What is the CMS IPPS Final Rule 2024? A Guide to the Key Hospital Payment Changes

Every year, the Centers for Medicare & Medicaid Services (CMS) issues an Inpatient Prospective Payment System (IPPS) final rule to update Medicare payment policies, rates, and quality programs for acute care hospitals. This comprehensive rulemaking process allows CMS to adapt hospital payments to changing costs, technologies, regulations, legislation, and quality improvement priorities.

On August 1, 2023, CMS released the fiscal year (FY) 2024 IPPS final rule, laying out hospital payment and policy changes for FY 2024 which runs from October 1, 2023 through September 30, 2024. This 2,700+ page document contains the official payment details hospitals need to understand their Medicare revenue and obligations for the coming year.

In this overview, we’ll highlight the major provisions included in the FY 2024 IPPS final rule and what hospitals should know:

IPPS Rate Update for FY 2024

The FY 2024 IPPS final rule updates the standardized base payment rates that apply to most inpatient cases under the IPPS.

For FY 2024, CMS finalized an:

• Inpatient payment rate update of 3.1% for general acute care hospitals that submit quality data and are meaningful EHR users. This accounts for a market basket update of 3.3% less a productivity adjustment of 0.2 percentage points.

• Long-term care hospital payment rate update of 3.3% (equal to the full market basket update).

These increases reflect the projected rise in hospital input costs for the upcoming year and are adjusted by legislative factors. The higher IPPS hospital spending will total approximately $2.2 billion in FY 2024.

Changes to Medicare DSH and Uncompensated Care Payments

The IPPS final rule also estimates aggregate Medicare disproportionate share hospital (DSH) payments and uncompensated care payments for FY 2024.

Relative to FY 2023, CMS projects:

• Medicare DSH payments will decline by $725 million in FY 2024.
• Uncompensated care payments will decline by $232 million in FY 2024.

These estimates incorporate the latest hospital data on low-income insured days and uncompensated care costs that factor into the payment formulas. The projections are subject to change based on CMS’s continued refinement of the data used in their modeling.

Other IPPS Hospital Payment Adjustments

Beyond the base rate updates, the FY 2024 IPPS final rule announces upcoming changes to the various value-based purchasing programs and penalties that adjust hospital payments. These include:

Hospital Readmissions Reduction Program (HRRP) – The maximum penalty under the HRRP remains at 3% of base IPPS payments for hospitals with excess readmissions. No policy changes were finalized.

Hospital-Acquired Condition (HAC) Reduction Program – The penalty for hospitals in the worst-performing quartile remains at 1% of base IPPS payments. Modifications were finalized to the validation process and targeting criteria for the HAC program’s chart review requirements.

Hospital Value-Based Purchasing (HVBP) Program – Several changes were finalized, including adopting a health equity scoring adjustment, new measures, and modifying the total performance score scale.

Hospital Inpatient Quality Reporting (IQR) Program – A 1/4th reduction of the annual payment update will continue to apply to hospitals that fail IQR program requirements. New measures were adopted and changes made to chart review validation processes.

Changes to the Hospital Inpatient Quality Reporting (IQR) Program

The IPPS final rule dedicates significant attention to detailing the changes to measures and requirements under the Hospital IQR Program’s pay-for-reporting framework.

Some notable IQR program modifications for FY 2024 include:

• Adopting 3 new eCQM measures – Hospital Harm eCQMs for pressure injury and acute kidney injury, and a diagnostic imaging dose measure.

• Modifying 3 existing measures – Updating the COVID-19 vaccination measure, and adding MA encounters to the mortality and readmission measures.

• Removing 3 topped-out measures – Chart-abstracted complications measure, Medicare Spending per Beneficiary measure, and elective delivery measure.

• Updating Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) requirements – Allowing new survey modes, removing proxy prohibition, extending survey period, and limiting supplemental questions.

• Modifying validation processes – Implementing reconsideration process and updating targeting criteria for chart review.

These IQR Program changes aim to reduce reporting burden, adopt meaningful new eCQMs that support equity, and remove topped out measures.

IPPS Market Basket Update for FY 2024

The IPPS market basket increase for FY 2024 is one of the most impactful components of the final rule, driving the Medicare payment rate updates.

Some key facts about the FY 2024 IPPS market basket update:

• The FY 2024 IPPS market basket update is 3.3%, up from 2.7% in FY 2023.
• This market basket reflects updated price proxies and forecasts for the hospital input costs.
• Labor-related costs are projected to increase by 4.1%, a key driver of the market basket change.
• The 3.3% market basket is reduced by 0.2 percentage points for the productivity adjustment as required by the Affordable Care Act.
• After the productivity cut, the final IPPS operating rate update is 3.1%.

Monitoring the market basket each year provides hospitals valuable insight into CMS’s view of inpatient cost trends. The final market basket amid updated data can deviate noticeably from the proposed rule each spring.

Wage Index Changes

Wage indexes are used to adjust IPPS payments to reflect local labor cost differences across geographic areas. The FY 2024 IPPS final rule contains a range of wage index provisions impacting hospital reimbursement:

• The wage indexes will continue to be based on wage data from hospitals’ Medicare cost reports.

• The final rule equalizes the wage index treatment for hospitals reclassified from urban to rural status under Section 1886(d)(8)(E) of the Social Security Act.

• Low wage index hospital policies from FY 2020 are extended while CMS collects additional data to evaluate the impact of these payment adjustments.

• Various wage index reclassifications also continue based on statutory requirements and discretionary CMS adjustments.

As always, hospitals should pay close attention to any change in their assigned wage indexes from year to year in the final rule. The wage index applicable to a hospital can significantly alter its base Medicare payments.

Rural Emergency Hospital Payment and GME Updates

The FY 2024 IPPS final rule also addresses payments for the new provider type Rural Emergency Hospitals (REHs), along with associated Graduate Medical Education (GME) training:

• REH payment rates are updated to incorporate the most recent OPPS and IPPS data available. Payment rates differ based on whether the REH is provider-based or independent.

• GME payment rules are established for REH training programs and slots, enabling REHs to serve as teaching hospitals for Medicare GME reimbursement purposes. This aims to promote rural training.

• Application requirements are updated for hospitals seeking exceptions to the physician self-referral law ownership restrictions based on either the whole hospital or rural provider exceptions.

These changes support access to emergency care in rural areas, allow GME funding to follow training, and clarify exception requirements for physician-owned hospitals.

Summary of Key Changes

• IPPS Rate Update: +3.1%
• LTCH Rate Update: +3.3%
• Reduced Medicare DSH and Uncompensated Care Payments
• Hospital Quality Program Requirement Changes
• New IQR Program Measures and Policies
• Updated Market Basket Forecast Set at +3.3%
• Rural Payment Provisions for REHs and GME
• Wage Index Revisions

The FY 2024 IPPS final rule equips hospitals with the payment rates, factors, policies and details needed to understand your upcoming Medicare revenue. While the rule is extremely long, focusing on the major changes impacting IPPS payments, quality reporting programs, and new regulatory provisions provides a snapshot of what to expect in FY 2024 and begin planning accordingly.

CMS ultimately aims to balance updating payments to support hospitals’ rising costs of care, while also driving continual improvements in quality, safety, efficiency and equity for Medicare beneficiaries.