Inpatient Prospective Payment System Final Rule – FFY 2023
On August 10, the Centers for Medicare & Medicaid Services (CMS) published the FFY 2023 IPPS Final Rule (discharges on or after October 1, 2022) in the Federal Register. Toyon is pleased to provide our summary of the Rule, focused on areas directly impacting Medicare cost reporting and reimbursement.
CMS estimates hospitals will receive an overall change of $1.4 billion in IPPS payments, as compared to FFY 2022. Estimated payments per the FFY 2023 IPPS Final Rule are $1.7 billion higher than the FFY 2023 IPPS Proposed Rule, largely due to the final market basket of 4.3%, which is 1.1% greater than the market basket in the FFY 2023 IPPS Proposed Rule. CMS estimates the $1.4 billion increase in payments as follows:
+ $2.4 billion net increase in operating payments, including the -$318 million reduction to UC DSH.
– $1 billion net decrease in payments related to payment changes in programs for new technology, low volume hospitals, GME, and capital.
CMS proposes a net increase of 3.8% to hospital base rates, after budget neutrality, for hospitals that comply with the CMS quality reporting program (QRP). As it has done in prior years, CMS will reduce payments to those hospitals that do not meet Hospital Inpatient Quality (IQR) or meaningful Electronic Health Record (EHR) requirements. CMS finalized FFY 2023 rates based on fewer projected COVID-19 hospitalizations in FFY 2023 than in base-year data from FFY 2021 (i.e., FFY 2021 MEDPAR data).
3. FFY 2023 DRG Weights and Outlier Cost Threshold
To account for the anticipated decline in COVID-19 hospitalizations of Medicare beneficiaries as compared to FFY 2021 base-year data, CMS calculates DRG relative weights by averaging rates with one set including COVID-19 diagnoses, and the other set excluding COVID-19 diagnoses. CMS also finalizes a permanent threshold for DRG weight changes, whereby the relative weight for a MS-DRG is capped at no more than ten percent reduction in a given fiscal year.
The FFY 2023 cost outlier threshold is $38,859 using charge inflation factors prior to the COVID-19 PHE as a more reasonable approximation of the increase in costs that will occur from FFY 2021 to FFY 2023.
CMS proposes to decrease Medicare UC DSH payments by -$221 million, to $7.0 billion in FFY 2023. FFY 2023 UC DSH payments in the Final Rule are $341 million greater than UC DSH payments in the Proposed Rule. This increase is largely attributed to CMS’s estimate of (increased) projected Medicare FFS discharges in 2023.
CMS finalizes a significant change in FFY 2023, applying an average UC cost from FFY 2018 and FFY 2019 to determine each DSH hospital’s UC DSH payment (“Factor 3”). For FFY 2024 and forward, CMS will use a three-year average of UC cost (i.e., FFY 2018, FFY 2019 and FFY 2020) to determine each DSH hospital’s Factor 3.
Hospitals have until August 19 to submit comments on the accuracy of the table and supplemental data file published in conjunction with the FFY 2023 Final Rule. Please see CMS’s file entitled “FY 2023 IPPS Final Rule: Medicare DSH Supplemental Data File (ZIP)” at CMS’s FFY 2023 Final Rule website. Providers may contact CMS at Section3133DSH@cms.hhs.gov to request corrections.
CMS also finalizes a separate $96 million Supplemental UC DSH fund for Indian Health Service (IHS)/Tribal and Puerto Rico hospitals in FFY 2023. CMS will no longer use low-income days as the Factor 3 proxy for these DSH hospitals. In FFY 2023 IHS/Tribal and Puerto Rico hospitals receive FFY 2023 Supplemental UC DSH payments using FFY 2022 UC DSH payments adjusted by “one plus the percent change” in total uncompensated care.
 If a hospital does not have data for combined years, CMS determines Factor 3 based on an average of the hospital’s available data.
Due to the volume and content of comments received, CMS is not finalizing its proposed treatment of section 1115 demonstration days. In the FFY 2023 IPPS Proposed Rule, CMS suggested:
The interpretation of “regarded as eligible” pertained to: Patients who receive health insurance through a section 1115 demonstration itself or purchase such health insurance with premium assistance authorized by a section 1115 demonstration, where state expenditures may be matched with Title XIX funds.
Allowable section 1115 days represent claims with insurance coverage with Essential Health Benefits (EHB), if bought with premium assistance, for which the premium assistance is equal to or greater than 90 percent of the cost of the coverage (Patient cannot be entitled to Medicare Part A coverage).
Section 1115 days from a State uncompensated care payment are not allowable and excluded from the Medicaid fraction.
The FFY 2023 occupational mix adjusted national average hourly wage is $47.73, representing an increase of 2.9% from FFY 2022 (from FFY 2021 to FFY 2022 the AHW increase was 2.6%). In FFY 2023, CMS finalizes:
A permanent 5% cap on the decrease of any hospital’s wage index from the prior year. For instance, in FFY 2023, a hospital cannot receive a final wage index less than 5% of what it received in FFY 2022.
The inclusion of wage data for urban hospitals re-designated as rural in the calculation of each state’s respective rural wage index (“rural floor”). This policy is contrary to the methodology used to calculate each state’s rural floor wage index in FFY 2020 through FFY 2022.
A permanent imputed rural floor wage index calculation for hospitals located in all-urban States, which refers to States without designated rural areas (continuation of policy established in FFY 2022).
CMS finalized the change to the cost report formula for calculating Direct GME payments in cases where a hospital’s FTE count exceeds its FTE cap. Under the final rule, if the hospital’s unweighted FTE count exceeds the FTE cap, and the number of weighted FTE residents also exceeds the FTE cap, the respective primary care and OB/GYN weighted FTE counts and other weighted FTE counts are adjusted to make the total weighted FTE count equal to the FTE cap. This change would be effective retroactively for cost reporting periods beginning on or after October 1, 2001.
CMS also finalized a rule to allow urban and rural hospitals that participate in the same separately accredited 1-2 family medicine rural training track (RTT) program, that already have RTT FTE limitations, to enter into “Rural Track Medicare GME Affiliation Agreements” for academic years beginning July 1, 2023. Programs that are not separately accredited in the 1-2 format and that are not in family medicine, would not be permitted to enter into these agreements under CMS’s rule.
 1-2 RTT format is 1 year of training in a large, urban residency program followed by 2 years in a rural community.
8. Low-Volume Adjustment Eligibility
For FFY 2023 CMS finalized a low-volume hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 total discharges during the fiscal year. This proposal reflects an “Expiration of Temporary Changes to Low-Volume Hospital Payment Policy” and reverts back to Section 1886(d)(12)(C)(i) of the Act. Hospitals have until September 1, 2022 to request low volume status for FFY 2023.
9. Medicare Dependent Hospital (MDH) Status Expiration
MDH status expired effective FFY 2023. The estimated impact to hospital payments is -$600 million.
MDHs applying for Sole Community Hospital (SCH) status for all of FFY 2023 must apply by September 1, 2022. Qualifying hospitals for SCH status must meet regulations at 42 CFR § 412.92. Per CMS, MDHs applying for SCH status must request that, if approved as an SCH, the SCH status be effective with the expiration of the MDH program (September 30, 2022). If the MDH does not apply by the September 1, 2022 deadline, the hospital is then subject to the usual effective date for SCH classification; which is the date the MAC receives the complete application as specified at § 412.92(b)(2)(i).
10. Hospital Readmissions Reduction Program (HRRP) Adjustment
CMS finalizes the following for FFY 2023:
Resumption of the hospital 30-Day, All-Cause, Risk- Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) for the FFY 2024 program year;
Modification of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia Hospitalization measure (NQF #0506) to exclude COVID-19 diagnosed patients from the measure denominator, beginning with the Hospital Specific Reports (HSRs) for the FFY 2023 program year; and
Modification of all six condition/procedure-specific measures to include a covariate adjustment for patient history of COVID-19 within one year prior to the index admission beginning with the FFY 2023 program year.
CMS received public comment on the impact of socially at-risk populations and the readmission program and states this information will be used to inform future policy development.
For FFY 2023, CMS will not calculate a Total Performance Score (TPS) for any hospital. To comply with statute on the 2% withhold for VBP, CMS is then adding back the same 2% to suppress VBP scores in FFY 2023. Therefore, there is a $0 net impact of VBP in FFY 2023.