AHA has “strong concerns” about IPPS payment updates

The American Hospital Association (AHA) says a proposed 2.6% payment update to the Inpatient Prospective Payment System (IPPS) won’t do.

In comments on the proposed rule (CMS-1808-P), the trade group said the update is inadequate “given the unrelenting financial challenges faced by hospitals and health systems.” Hospitals continue to encounter high input costs, such as labor expenses, as well as recent troubles like the Change Healthcare cyberattack, which disrupted claims management for over three-quarters of physicians.

CMS proposed the IPPS payment updates in April 2024, saying they reflect a hospital market basket percentage increase of 3.0% and a 0.4 percentage point reduction for productivity. The federal agency estimates that the update if finalized as is, will increase hospital inpatient payments by $2.9 billion next fiscal year (FY).

However, AHA countered that the newly proposed update, together with prior finalized updates, will worsen Medicare underpayments. The group reported in January 2024 that Medicare underpayments reached nearly $100 billion in 2022, the most recent year for which they had available. Two-thirds of hospitals also had negative Medicare margins that year.

“As such, we strongly urge CMS to utilize its authority to make a one-time retrospective adjustment to account for what the agency missed in the FY 2022 market basket forecast,” Ashley Thompson, senior vice president of public policy analysis and development at AHA, continued in the letter to CMS Administrator Chiquita Brooks-LaSure.

AHA explained that the market basket for FY 2022 should actually be 5.7%, 3.0 percentage points higher than what hospitals received that year. The group also called for CMS to eliminate the productivity decrease for FY 2025, arguing that shifts in the healthcare environment after the COVID-19 pandemic mean a new normal for hospital trends.

“The rationale for using historical data as the basis for a forecast is reasonable in a typical economic environment. However, when hospitals and health systems continue to operate in atypical environments, the market basket updates become inadequate,” the letter stated.

“This is, in large part, because the market basket is a time-lagged estimate that cannot fully account for unexpected changes that occur, such as historic inflation and increased labor and supply costs.”

Additionally, the AHA expressed concerns about CMS’ “lack of transparency in the underlying calculations for disproportionate share hospital (DSH) payments and disagree with the agency’s estimates of the number of uninsured for FY 2025.”

Under the DSH program, hospitals receive additional payments from Medicare for treating low-income patients. However, hospitals now receive about 25% of the Medicare DSH funds they would have received under a former statutory formula, leaving the remaining funds to flow into a separate funding pool for DSH hospitals. The pool is then reduced as the percentage of uninsured people declines and is distributed based on the proportion of total uncompensated care each qualifying hospital providers, AHA explained.

But the hospital group argues that the failure to disclose the data and methodologies used in these calculations violates the Administrative Procedure Act, as it prevents stakeholders from providing meaningful comments. It asserts that CMS' current practices inhibit the validation and evaluation of the complex calculations used to estimate the uninsured percentage and other factors crucial for determining DSH payments. The agency's failure to provide this information, particularly regarding the Office of the Actuary’s analysis, prevents stakeholders from evaluating the estimates of uninsured percentages and other factors critical for determining DSH payments. This non-disclosure issue is exacerbated by the existence of contradictory data that the agency has ignored, further violating APA requirements.

Additionally, the AHA criticized CMS’ handling of the DSH payment calculation factors, specifically Factor 1 and Factor 2, which relate to the estimation of total DSH payments and the rate of uninsured individuals, respectively. The group disputed the uninsured rate estimates, pointing to higher uninsured rates due to Medicaid disenrollment trends that contradict the agency's projections.

AHA urged the agency to use more accurate and current real-world data and to publish a transparent methodology for these calculations. The group also supported the use of audited Worksheet S-10 data for determining uncompensated care payments and recommends using a two-year average instead of three years for interim payment calculations to better reflect current discharge volumes.

Another concern in the comment letter included how CMS will calculate graduate medical education payments, especially with modifications to the ‘newness’ criteria for establishing new residency training programs. AHA also criticized several quality-related proposals, including the addition of two new structural measures and an increase in the number of electronic clinical quality measures.

“CMS' proposal to use conditions of participation (CoPs) to compel hospitals to share data with the federal government is both needlessly heavy-handed and inconsistent with the intent of CoPs,” Thompson wrote. “Rather than jeopardizing hospitals’ Medicare participation status, the AHA urges CMS to take a more collaborative approach and to invest in the infrastructure needed to make the voluntary sharing of important data on infectious diseases less burdensome and more meaningful.”