2024 Medicare Inpatient, Long-Term Care Hospital Rule

The Centers for Medicare & Medicaid Services (CMS) released the final 2024 Inpatient Hospital Prospective Payment (IPPS) and Long-Term Care Hospital (LTCH) payment rule on August 1, 2023.

Key payment changes

CMS finalizes a market basket update of 3.3% minus the required 0.2% productivity adjustment, resulting in a 3.1% fiscal year (FY) 2024 update. 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. This change reflects the CMS Office of the Actuary’s use of updated estimates and data in its projections.

CMS also estimates additional payments for inpatient cases involving new medical technologies will decrease by $364 million in FY 2024, primarily driven by the expiration of new technology add-on payments for several technologies.

CMS also finalizes many changes to the Medicare Severity Diagnosis Related Groups. Refer to the final rule for details.

Sole community hospital (SCH)

CMS finalizes a policy change for SCHs involved in a merger and to address concerns related to effective dates.

CMS finalizes that for SCH applications received on or after October 1, 2023, where (1) a hospital’s SCH approval is dependent on its merger with another nearby hospital, and (2) the hospital meets the other SCH classification requirements, the SCH classification and payment adjustment would be effective as of the effective date of the approved merger if the Medicare administrative contractor (MAC) receives the complete application within 90 days of CMS’ written notification to the hospital of the approval of the merger.

If the MAC does not receive the complete application within 90 days of CMS’ written notification of the merger approval, SCH classification would be effective as of the date the MAC receives the complete application.

Low volume adjustment (LVA) hospital

The LVA was extended through 2024 via the Consolidated Appropriations Act of 2023. CMS finalizes that a hospital that qualified for the low-volume hospital payment adjustment for FY 2023 may continue to receive a low-volume hospital payment adjustment for FY 2024 without reapplying if it continues to meet both the discharge and the mileage criteria (which, as discussed previously, are the same qualifying criteria that apply for FY 2023).

In this case, a hospital’s request can include a verification statement that it continues to meet the mileage criterion applicable for FY 2023. If newly applying, a hospital must submit a written request to the MAC with supporting documentation.

Medicare dependent hospital (MDH)

The MDH status was extended through 2024 via the Consolidated Appropriations Act of 2023. Hospitals that were classified as MDHs as of September 30, 2022, generally continue to be classified as MDHs as of October 1, 2022, with no need to reapply for MDH classification. However, if a MDH canceled its rural classification effective on or after October 1, 2022, its MDH status may not be applied continuously or automatically reinstated. To regain qualification as MDH, these providers must request to be reclassified as rural and reapply for MDH classification. All other hospitals with MDH status as of September 30, 2022, continue to be classified as MDHs effective October 1, 2022.

Graduate medical education (GME)

CMS finalizes several changes to GME policy:

• Affiliation agreements — In the FY 2023 rule, CMS expanded the regulations regarding Medicare GME affiliation agreements to permit urban and rural hospitals that participate in the same separately accredited family medicine rural track program (RTP) and have rural track full-time equivalents (FTE) limitations to enter into rural track Medicare GME affiliation agreements. CMS now finalizes clarifications on determining the net increase in FTEs in the current year numerator as compared to the prior year numerator because of the terms of a Medicare GME affiliation agreement. CMS provides specific instructions on how Form CMS-2552-10 Worksheet E, Part A, line 20 calculation works to more clearly indicate how these calculations are performed.
• Rural emergency hospital (REH) — CMS finalizes for portions of cost reporting periods beginning on or after October 1, 2023, an REH may decide to be a nonprovider site such that if the requirements are met, a hospital can include the FTE residents training at the REH in its direct GME and IME FTE counts for Medicare payment purposes, or, the REH may decide to incur direct GME costs and be paid based on reasonable costs for those training costs.
• Nursing and allied health education program payments — Additionally, CMS finalized a methodology for how it would correct payments for nursing and allied health (NAH) education programs as required under the Section 4143 of the Consolidated Appropriations Act (CAA) 2023. Medicare pays providers for Medicare’s share of the costs providers incur for approved education activities, including for these NAH programs. There was a $60 million spending cap on these programs for any CY. CAA 2023 mandates this limit does not apply for CY 2010-2019 to correct for CMS’s previous errors in how it applied the cap. Therefore, CMS is now implementing their methodology to comply with the CAA 2023 requirement and will refund payments to providers for these applicable years. CMS indicates it will issue another CR to reflect their finalized methodology.

Wage index

CMS highlights using the latest county or county-equivalent entities to properly crosswalk hospitals from a county to a core-based statistical area for purposes of the hospital wage index. CMS will use the revised delineations based on the 2020 census data to be available in 2023. CMS will address these revisions in future rulemaking.

• Rates — For FY 2024, CMS finalizes the unadjusted national average hourly wage of $50.39, and occupational mix adjusted national average hourly wage of $50.34. The FY 2024 labor-related share is 67.6% for discharges occurring on or after October 1, 2023.
• Rural floor — Based on the FY 2024 wage index and the calculation of the rural floor including the wage data of hospitals reclassified as rural under Section 412.103, CMS estimates 646 hospitals will receive the rural floor in FY 2024.
• Rural floor budget neutrality — Due to budget neutrality requirements, CMS changes to urban-to-rural and dual reclassified hospitals would impact the wage index of all IPPS hospitals. All IPPS hospitals would have their wage indexes reduced by the rural floor budget neutrality adjustment of 0.978183. CMS projects in aggregate, rural hospitals would experience a 0.6% decrease in payments since rural hospitals do not benefit from the rural floor. Urban area hospitals, in the aggregate, would experience no change in payments because reclassed hospitals benefitting from the rural floor would offset decreases in payments to nonrural floor urban hospitals.
• Urban-to-rural reclassification, dual reclassification — CMS revisits statutes and various legal cases it has been subject to related to rural reclassification policies. CMS is reinterpreting its past policy on urban-to-rural reclassifications. It will now consider these reclassifications to function “the same as if the reclassifying hospital had physically relocated into a geographically rural area.” Further, CMS will include these hospitals along with geographically rural hospitals in rural wage index calculations beginning FY 2024. Beginning with FY 2024, CMS finalizes it will exclude “dual reclass” hospitals (hospitals with simultaneous Section 412.103 and MGCRB reclassifications) implicated by the hold harmless provision.
• Frontier states — CMS makes no changes to the frontier floor policy but indicates 42 hospitals would receive the frontier floor value of 1.00 for their FY 2024 wage index. The hospitals are in Montana, Wyoming, North and South Dakota.
• Low wage index hospitals — CMS finalizes it will continue its policy to increase the wage index of hospitals in the lower 25%. The increase is budget neutral resulting in an adjustment to the standardized amount of all hospitals. For purposes of the low wage index hospital policy, the 25th percentile wage index value is 0.8667.

Disproportionate share hospital (DSH) payments

DSH payments are calculated based on three factors. For FY 2024, those factors are determined as follows:

• Factor 1 — CMS finalizes Factor 1 would be $10,015,191,021.88, which is equal to 75% of the total amount of estimated Medicare DSH payments for FY 2024 ($13.353 billion minus $3.338 billion).
• Factor 2 — CMS finalizes Factor 2 would be 59.29%. The finalized FY 2024 uncompensated care amount is $10,015,191,021.88 * 0.5929 = $5,938,006,756.87.
• Factor 3 — CMS uses the same methodology as applied in FY 2023, which is using the most recent three years of audited cost reports from FY 2018, FY 2019, and 2020 Worksheet S-10.

Disproportionate patient percentage (DPP) — CMS finalizes its policy on treating patients under 1115 demonstrations. CMS will limit the days of those section 1115 demonstration patients included in the DPP Medicaid fraction numerator to only individuals who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. Additionally, CMS explicitly excludes from the DPP Medicaid fraction numerator the days of patients with uncompensated care costs for which a hospital is paid from a funding pool authorized by a section 1115 demonstration project. Finally, CMS requires the changes to be effective for discharges occurring on or after October 1, 2023.

New technology payments

CMS details various policies for new technology payments:

• Discharges involving eligible products would continue to be eligible for the new COVID-19 technology add-on payments (NCTAP) through September 30, 2023. No NCTAP will be made beginning in FY 2024 for discharges on or after October 1, 2023.
• CMS finalizes that 11 existing devices and drugs will continue receiving add-on payments for FY 2024 while 15 will lose them after this year due to meeting their three-year anniversary and no longer being considered new.
• CMS approved 10 applications for new technology add-on payments through the traditional pathway and 12 applications for add-on payments through the alternative pathway.
• CMS also finalizes new eligibility requirements related to FDA approval when applying for new technology payments. CMS will require applications to have a complete and active FDA marketing authorization request at the time of the new technology add-on payment application submission, and to move up the FDA marketing authorization deadline from July 1 to May 1, beginning with applications for FY 2025.

Key policy changes

Rural emergency hospitals (REH)

CMS finalizes updates to the definition of “provider of services or provider” to include an REH and to require a state agency to inform CMS immediately if an REH has violated Emergency Medical Treatment & Labor Act provisions.

CMS also is codifying various information required in an REH application, including:

• A plan for initiating REH services
• A detailed transition plan that lists the specific services the provider will retain, modify, add, and discontinue as an REH
• A detailed description of other outpatient medical and health services it intends to furnish on an outpatient basis as an REH
• Information regarding how the provider intends to use the additional facility payment provided

CMS also adds a new paragraph related to graduate medical education, as we noted earlier, effective for portions of cost reporting periods beginning on or after October 1, 2023. A hospital may include FTE residents training at an REH in its direct GME and IME FTE counts if it meets the nonprovider setting requirements or the REH may decide to incur direct GME costs and be paid based on reasonable costs for the training.

Physician-owned hospitals

CMS finalizes tightening certain aspects related to application and expansion criteria for physician-owned hospitals. CMS will separate the expansion exception process for physician-owned hospitals from the requirements that a hospital must satisfy under the rural provider and whole hospital exceptions.

CMS indicates it would first determine whether the requesting hospital meets the necessary criteria as an applicable hospital or high Medicaid facility to even request an expansion. If not, CMS would not further consider the application for expansion.

For expansion requests that meet the first step, CMS finalizes requiring hospitals include more information in an expansion exception request. CMS also identifies factors it will consider when deciding on an expansion exception request and revises certain aspects of the expansion request process. Factors CMS considers with any expansion request include:

• The specialty (for example, maternity, psychiatric, or substance use disorder care) of the hospital or the services furnished by or to be furnished by the hospital if approved
• Program integrity or quality of care concerns related to the hospital
• Whether the hospital needs additional operating rooms, procedure rooms, or beds
• Whether there is a need for additional operating rooms, procedure rooms, or beds in the county where the main hospital campus is located, any county in which the hospital provides inpatient or outpatient hospital services as of the date of the expansion exception request, or any county where the hospital plans to provide inpatient or outpatient hospital services if CMS approves the request

CMS would not be limited to these factors, however, and may consider others.

The opportunity for community input is required and CMS defines what “community” will include.

CMS returns to its past policy of only allowing HCRIS data to be used in performing the calculations necessary to show a hospital meets the criteria for an applicable hospital or high Medicaid facility. Beginning with requests submitted on or after October 1, 2023, use of any other external data sources for purposes of the expansion exception process would be eliminated.

CMS would also reinstate the stricter requirements for “high Medicaid hospital” expansion requests that had been rolled back in the 2021 final outpatient prospective payment system rule.

Z codes: Homelessness

CMS finalizes a change to the severity level designation for three diagnosis codes describing homelessness from non-complication or comorbidity to complication or comorbidity based on the higher average resource costs with these cases. The three ICD-10 codes are:

• Z59.00 (homelessness, unspecified)
• Z59.01 (sheltered homelessness)
• Z59.02 (unsheltered homelessness)

CMS continues to be interested in receiving feedback on how to foster documentation and reporting of the various diagnosis codes describing social and economic circumstances to reflect each health care encounter more accurately, and to improve the reliability and validity of the coded data including in support of efforts to advance health equity.

CMS believes including the information will help the agency better understand the impact of addressing social determinants has on clinical evaluation, extended length of hospital stay, increased nursing care or monitoring or both, and comprehensive discharge planning.

Private equity (PE) and real estate investment trusts (REITs) SNF disclosures extended to all providers

CMS states its concerns with quality of care furnished by PE-owned and REIT-owned skilled nursing facilities (SNFs) extend to all other provider types, as well. Therefore, CMS proposed expanding proposed disclosure requirements for SNFs (see call-out box for details) to all providers and suppliers that complete Form CMS 855A.

Since the PE and REIT definitions used in the SNF proposed rule would not be limited to SNFs, CMS sought comments from all provider and supplier types that complete the Form CMS-855A on the propriety of those definitions.

CMS indicates it will not finalize a change now but will assemble all comments across provider types and incorporate those into a final year which will be forthcoming.

Quality, value-based, interoperability reporting programs

CMS makes many changes to most of its quality, value-based purchasing, and interoperability programs.

Hospital Inpatient Quality Reporting Program (IQR)

CMS finalizes adopting three new measures, all of which are electronic clinical quality measures (eCQMs):

• Hospital harm – pressure injury eCQM, with inclusion in the eCQM measure set beginning with the CY 2025 reporting period/FY 2027 payment determination
• Hospital harm – acute kidney injury eCQM, with inclusion in the eCQM measure set beginning with the CY 2025 reporting period/FY 2027 payment determination
• Excessive radiation dose or inadequate image quality for diagnostic computed tomography in adults (Hospital Level – Inpatient) eCQM, with inclusion in the eCQM measure set beginning with the CY 2025 reporting period/FY 2027 payment determination

CMS finalizes modifications to three measures:

• Hybrid hospital-wide all-cause risk standardized mortality (HWM) measure — Beginning with the FY 2027 payment determination, CMS expands the cohort from Medicare fee-for-service (FFS) patients only to a cohort which includes both FFS and Medicare Advantage (MA) patients 65 to 94 years old.
• Hybrid hospital-wide all-cause readmission (HWR) measure — Beginning with the FY 2027 payment determination, CMS expands the cohort from Medicare FFS patients only to a cohort which includes FFS and MA patients 65 years and older.
• COVID-19 vaccination coverage among health care personnel measure — Beginning in the fourth quarter of calendar year (CY) 2023 reporting period/FY 2025 payment determination, CMS will replace “complete course of vaccination” with “up to date” vaccination as well as address the time frame related to the numerator in this measure. (Note: the measure changes apply to the LTCH quality program and the PPS-exempt cancer hospital quality program.)

CMS finalizes removal of three measures:

• Hospital-level risk-standardized complication rate following elective primary total hip arthroplasty and/or total knee arthroplasty — Measure is removed beginning with the April 1, 2025, through March 31, 2028, reporting period/FY 2030 payment determination.
• Medicare spending per beneficiary — Hospital measure is removed beginning with the CY 2026 reporting period/FY 2028 payment determination.
• Elective delivery prior to 39 completed weeks gestation — Percentage of babies electively delivered prior to 39 completed weeks gestation (PC–01) measure is removed beginning with the CY 2024 reporting period/FY 2026 payment determination.

CMS finalizes several changes to the hospital consumer assessment of healthcare providers and systems (HCAHPS) survey beginning with 2025 discharges:

• Add three new modes of survey administration (web-mail mode, web-phone mode, and web-mail-phone mode) in addition to the current mail only, phone only, and mail-phone modes.
• Remove the requirement that only the patient may respond to the survey and allow a patient’s proxy to respond.
• Extend the data collection period for the HCAHPS survey from 42 to 49 days.
• Limit the addition of supplemental items to the survey to 12.
• Require hospitals to ask which language is spoken and to require the official CMS Spanish language translation be used with all individuals who prefer Spanish.
• Limit HCAHPS administration to either using an approved vendor or self-administered option only. (CMS indicates 3,112 hospitals, or 99%, of IPPS hospitals use a vendor and fewer than 20 self-administer the survey.)

Hospital value based purchasing program (HVBP)

CMS finalizes substantial changes to two measures:

• Medicare spending per beneficiary (MSPB) — Hospital measure undergoes substantive changes beginning with the FY 2028 program year:
  • To allow readmissions to trigger new episodes to account for episodes and costs that are currently not included in the measure but that could be within the hospital’s reasonable influence
  • A new indicator variable in the risk adjustment model for whether there was an inpatient stay in the 30 days prior to episode start date
  • An updated MSPB amount calculation methodology to change one step in the measure calculation from the sum of observed costs divided by the sum of expected costs (ratio of sums) to the mean of observed costs divided by expected costs (mean of ratios)
• Hospital-level risk-standardized complication rate following elective primary total hip arthroplasty and/or total knee arthroplasty — Measure undergoes substantive changes beginning with the FY 2030 program year. CMS finalizes including index admission diagnoses and in-hospital comorbidity data from Medicare Part A claims. CMS indicates that doing so would expand the measure outcome to include 26 additional mechanical complication ICD–10 codes.

Beginning with FY 2026 program year, CMS finalizes including a new measure, severe sepsis and septic shock: management bundle. Reminder that HCAHPS survey measures are also used in the HVBP programs. Refer to the hospital IQR summary for details on these measure updates.

CMS finalizes the additional of a health equity adjustment (HEA) into its scoring system by adding new bonus points to a hospital’s total performance score (TPS). Bonus points would reflect performance all four HVBP domains along with the proportion of patients with dual eligibility status (DES). For the points calculation, CMS will use both a performance scaler and an underserved multiplier and then adjusting the TPS as follows:

• For the scaler, a hospital would receive four points if its performance falls in the top third, two points if its performance falls in the middle third, or zero points if performance falls in the bottom third of performance of all hospitals for the domain. Therefore, hospitals could receive a maximum of 16 measure performance scaler points for being a top performer across all four domains.
• For the underserved multiplier, this would be calculated based on the number of inpatient stays for patients with DES out of the total number of inpatient Medicare stays during the calendar year two years before the start of the respective program year.
• CMS would calculate the HEA by multiplying the measure performance scaler by the hospital’s underserved multiplier, capped at a total of 10 bonus points.
• CMS would increase the TPS maximum to be 110, resulting in numeric score range of 0 to 110. This is due to the potential of achieving the maximum 10 additional HEA points for a TPS of 110.
• The HEA scoring adjustment would begin with the FY 2026 program year.

Hospital acquired conditions (HAC) reduction program

CMS finalizes adding a validation reconsideration process to the HAC reduction program, giving hospitals the opportunity to request reconsideration of their final validation scores, and modifies the targeting criteria for data validation to include hospitals that received an extraordinary circumstances exception during data periods validated beginning with FY 2027 program year, affecting CY 2024 discharges.

Hospital readmission reduction program (HRRP)

CMS makes no changes to this program. HRRP currently includes six applicable conditions/procedures: acute myocardial infarction, heart failure, pneumonia elective primary total hip arthroplasty/total knee arthroplasty, chronic obstructive pulmonary disease, and coronary artery bypass graft surgery.

PPS-exempt cancer hospital quality reporting program (PCHQR)

CMS finalizes four new measures for the PCHQR program. Three measures relate to health equity: the facility commitment to health equity measure; the screening for social drivers of health measure; and the screen positive rate for social drivers of health measure. The fourth new measure is a patient preference-focused measure, the documentation of goals of care discussions among cancer patients measure.

The finalized changes to the COVID-19 vaccination among HCP described in the hospital IQR summary would also apply to the PCHQR, and the surgical treatment complications for localized prostate cancer measure will be on public display beginning with data from the FY 2025 program year.

Medicare promoting interoperability program

CMS began using the safety assurance factors for EHR resilience (SAFER) guides measure under the protect patient health information objective beginning with the CY 2022 reporting period by requesting a simple yes/no response.

Starting with the CY 2024 reporting period, CMS finalizes requiring eligible hospitals and critical access hospitals (CAHs) to attest “yes” to having conducted an annual self-assessment using all nine SAFER Guides at any point during the calendar year in which the reporting period occurs. CMS indicates a hospital attesting “no” would not meet the measure and not satisfy the definition of a meaningful user.

To align measures with the Hospital IQR, CMS finalizes adding two hospital harm eCQM measures (pressure injury, acute kidney injury) and the excessive radiation dose eCQM measure to the Medicare promoting interoperability program beginning with the CY 2025 reporting period.

LTCH provisions

CMS finalizes a FY 2024 market basket update for the LTCH PPS of 3.5%. The required productivity adjustment for FY 2024 would be 0.2% for an update of 3.3%.

LTCH quality reporting program (QRP)

CMS finalizes various changes:

• Beginning with the September 2024 Care Compare refresh or as soon as technically feasible, CMS finalized the public reporting of the Transfer of Health Information to the Provider — PAC Measure (TOH-Provider) and the Transfer of Health Information to the Patient — PAC Measure (TOH-Patient) measures.
• Beginning with the FY 2025 LTCH QRP, CMS finalized the adoption of the Functional Discharge (DC Function) measure.
• Beginning with the FY 2025 LTCH QRP, CMS finalized to update the COVID-19 Vaccination Coverage among HCP measure, in alignment with the Hospital IQR and PCHQR Programs.
• Beginning with the FY 2025 LTCH QRP, CMS finalized the removal of the Application of Percent of Long-Term Care Hospital (LTCH) Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function (Application of Functional Assessment/Care Plan) measure.
• Beginning with the FY 2025 LTCH QRP, CMS finalized the removal of the Percent of Long-Term Care Hospital (LTCH) Patients with an Admission and Discharge Functional Assessment and a Care Plan that Addresses Function (Functional Assessment/Care Plan) measure. CMS finalized this measure’s removal because it meets the conditions for removal factor 1, “topped out.”
• Beginning with the FY 2026 LTCH QRP, CMS finalized the adoption of the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up-to-Date (Patient/Resident level COVID-19 Vaccine) measure.
• Beginning with the FY 2026 LTCH QRP, CMS finalized to increase the LTCH QRP Data Completion Thresholds for the LCDS Data Items.

How we can help

There are many moving parts to consider in this regulation — from the wage index and DSH to GME payment — in addition to how those fit into a larger regulatory and congressional landscape. Our hospital and health system team can help you navigate through the changes to help you make strategic financial and operational decisions. Reach out today.