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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.  

Please see a breakdown of your hospital’s estimated Federal Fiscal Year (FFY) 2023 IPPS payments here on Toyon’s FFY 2023 Final Rule Dashboard Analysis.

1. National Medicare IPPS Estimates
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.  

For more information, please contact Fred Fisher at 888.514.9312 or

2. Standardized Base Rates
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[1]). 
[1] Medicare Provider Analysis and Review (MEDPAR): Data on Medicare beneficiaries using hospital inpatient services at

For more information, please contact Scott Besler at 888.514.9312 or

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.  
For more information, please contact Scott Besler at 888.514.9312 or

4.   Uncompensated Care (UC) DSH
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[1] 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 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. 
[1] If a hospital does not have data for combined years, CMS determines Factor 3 based on an average of the hospital’s available data.

For more information, please contact Fred Fisher at 888.514.9312 or

5.  Empirical DSH
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.
For more information, please contact Dylan Chinea at 888.514.9312 or

6.     Wage Index
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:
For more information, please contact Ryan Sader at 888.514.9312 or

7.  Graduate Medical Education (GME)
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[1], 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.
For more information, please contact Tom Hubner at 888.514.9312 or
[1] 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. 
For more information, please contact Robert Howey at 888.514.9312 or

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).
For more information, please contact Robert Howey at 888.514.9312 or

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 more information, please contact Robert Howey at 888.514.9312 or

11.  Value Based Purchasing (VBP) Adjustment
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. 
For more information, please contact Robert Howey at 888.514.9312 or

12.  Hospital Acquired Conditions (HAC) Adjustment
No hospital will receive a HAC adjustment, as CMS is not applying a score from each of the six measurements in the HAC Reduction Program in FFY 2023.
For more information, please contact Robert Howey at 888.514.9312 or
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Comments on Proposed Cost Reporting Instructions

CMS recently released new proposed Medicare cost reporting instructions, available for download here on the CMS website. Comments are due to CMS by July 22, and can be submitted electronically at this link
Please see Toyon’s comments on CMS’s proposed cost report instructions here. Additionally, to assist with comments to CMS, providers may download the Hospital | Health System template here. Please review all comments prior to submitting, and feel free to use some or all of the content in this letter. Providers may also amend the language to best articulate comments to CMS using hospital-specific examples, etc. 
Toyon comments on the following:
  • Worksheet S-2 Lines 24 and 25: Medicaid DSH Eligible Days
  • Worksheet S-2 Line 89: TEFRA Adjustment Date
  • Worksheet S-2 Line 123: Purchased Administrative Services
  • Exhibit 2A: Listing of Medicare Bad Debts
  • Exhibit 3A: Listing of Medicaid Eligible Days for DSH Eligible Hospitals
  • Worksheet S-10: Financial Assistance Policies
  • Worksheet S-10: Acute Care Only
  • Worksheet S-10: Medically Necessary Healthcare
  • Worksheet S-10: Uninsured Charity Care
  • Worksheet S-10: Insured Charity Care
  • Worksheet S-10: Inferred Contractual Relationships
  • Worksheet S-10: Total Bad Debt
  • Exhibit 3B (Charity Care Listing)
  • Exhibit 3C (Listing of Total Bad Debts)
Worksheet S-10 UC DSH
Amongst other proposed revisions, CMS calls for providers to report Uncompensated Care (UC) costs for acute care services only (based on hospital Medicare provider number) on Worksheet S-10 Part II. Please note Section IV of the Hospital | Health System template requests CMS to omit this reporting requirement, as delineating Worksheet S-10 UC cost between acute care and sub-acute care adds another administrative burden to Worksheet S-10 reporting. Toyon acknowledges the reporting of acute care only for UC DSH payments may result in a shift in UC DSH payments for certain hospitals (depending on whether a DSH provider has material charity and bad debt related to subacute providers). Toyon is not commenting on a potential shift in payments, and only focuses on the additional administrative effort of collecting and reporting Worksheet S-10 data.   
Organ Acquisition Changes
Toyon is not commenting on CMS’s proposed changes related to Organ Acquisition reporting and reimbursement. Toyon agrees with CMS’s proposed changes, which were also included in the previous PRA package from November 2020. Listed below are CMS’s proposed changes related to Organ Acquisition. 
Worksheet A, Lines 78 and 102
CMS is adding lines 78 (CAR T-Cell Immunotherapy) and 102 (Opioid Treatment Program), which will require hospitals to create separate G/L departments to track these expenses and charges. Line 78 is used for reporting IPPS (D-3) and OPPS (D Part V) charges from the PS&R. Line 102 is informational only and is not included in the PS&R charges.
Worksheet D-6 series
This is a new form used to obtain cost-based reimbursement for allogeneic stem cell acquisition costs. CMS made several noteworthy updates to this form from the previous PRA in November 2020. First, there’s no longer a checkbox to include CAR T-Cell acquisition costs in this section which was to be reported for informational purposes only (see comment above for Worksheet A line 78).
Second, the Medicare reimbursement for allogeneic stem cell acquisition costs will now be based on the ratio of Medicare to total transplants, much like the methodology for solid organ. Previously, the form required only to include donor charges for Medicare recipients to determine the Medicare portion. Worksheet D-6 (Part I) now requires hospitals to capture donor charges for all payers. This methodology is a departure from the CMS comments in the FFY 2019 IPPS Final Rule, so CMS may issue a separate rule with comment period for this change.
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Please feel free to share questions to Fred Fisher, Specific to Organ Acquisition reimbursement, please contact Robert Howey at
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FFY 2019 Worksheet S-10 Audit Verification

CMS recently released updated Medicare cost report data in the Healthcare Cost Report Information System (HCRIS) including updates to Federal Fiscal Year (FFY) 2019 Worksheet (WS) S-10[1]. Toyon recommends Disproportionate Share (DSH) providers validate this HCRIS information, as CMS will likely use FFY 2019 WS S-10 data to determine FFY 2023 Uncompensated Care DSH (UC DSH) payments.  
Toyon also recommends providers contact their MAC regarding any discrepancies between their FFY 2019 WS S-10 audit results and the HCRIS data. Toyon will provide this service for all our S-10 clients to verify the agreed upon audit results were transmitted accurately. CMS’s use of FFY 2019 WS S-10 data will be further discussed in the FFY 2023 IPPS Proposed Rule this Spring. 
Toyon’s FFY 2019 WS S-10 Audit Verification File Available HERE
To assist with audit verification, please feel free to download (using the link above) Toyon’s WS S-10 comparison file. This file allows providers to enter the results from their WS S-10 audit adjustment reports and compare against WS S-10 data in CMS’s HCRIS database.
File Use
All data entry areas in the template are orange. 
  • Enter Medicare provider number in Excel Cell A2
  • Enter FFY 2019 WS S-10 audit results in the following cells
    • Cell J26 – WS S-10 Line 1, Col 1: Cost to Charge Ratio
    • Cell H30 – WS S-10 Line 20, Col 1: Uninsured Charity Charges
    • Cell I30 – WS S-10 Line 20, Col 2: Insured Charity Charges
    • Cell H32 – WS S-10 Line 22, Col 1: Uninsured Charity Payments, if applicable
    • Cell I32 – WS S-10 Line 22, Col 2: Insured Charity Payments, if applicable
    • Cell J39 – WS S-10 Line 25, Col 1: Medicaid Charges > LOS Limit, if appliable
    • Cell J40 – WS S-10 Line 26, Col 1: Total Bad Debt Expense
    • Cell J42 – WS S-10 Line 27.01, Col 1: Allowable Medicare Bad Debts
File Results
After entering above data, the template will compare:
  • — FFY 2019 Audited WS S-10 vs. FFY 2019 WS S-10 per CMS HCRIS[2]
  • — FFY 2019 Audited WS S-10 vs. FFY 2018 Audited WS S-10 per CMS HCRIS
Should you have any questions about the audit comparison file and/or questions about your hospital’s audit results please feel to reach out to Liam Corrigan-Carias at 888.514.9312,
[1] Cost report fiscal years beginning on/after 10/1/2018 through 9/30/2019
[2] It is possible that Cost of Uncompensated Care on Line 30 may vary from the S-10 audit results. This may be a result of separate cost report audits impacting the Cost to Charge Ratio (S-10, Line 1) or Medicare Bad Debts (S-10, Line 27.01).  
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