Medicare payment updates in 3 final rules could foreshadow good news for hospitals

For hospices, inpatient psychiatric facilities and inpatient rehabilitation facilities, updated economic forecasting data resulted in payment increases of at least 1 percentage point compared with the proposed rules.

Update: Information on the final payment rate for skilled nursing facilities has been added to this post.

Three final Medicare payment rules for FY23 suggest good news for hospitals about the prospects of a higher payment update than was initially proposed.

Relative to proposed rules issued earlier this year, CMS boosted the payment rates next year for hospices, inpatient psychiatric facilities (IPFs) and inpatient rehabilitation facilities (IRFs). The increases were based on updated economic forecasting data.

Hospital groups have criticized a proposed 3.2% payment update for inpatient acute care in FY23, saying it does not keep pace with surging costs. As indicated in the newly released final rules for other programs paid through the Medicare Part A fund, new data may spur CMS to increase that rate in a final rule to be released in August.

3 payment updates increase by ≥ 1 percentage point

Among the final rules, the FY23 hospice payment update rose from a proposed increase of 2.7% to a final raise of 3.8%. The final number is based on a market basket update of 4.1% and a 0.3% productivity adjustment.

“We stated that if more recent data became available after the publication of the proposed rule and before the publication of the final rule (for example, more recent estimates of the inpatient hospital market basket update and productivity adjustment), we would use such data, if appropriate, to determine the hospice payment update percentage for FY23 in the final rule,” CMS wrote.

Specifically, the final rule incorporates Q1 2022 historical data and Q2 forecasted data that better reflect the higher costs of labor and supplies.

The net increase for IPF payments will be 2.5%, up from 1.5% in the proposed rule. That change was derived from the same update for hospice payments and a projected reduction stemming from changes to the outlier threshold.

IRF payments will increase by 3.2%. That’s based on a 4.2% market basket update, 0.3% productivity adjustment and a reduction stemming from adjustments to outlier payments. In comparison, the projected update in the proposed rule was 2%.

All three rules also finalize a proposal to establish a permanent, budget-neutral 5% cap on reductions to a geographic area’s wage index. The cap likewise is expected to be finalized for the acute care inpatient payment system.

Update: SNF payment rate also increases from the proposed rule

Skilled nursing facilities (SNFs) had been in line for a 0.7% payment decrease from 2022, according to this spring’s proposed rule. The change was based on a 3.9% payment update, including a 2.8% market basket update, and a 4.6% decrease stemming from the scheduled Patient-Driven Payment Model parity adjustment.

In the final rule, the market basket update increased to 3.9% as part of a payment-rate update of 5.1%. The parity adjustment is being implemented over two years instead of one, resulting in an FY23 impact of -2.3%.

Thus, SNFs will have a net payment increase of 2.7%, a swing of 3.4 percentage points from the proposed rule (the figures provided by CMS reflect rounding).