resource costs of cases with these diagnosis codes compared to comparable cases without the codes.

The new IPPS payment for drugs and changes to housing insecurity codes are both part of HHS’ initiative to support rural and underserved communities. This also includes increased new technology add-on payments for a new gene therapy for sickle cell disease.

The final rule also includes several new hospital quality initiatives, including digital measures for patient harm events, expansion of healthcare-associated infection measures to oncology wards and structural measures to support safety and age-friendly care. It also finalizes the five-year mandatory, episode-based Transforming Episode Accountability Model (TEAM).

“HHS continues to make health care more accessible and equitable. Every American should be able to get the care they need, regardless of whether they are struggling to afford their rent, the color of their skin, or what else is going on in the world,” said HHS Secretary Xavier Becerra said in a statement. “The Biden-Harris Administration is acting to ensure hospitals have the prescription drugs and supplies they need. In addition, we are taking further steps to help people get innovative care that meets their needs and uses taxpayer dollars wisely.”

CMS Administrator Chiquita Brooks-LaSure also said the final rule “will ensure that hospitals in historically underserved areas will be able to provide high-quality care to people with Medicare and their communities while being rewarded for better outcomes.”

However, hospital trade groups are critical of the final rule. The American Hospital Association said in a statement that the “payment updates for hospitals will exacerbate the already unsustainable negative or break-even margins many hospitals are already operating under as they care for their patients.”

“The AHA is deeply concerned about the impact these inadequate payments will have on patient access to care, especially in rural and underserved communities,” explained Molly Smith, group vice president for public policy. “We are troubled that the final long-term care hospital outlier threshold is nearly 30% higher than it is currently. Since FY 2021, this figure has increased by more than 180%, which forces these hospitals to absorb hundreds of thousands of dollars in additional losses when caring for the sickest patients.”

AHA also criticized TEAM, arguing the episode-based model does not drive value-based care and alternative payment models as intended.

The Federation of American Hospitals’ President and CEO Chip Kahn also raised concerns about  TEAM and the payment updates to hospitals, saying the latter “have failed to reflect inflation and the costs of hospital care that remain stubbornly high.”

“Frankly, these inadequate payment updates and CMS’ real Medicare DSH cuts for the most vulnerable leave hospitals struggling to meet patient needs,” Kahn added.

The FY 2025 IPPS and LTCH PPS rule will be effective October 1, 2024.