Medicare’s proposed outpatient payment update for 2025 doesn’t keep pace with hospital costs, advocates say

Note: Additional coverage of the proposed rule can be found here.

Hospital advocates expressed dissatisfaction with the payment update in Medicare’s 2025 proposed rule for hospital outpatient care and ambulatory surgical centers (ASCs).

CMS proposes to increase the Medicare rate for outpatient services and ASCs by 2.6%, resulting from a 3% jump in the market basket and a 0.4% statutory reduction based on economywide productivity. The update would be lower for any hospital that does not meet quality-reporting requirements. When factoring in budget neutrality adjustments (e.g., wage-index adjustments), the update would be 2.4% for urban hospitals and 2.8% for rural hospitals.

The overall percentage update was anticipated after the inclusion of the same market-basket increase in April’s FY25 proposed rule for inpatient payments. For both rules, the proposed payment updates are subject to change based on fluctuating market-basket inputs. Most recent years have brought a small rate boost from the proposed rules to the final regulations.

For now, with the healthcare sector continuing to experience inflation and tight margins, advocates say the updates are inadequate.

The ability of hospitals and health systems “to continue caring for patients and providing essential services for their communities may be in jeopardy, and we urge CMS to provide additional support in the final rule,” Ashley Thompson, senior vice president for public policy analysis and development with the American Hospital Association, said in a written statement about the outpatient rule.

What the metrics show

In its latest set of hospital financial benchmarks, Strata Decision Technology reported that the median year-to-date operating margin rose to 5% in May, the fifth consecutive month in which the metric has been above 4.5%. However, the median change in May was 0.9 percentage points lower than in April, suggesting continued financial instability, Strata noted. The median year-over-year change was negative in certain pockets of the country, such as the Midwest (-0.9%).

Expenses also remain a concern, with year-over-year increases of 8.3% for drugs and 8.1% for supplies.

Given that sort of context, CMS “is once again proposing an update for hospital outpatient services that will continue to widen the chasm between Medicare reimbursement and hospitals’ actual operational costs,” Soumi Saha, senior vice president for government affairs with Premier, said in a written statement. “It is no secret that the financial pressures hospitals are facing are being compounded by inflation, stubborn labor shortages and an aging demographic.”

A better approach at CMS would entail “implementing more robust methodologies and incorporating new data sources to accurately gauge hospitals’ true costs, including comprehensive labor expenses,” Saha said.

CMS’s reliance on historical wage-inflation data does not capture the realities on the ground, hospital advocates argue. Although labor costs arguably have fallen behind drug and supply expenses on the list of finance-related concerns for hospitals, they still rose by 4.4% year-over-year and 2.4% from April, Strata reported.

Updates to quality reporting

The newly proposed rule includes tweaks to the hospital outpatient quality-reporting (OQR) program, in which participation is required for a hospital to avoid a reduction of 2 percentage points in its payment update.

Additions to the OQR program for 2025 would include the following measures:

• Hospital Commitment to Health Equity
• Screening for Social Drivers of Health (voluntary in 2025, mandatory in 2026)
• Screen Positive Rate for Social Drivers of Health (voluntary in 2025, mandatory in 2026)
• Patient Understanding of Key Information Related to Recovery After a Facility-Based Outpatient Procedure or Surgery (voluntary in 2025, mandatory in 2026)

Measures set for removal from the OQR program include the MRI Lumbar Spine for Low Back Pain measure, with studies failing to show a link between performance on the measure and patient outcomes. A similar issue spurred a proposal to remove the Cardiac Imaging for Preoperative Risk Assessment of Non-Cardiac, Low-Risk Surgery measure.

Electronic health record technology would need to be certified (i.e., tested and validated) for all electronic clinical quality measures (eCQMs) that are part of the OQR program, according to the proposed rule. That requirement would align the OQR program with the quality-reporting program for inpatient care and the Promoting Interoperability Program.

Another proposal calls for the Median Time from Emergency Department Arrival to ED Departure for Discharged ED Patients eCQM for psychiatric and mental-health patients to be publicly reported on Care Compare.

CMS also included a proposal regarding the Hospital Inpatient Quality Reporting Program. Reporting would remain voluntary for core clinical data elements (CCDEs) and linking variables for the Hybrid Hospital-Wide Readmission measure and the Hybrid Hospital-Wide Standardized Mortality measure for the performance period spanning July 1, 2023, through June 30, 2024. Thereafter, the submission of CCDEs and linking variables would become mandatory.

Updates to supplementary payments

In the proposed rule, CMS acknowledged that the approach of packaging payment for diagnostic radiopharmaceuticals with payment for nuclear medicine tests is not always adequate. The rule calls for making diagnostic radiopharmaceuticals separately payable if the cost per day exceeds $630.

There would be a new add-on payment of $10 per dose for the radioisotope Technetium-99m (Tc-99m) if it is derived from domestically produced Molybdenum-99 (Mo-99). The payment is intended to preserve access to domestically produced TC-99m, given the higher costs that stem from domestically produced Mo-99.

Payment updates also are pending for certain sets of behavioral healthcare services, according to the proposed rule.

Specifically, rates for the partial hospitalization program (PHP) and the intensive outpatient program (IOP), which are paid on a per diem basis, would be updated using 2023 claims data and cost-reporting data from FY22 onward. As is the case in 2024, the claims data would encompass non-PHP claims “to capture data from claims not identified as PHP, but that also include the service codes and intensity required for a PHP day,” CMS wrote (IOP ambulatory payment classifications mirror those for the PHP).

Regarding device pass-through payments, CMS plans to post application forms and related (nonproprietary) materials online in a public forum beginning with the current rulemaking period. The agency finalized the policy in 2022 for applications received starting March 1, 2023.