Hospitals will get only a small bump in Medicare inpatient payments for FY25

Hospital representatives were less than excited about the rate update in Medicare’s FY25 final rule for inpatient care and long-term care hospitals.

Published Aug. 1, the rule includes a 2.9% rate increase for acute care hospitals in the fiscal year that begins Oct. 1. The increase is derived from a 3.4% hike in the market basket and a 0.5% statutory reduction based on economywide productivity. The update will be lower for hospitals that did not successfully participate in quality reporting or meet the criteria to be designated as a meaningful user of electronic health records (EHRs) this past year.

Actual payments are projected to increase by 2.8% over FY24 after factoring in adjustments, CMS said. Such estimates are subject to change based on patient volumes and case mix.

Although the rate update is up from 2.6% in the proposed rule because of changes in market-basket inputs, advocates say it does not keep pace with the cost of delivering care.

Hospital costs increased by 4.8% year-over-year in June, for example, including by 4.2% per adjusted discharge, according to data from Strata Decision Technology (those numbers are moderate compared with many months over the past four years). The Medicare Payment Advisory Commission (MedPAC) has estimated that Medicare margins for hospitals in 2024 will come out to negative 8% when including $9 billion in one-time remedy payments to participants in the 340B Drug Pricing Program, and negative 13% when excluding those payments.

“CMS’s payment updates for hospitals will exacerbate the already unsustainable negative or break-even [overall] margins many hospitals are already operating under as they care for their patients,” Molly Smith, group vice president for public policy with the American Hospital Association, said in a written statement.

Payment adjustments

Rate adjustments, such as those made via the Medicare area wage index and accompanying geographic reclassifications, are projected to result in different payment updates for different categories of hospitals, markets and regions of the country. See the “Impact Analysis” table on page 2847 of the pre-publication rule PDF for a complete breakdown.

For example, among urban hospitals, the projected update ranges from more than 4% in the New England, East North Central, South Atlantic and East South Central regions to a mere 0.1% in the Pacific region.

Payments to rural hospitals are projected to go up by 2.6% year-over-year, compared with 2.8% for urban hospitals. However, the rural projection does not account for the likelihood that Congress will extend the Medicare-dependent hospital and low-volume hospital payments, which currently expire at the end of 2024.

One pending issue that has big implications is the status of low-wage-index hospital payments, which an appeals court halted in a July ruling, but which HHS intends to continue for now. The forced termination of the policy predominantly would reduce payments to rural hospitals and, due to budget-neutrality provisions, would shift money back to hospitals in higher-wage areas during the upcoming fiscal year. See HFMA’s recent coverage of that court decision.

Supplemental payments

In addition to a projected base payment update of only 2.4%, disproportionate share hospitals face a decrease of $235 million in uncompensated care payments. That follows a reduction of about $950 million in the current fiscal year and will mark the fourth consecutive year of nine-figure or greater decreases.

The FY25 update especially can be seen as a disappointment because the proposed rule had projected an increase of $568 million. CMS attributes the changed projection to shifts in the uninsured rate.

Total payments for care episodes that involve any of two-dozen new medical technologies are set to increase by about $262.5 million. For a pair of designated gene-therapy technologies that treat sickle-cell disease, the new-technology add-on percentage increases from 65% to 75% for the therapy’s two- to three-year “newness period.”

The rule also implements a new payment to help small, independent hospitals voluntarily establish a six-month buffer stock of essential medicines to guard against potential shortages. Eligible hospitals can have no more than 100 beds and will not receive a payment for establishing a buffer stock after the medication already is in shortage.

Incentive payments

The Medicare Promoting Interoperability (PI) Program determines EHR meaningful use status, which hospitals must attain to avoid losing out on 75% of their annual payment update.

New elements in the PI Program during the upcoming year include the separation of the Antimicrobial Use Surveillance and Antimicrobial Resistance Surveillance measure into two measures.

Payment rules from prior years finalized the addition of three electronic clinical quality measures (eCQMs) for 2025:

• Hospital Harm — Pressure Injury
• Hospital Harm — Acute Kidney Injury
• Excessive Radiation Dose or Inadequate Image Quality for Diagnostic CT in Adults

Over the next two years, the performance-based scoring threshold for the PI Program will increase from 60 to 80 points. And, starting in 2025, the EHR reporting period is being defined as a minimum of any continuous 180-day period.

Inpatient quality reporting (IQR). Failure to participate in the IQR Program reduces a hospital’s payment update by 25%. The program is incorporating seven new measures, including a few that begin during the next calendar year:

• 30-day Risk-Standardized Death Rate Among Surgical Inpatients with Complications claims-based measure (replaces the CMS PSI-04 Death Among Surgical Inpatients with Serious Treatable Complications measure)
• Patient Safety structural measure
• Age Friendly structural measure

The IQR Program is also adding the same three eCQMs that are joining the PI Program.

Prior rules also established mandatory reporting for the Hospital-Level Total Hip Arthroplasty and/or Total Knee Arthroplasty Patient-Reported Outcome performance measure beginning July 1, 2025, and that the COVID-19 Vaccination Coverage Among Healthcare Personnel measure will be modified as needed to account for updated CDC recommendations about the vaccine series.

Four IQR payment measures are being removed. And technical updates are being made to the HCAHPS survey as applicable to the IQR program.

Other care settings

The final rule also sets Medicare rates for long-term care hospitals (LTCHs). Although the base payment rate for LTCHs is increasing by 3%, actual payments are set for only a 2% increase due to a projected decrease of 0.8% in high-cost outlier payments as a share of standard LTCH payments.

The outlier threshold is increasing by nearly 30%, CMS said, to comply with statutory language that requires outlier payments to stay within a specified share of total payments.

In her comments, Smith noted the threshold has risen by more than 180% since FY21, “which forces these hospitals to absorb hundreds of thousands of dollars in additional losses when caring for the sickest patients. This increase will create serious access issues for patients and put additional burden back on acute care hospitals and other providers that do not specialize in caring for this unique population.”

Other rules published in recent weeks set FY25 payment rates and policies for hospices, inpatient psychiatric facilities, inpatient rehabilitation facilities and skilled nursing facilities (SNFs). The SNF rule is noteworthy because of provisions enhancing CMS’s authority to monitor the safety and quality of care in those facilities through the use of civil monetary penalties.

Mandatory staffing ratios for SNFs were set in a final rule published in May, with key provisions set to take effect in 2026 and 2027.