Navigating Medicare’s 2024 inpatient payment rule

On Aug. 1, 2023, CMS published its final rule for federal FY24 inpatient prospective payment system (IPPS). Undoubtedly, navigating such complexity in a healthcare rule can be quite challenging. The purpose of this blog post is to provide some much-needed clarity regarding the new rule, enabling healthcare finance leaders to direct their attention towards the key priorities.

8 key reimbursement takeaways

The following are essential reimbursement insights to factor into the formulation of your hospital’s strategic approach towards reimbursement analysis and contracting for FY24.

1. The final rule will increase Medicare IPPS rates by a net 3.1% for FY24, compared to FY23, for hospitals that are meaningful users of electronic health records and submit quality measure data.
2. The 3.1% payment update reflects a hospital market basket increase of 3.3% as well as a productivity cut of 0.2%. In summary, CMS will increase hospital payments by $2.2 billion compared to FY23, which is inclusive of a $957 million decrease in disproportionate share hospital (DSH) payments and a $364 million decrease in new medical technology payments.
3. The rule further reduced inpatient DSH payments by $1 billion to hospitals catering to the most vulnerable patients across the nation. This payment decrease is founded on the agency’s projection that the uninsured rate will diminish from 9.2% in FY23 to 8.3% in FY24, even in the face of widespread disenrollment from Medicaid coverage with the cessation of the public health emergency.
4. CMS has definitively determined to confine the inclusion of patient days in the Medicaid DSH calculation exclusively to patients eligible for Medicaid benefits through a Section 1115 demonstration project. This project encompasses inpatient hospital services, or premium assistance covering the complete premium cost for a patient procuring health insurance inclusive of inpatient hospital services. This applies on the condition that the patient is not concurrently entitled to Medicare Part A.
5. The agency reaffirmed its commitment to extend the low wage index hospital policy into FY24. Concurrently, it also concluded its determination to classify rural reclassified hospitals as geographically rural for wage index calculation purposes. This first-year shift in the calculation process will lead to significantly favorable effects on wage indexes for many hospitals in New York, Nevada and California but yield severe challenges for numerous hospitals in New Hampshire, Massachusetts and Utah.
6. CMS has solidified its proposition to align rural emergency hospitals (REHs) with critical access hospitals (CAHs) in terms of calculating graduate medical education (GME) payments.
7. The rule halts all new COVID-19 Treatment Add-on Payments based on the program’s expiration on Sep. 30.
8. Exciting news on the Social Determinants of Health (SDOH) front! CMS will shift severity-level designation for three ICD-10 Z codes describing homelessness from non-complication or comorbidity (NonCC) to complication or comorbidity (CC). CMS acknowledges homelessness as a factor contributing to heightened resource utilization in acute inpatient hospital settings. Including these three Z-codes as secondary diagnoses on inpatient claims might finally give providers with extra reimbursement, helping to counterbalance the elevated level of care they deliver to these vulnerable patients within an inpatient environment.

Hospital value-based purchasing program key impacts

The agency has also solidified strategies to advance health equity and enhance patient safety. This encompasses initiatives such as introducing health equity adjustments within the Hospital Value-Based Purchasing Program. This adjustment provides incentives to entities that cater to significant portions of underserved individuals, as defined by their dual-eligibility status.

CMS will also modify two quality measures pertaining to the Medicare Spending per Beneficiary (MSPB) Hospital measure for FY28 and the Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty measure for FY30. The agency will also be adopting a new management bundle measure on Severe Sepsis and Septic Shock for FY26.

Additional resources for understanding and analyzing the final rule

In tandem with the definitive rule, CMS has released a comprehensive fact sheet. Moreover, here at HFMA, watch for our all-inclusive comprehensive summary of the rule to be released later in August. These rule provisions are set to come into effect on Oct. 1, 2023, unless otherwise specified within the rule itself.