CMS Proposes 2.6% Medicare Update for Hospitals

 

The Centers for Medicare & Medicaid Services (CMS) released its proposed inpatient prospective payment system rule for fiscal year (FY) 2025. Access the full rule on the Federal Register.

Payment updates

CMS proposes the market basket update of 3% plus a negative 0.4% productivity adjustment for a 2.6% net update.

For the FY 2025 outlier threshold, CMS proposes a threshold of $49,237 — an increase of 15.2% and $6,487 from the FY 2024 amount.

CMS projects this increased outlier threshold will result in outlier payments equal to 5.1% of operating diagnosis-related group (DRG) payments and 4.23% of capital payments. CMS is applying adjustments of 0.949 to the operating standardized amounts and 0.957708 to the capital federal rate to fund operating and capital outlier payments, respectively.

Medical severity diagnosis-related groups (DRGs)

To reflect more clinical resource use for concomitant left atrial appendage closure and cardiac ablation procedures, CMS proposes creating a new base MS-DRG — MS-DRG 317

For spinal fusion, CMS proposes deleting three MS-DRGs (453, 454, 455) and proposes adding eight new MS-DRGs.

Review the proposed rule for these and other MS-DRG changes.

New technology add-on payments (NTA)

In FY 2025, CMS will continue 24 NTA payments still considered within the window of being “new” and seven will lose NTA payments. CMS received 12 applications via the tradition pathway and 23 via the alternative pathway (14 of which qualified), while 12 technologies received breakthrough device designation.

CMS proposes beginning with new technology add-on payments for FY 2026; CMS would extend payments for an additional fiscal year when the three-year anniversary date of the product's entry into the U.S. market occurs on or after October 1 of that fiscal year.

CMS also proposes, beginning with applications for FY 2026, it would no longer consider a hold status to be inactive for eligibility for the new technology add-on payment. CMS would consider an application to be inactive where it’s withdrawn, is the subject of a complete response letter, or is the subject of a final Food and Drug Administration decision to refuse approving the application.

Wage index

New Office of Management and Budget (OMB) delineations

CMS proposes to implement the revised OMB delineations as described in the July 21, 2023, OMB Bulletin No. 23–01, beginning with the FY 2025 inpatient prospective payment system (IPPS) wage index.

Connecticut

CMS proposes implementing Connecticut’s request to replace the eight counties with nine new planning regions. Planning regions now serve as county-equivalents within the core-based statistical area (CBSA) system. CMS provides a crosswalk for each hospital in Connecticut with the current and proposed federal information processing system county and county-equivalent codes and CBSA assignments.

Urban counties to become rural

Under the new OMB delineations, a total of 53 counties (and county equivalents) and 33 hospitals once considered part of an urban CBSA would be considered rural beginning in FY 2025.

CMS says if a hospital loses urban status, its disproportionate share hospital (DSH) payment is adjusted to two-thirds of the difference between the urban DSH payments applicable to the hospital before its redesignation and the rural DSH payments applicable to the hospital after its redesignation.

In the second year after a hospital loses urban status, the hospital’s DSH payment is adjusted to one-third of the difference between the urban DSH payments applicable to the hospital before its redesignation and the rural DSH payments applicable to the hospital after its redesignation.

Rural counties to become urban

The CMS analysis shows a total of 54 counties (and county equivalents) and 24 hospitals located in rural areas would now be in urban areas under the revised OMB delineations.

CMS says due to the proposed adoption of revised OMB delineations, some critical access hospitals (CAHs) previously located in rural areas may be in urban areas. Existing regulations allow affected CAHs a two-year transition period beginning from the date the redesignation becomes effective. The affected CAHs must reclassify as rural during this transition period to retain their CAH status after the two-year transition period ends.

CMS advises other special designations — Medicare dependent or sole community hospitals — that may lose rural status should apply for rural reclassification prior to October 1, 2024, to avoid status disruption.

Urban counties moving to different CBSA, urban areas subsumed by another CBSA, and counties changing CBSA

Under the new delineations, some counties would shift between existing and new CBSAs, changing the constituent makeup of the CBSAs. In another change, some CBSAs have counties that would split off to become part of or to form entirely new labor market areas. There are 73 counties in this situation.

Wage index policies

CMS proposes using FY 2021 wage data for FY 2025.

Per its policy, CMS proposes applying the 5% cap for any provider experiencing a wage index change. Use of a wage index transition code will occur, as well.

CMS proposes extending the low wage index hospital policy for three additional years considering COVID-19’s impact. For FY 2025, the 25th percentile wage index value across all hospitals is set at 0.8879.

Medicare disproportionate share hospital (DSH) payments

CMS proposes Factor 1 of approximately $10.457 billion for FY 2025.

CMS proposes Factor 2 at 62.14. The proposed FY 2025 uncompensated care amount is equivalent to proposed Factor 1 multiplied by proposed Factor 2, which is $6.498 billion.

For Factor 3, CMS proposes using the same methodology as FY 2024 — using the most recent three years of audited cost reports, from FYs 2019, 2020, and 2021.

Covered days in the SSI ratio

CMS proposes to formally withdraw its policy as it existed prior to the effective date of the FY 2005 IPPS final rule to the extent it included only covered days in what’s called the supplemental security income (SSI) ratio. This is due to the U.S. Supreme Court ruling in Becerra v. Empire Health Foundation. CMS will apply the statute as understood by the Supreme Court in Empire instead of the pre-FY 2005 regulation, to any properly pending claim in a DSH appeal or open cost report to which that regulation would otherwise have applied.

CMS states it does not believe this is retroactive rulemaking but applying the statute’s plain meaning. CMS also says withdrawing the regulation will not serve as a basis to reopen a CMS or contractor determination, a contractor hearing decision, a CMS reviewing official decision, or a decision by the Provider Reimbursement Review Board or the administrator.

Graduate medical education (GME)

Under the Consolidated Appropriations Act (CAA), 2021, Congress authorized Medicare payments for 1,000 additional GME resident slots. Then the CAA, 2023 required the distribution of additional residency positions to hospitals. The law required that for FY 2026, HHS must initiate an application round to distribute 200 residency positions, of which 100 are distributed for psychiatry or psychiatry subspecialty residency training programs. The application deadline is March 31, 2025, for FY 2026. CMS proposes to distribute slots to all qualifying hospitals submitting timely applications for up to one full-time equivalent.

IPPS payment for buffer stock of essential medicines

CMS requested public comments in last year’s annual outpatient rule on a potential Medicare payment policy to provide a separate payment to IPPS hospitals for Medicare’s share of the inpatient costs of establishing and maintaining access to a buffer stock of one or more of 86 essential medicines.

Based on those comments and consideration, CMS proposed a separate payment under the IPPS to small, independent hospitals for the estimated additional resource costs of voluntarily establishing and maintaining access to six-month buffer stocks of essential medicines.

CMS proposes “small” means hospitals with fewer than 100 beds and “independent” means the hospital is not part of a chain organization. Only these small, independent hospitals will be eligible.

CMS proposes the estimated additional resource costs of voluntarily establishing and maintaining access to six-month buffer stocks either directly or through contractual arrangements with pharmaceutical manufacturers, intermediaries, or distributors would be eligible for additional payment under this policy. These costs do not include the cost of the medicines themselves.

The costs associated with directly establishing and maintaining a buffer stock may include utilities like cold chain storage and heating, ventilation, and air conditioning; warehouse space; refrigeration; management of stock including stock rotation, managing expiration dates, and managing recalls; administrative costs related to contracting and record-keeping; and dedicated staff for maintaining the buffer stock.

CMS states, on average, for the small, independent hospitals eligible for this policy, the Medicare IPPS share percentage is approximately 11%. The separate payment could be provided biweekly or as a lump sum at cost report settlement.

This would be available for cost reporting periods beginning on or after October 1, 2024.

Mandatory TEAM model

CMS proposes a new model called the transforming episode accountability model (TEAM). The model is designed to bring specialists into the agency’s model toward value-based payments and builds on other procedure models like the comprehensive care for joint replacement (CJR) mandatory model.

TEAM would begin January 1, 2026, and end December 31, 2030. It would use an episode-based pricing methodology for Medicare beneficiaries related to five surgical episode categories:

• Coronary artery bypass graft (CABG)
• Lower extremity joint replacement (LEJR)
• Major bowel procedure
• Surgical hip/femur fracture treatment (SHFFT)
• Spinal fusion

TEAM would be mandatory for hospitals paid under the IPPS in select CBSAs. CMS provides more details on the methodology for selecting CBSAs but doesn’t provide the selected geographies.

An “anchor” hospitalization or procedure would begin a hospital’s episode. The episode would last 30 days post-op and the hospital would be held financially accountable for that episode. Only eligible hospitals can be “TEAM participants” but CMS proposes there may be other “TEAM collaborators.”

Tiered options

CMS proposes three tracks with differing financial risk and quality adjustment:

• Track 1 — Available only in performance year (PY) one for all TEAM participants and would have only upside financial risk with quality adjustment applied to positive reconciliation amounts.
• Track 2 — Available in PYs two through five to a limited set of TEAM participants, including safety net hospitals, and would have two-sided financial risk with quality adjustment to reconciliation amounts. Certain types of hospitals could participate in Track 2 in PY two through five — safety net hospitals, rural hospitals, among others.
• Track 3 — Available in PYs one through five for all TEAM participants and would have two-sided financial risk with quality adjustment to reconciliation amounts.

• LEJR episodes — A hip, knee, or ankle replacement under MS–DRG 469, 470, 521, or 522 or through the OPPS under HCPCS code 27447, 27130, or 27702
• SHFFT episodes — A hip/femur episode under MS–DRG 480–482
• CABG episodes — Any coronary revascularization procedure under MS– DRG 231–236, including both elective CABG and CABG procedures performed during initial acute myocardial infarction treatment (AMI)
• Spinal fusion episodes — Any episode under MS–DRG 453-455, 459-460, or 471-473, or through the outpatient prospective payment system (OPPS) under HCPCS codes 22551, 22554, 22612, 22630, or 22633.
• Major bowel episodes — Any episode under MS– DRG 329-331

The TEAM model would also incorporate quality measures focusing on care coordination, patient safety, and patient reported outcomes (PROs).

Target prices

CMS would use three years of baseline data, trended forward to the PY to calculate target prices at the level of MS-DRG/HCPCS episode type and region. Target prices for all TEAM participants will be regional target prices.

Like other models, CMS will use a discount factor (3%) and risk adjustment. Risk adjustments will look at beneficiary age group, hierarchical condition category count (a measure of clinical complexity), and social risk.

CMS will also use a normalization factor. The model will require healthy equity plans for the first PY. Waivers and beneficiary incentives would also be available.

Addressing climate concerns

Finally, CMS proposes a voluntary opportunity to participate in a decarbonization and resilience initiative within TEAM. This will assist hospitals in addressing climate related matters.

The voluntary initiative would have two elements:

1. Technical assistance for all interested TEAM participants
2. Proposed voluntary reporting option to capture information related Scope 1 and Scope 2 emissions as defined by the Greenhouse Gas Protocol, with the potential to add Scope 3 in future years

Reporting acute respiratory illnesses

CMS proposes revising the hospital and CAH infection prevention and control and antibiotic stewardship programs conditions of participation (CoPs). This action would extend a modified form of the current COVID-19 and influenza reporting requirements and reduce the frequency of reporting for hospitals and CAHs. These proposed requirements would take effect on October 1, 2024.

CMS proposes the required data elements include:

• Confirmed infections of respiratory illnesses, including COVID-19, influenza, and RSV, among hospitalized patients
• Hospital bed census and capacity — both overall and by hospital setting and population group (adult or pediatric)
• Limited patient demographic information, including age

Hospital value-based purchasing program (VBP)

CMS proposes modifying the person and community engagement domain for the FY 2027 through FY 2029 program years while the updated Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey measure would be publicly reported under the hospital inpatient quality reporting (IQR) program.

CMS also proposes adopting the updated HCAHPS survey measure beginning with the FY 2030 program year and modify scoring beginning with the FY 2030 program year to account for the updated HCAHPS Survey.

Hospital inpatient quality reporting program (IQR)

CMS proposes to adopt seven new measures:

• Patient safety structural measure beginning with the CY 2025 reporting period/FY 2027 payment determination
• Age friendly hospital measure beginning with the CY 2025 reporting period/FY 2027 payment determination
• Catheter-associated urinary tract infection (CAUTI) standardized infection ratio stratified for oncology locations beginning with the CY 2026 reporting period/FY 2028 payment determination
• Central line associated bloodstream infection (CLABSI) standardized infection ratio stratified for oncology locations beginning with the CY 2026 reporting period/FY 2028 reporting period
• Hospital harm – falls with injury eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination
• Hospital harm – postoperative respiratory failure eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination
• Thirty-day risk standardized death rate among surgical inpatients with complications (failure-to-rescue) measure beginning with the July 1, 2023, to June 30, 2025, reporting period/FY 2027 payment determination

CMS proposes changes to two other measures:

• Global malnutrition composite score eCQM, beginning with the CY 2026 reporting period/FY 2028 payment determination
• HCAHPS survey beginning with the CY 2025 reporting period/FY 2027 payment determination

CMS proposes removing five measures:

• Death among surgical inpatients with serious treatable complications (CMS PSI 04) measure beginning with the July 1, 2023, to June 30, 2025, reporting period/FY 27 payment determination
• Hospital-level, risk-standardized payment associated with a 30-day episode-of-care for acute myocardial infarction (AMI) measure beginning with the July 1, 2021, to June 30, 2024, reporting period/FY 2026 payment determination
• Hospital-level, risk-standardized payment associated with a 30-day episode-of-care for heart failure measure beginning with the July 1, 2021, to June 30, 2024, reporting period/FY 2026 payment determination
• Hospital-level, risk-standardized payment associated with a 30-day episode-of-care for pneumonia measure beginning with July 1, 2021, to June 30, 2024, reporting period/FY 2026 payment determination
• Hospital-level, risk-standardized payment associated with a 30-day episode-of-care for elective primary total hip arthroplasty and/or total knee arthroplasty measure beginning with the April 1, 2021, to March 31, 2024, reporting period/FY 2026 payment determination

CMS proposes the following for eCQM data reporting and submission requirements:

• A progressive increase in the number of mandatory eCQMs a hospital would be required to report on beginning with the CY 2026 reporting period/FY 2028 payment determination
• Changes to validating hospital data by implementing eCQM validation scoring based on the accuracy of eCQM data beginning with the validation of CY 2025 eCQM data affecting the FY 2028 payment determination and modifying data validation reconsideration request requirements to make medical records submission optional for reconsideration requests beginning with CY 2023 discharges/FY 2026 payment determination

PPS-exempt cancer hospital quality reporting (PCHQR) program

CMS proposes adoption of patient safety structural measure beginning with the CY 2025 reporting period/FY 2027 program year and proposes modifying the HCAHPS survey measure beginning with the CY 2025 reporting period/FY 2027 program year.

CMS proposes moving the start date for publicly displaying hospital performance on the hospital commitment to health equity measure from July 2026 to January 2026 or as soon as feasible thereafter.

Medicare promoting interoperability program

CMS proposes to:

• Separate the antimicrobial use and resistance (AUR) surveillance measure into two measures — the antimicrobial use (AU) surveillance measure and the antimicrobial resistance (AR) surveillance measure. This would begin with EHR reporting period in CY 2025. A new exclusion is proposed for eligible hospitals or CAHs without a data source containing the minimal discrete data elements required for AU or AR surveillance reporting. Also proposed is modifying the applicability of the existing exclusions to either the AU or AR surveillance measures, respectively. Finally, CMS proposes to treat the AU and AR surveillance measures as new measures for active engagement beginning with the EHR reporting period in CY 2025.
• Increase the performance-based scoring threshold for eligible hospitals and CAHs reporting from 60 points to 80 points beginning with the EHR reporting period in CY 2025.
• Adopt two new eCQMs hospitals can select as one of their three self-selected eCQMs beginning with the CY 2026 reporting period. Those are hospital harm – falls with injury eCQM and the hospital harm – postoperative respiratory failure eCQM.
• Beginning with the CY 2026 reporting period, CMS proposes modifying one eCQM, the global malnutrition composite score eCQM.
• CMS proposes to modify eCQM data reporting and submission requirements by proposing a progressive increase in the number of mandatory eCQMs eligible hospitals and CAHs would be required to report on beginning with the CY 2026 reporting period.

Long-term care hospital prospective payment system (LTCH PPS)

Payment updates

CMS proposes the net market basket update to the LTCH PPS standard federal payment rate for FY 2025 of 2.8% — that is, the LTCH PPS market basket increase of 3.2% reduced by the productivity adjustment of 0.4%.

Further, CMS proposes to rebase and revise the 2017-based LTCH market basket to reflect a 2022 base year, which would maintain historical frequency of rebasing the market basket every four years. CMS proposes combing data from multiple files to obtain a 2022 base year to create a composite timeframe of cost reporting periods to begin on and after April 1, 2021, and prior to April 1, 2022.

The total difference between the FY 2025 labor-related share using the proposed 2022-based LTCH market basket (72.8%) and the FY 2024 labor-related share using the 2017-based LTCH market basket (68.5%) is 4.3% and is primarily attributable to revising the base year cost weights for those categories included in the labor-related share.

Policy updates

CMS indicates regulations have never explicitly articulated how the agency’s qualifying period to be considered an LTCH applies to a hospital seeking classification. CMS proposes to explicitly state a hospital seeking to be classified as an LTCH may do so after completion of a six-month qualifying period, provided the hospital demonstrates an average length of stay of greater than 25 days during at least five consecutive months of the six-month qualifying period. CMS states none of these are changes to existing policy.

CMS also proposes that MS-DRG classification changes under the IPPS would also apply to the LTCH PPS.

For the LTCH quality reporting program (LTCH QRP), CMS proposes:

• Adding four items to the LTCH data set beginning with the FY 2028 LTCH QRP
• Modifying one item on the data set beginning with the FY 2028 LTCH QRP
• Extending the admission assessment window for the data set beginning with the FY 2028 LTCH QRP

Request for information on a future CoP on obstetrical care

Given the ongoing concerns about maternity care in Medicare and Medicaid certified hospitals, CAHs, and rural emergency hospitals, CMS plans to propose baseline health and safety standards for obstetrical services in the calendar year (CY) 2025 OPPS proposed rule.

CMS seeks feedback on potential strategies to reduce maternal mortality and disparities in maternal mortality and morbidity, which can be implemented through the hospital CoPs.

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