This analysis was prepared by McDermottPlus Consulting on behalf of AACOM.

On August 1, 2022, the Centers for Medicare & Medicaid Services (CMS) released the FY 2023 Inpatient Prospective Payment System (IPPS) final rule updating Medicare payment policies and quality reporting programs relevant for hospital inpatient services, and building on key priorities to address health disparities and improve the safety and quality of maternity care.

• A complete summary of the final rule is available here.
• The final rule is available here. 
• A CMS factsheet on the final rule is available here.
• An additional factsheet on the maternal health provisions is available here. 

The final rule is scheduled to be published in the Federal Register on August 10, 2022, and will be effective on October 1, 2022.

Key Takeaways

1. CMS estimates that the overall finalized update and other rule changes will increase IPPS payments to hospitals in FY 2023 by more than $1 billion, a larger payment update than originally proposed. Payment updates and policy changes for graduate medical education (GME) programs would increase IPPS payments, but projected reductions in the uncompensated care payment pool, outlier payment and new technology add-on payments (NTAP), as well as expiration Medicare Dependent Hospitals and low-volume hospital payment adjustments, would offset some of the payment increases. This estimate does not factor in changes in hospital admissions, real case-mix intensity or the mandatory sequestration adjustment.
2. The finalized FY 2023 standardized amount for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and that are meaningful electronic health record (EHR) users would be $6,375.74, representing a payment update of 4.3% over FY 2022.
3. CMS did not extend the add-on payment for 11 technologies with NTAP periods expiring at the end of FY 2023. The Agency also discontinued the one-year extension on NTAP for the 13 technologies for which the add-on payment would have otherwise ended in FY 2022.
4. In response to the pandemic’s continued impact on hospitals, CMS finalized proposals waiving penalties for certain quality programs as well as modifications to measures and measure calculations. The agency also includes three health equity-based quality measures.
5. CMS decided not to finalize proposed limitations on the Section 1115 patient days that may be included in the calculation of the Medicare disproportionate share hospital (DSH) adjustment and adopted its proposal to use the two most recent years of audited Worksheet S-10 data to distribute uncompensated care payments.
6. CMS finalized proposed changes to the calculation of GME full-time equivalent (FTE) caps when hospital weighted FTE counts exceed their direct GME FTE cap, and will allow certain urban and rural hospitals participating in Rural Training Tracks to enter into Medicare GME affiliation agreements in order to share FTE caps.
7. CMS will establish a public-facing, “Birthing-Friendly” hospital designation to promote quality and safety of maternity care. CMS will also incorporate feedback on several requests for information (RFIs), including those focused on climate change, maternal health equity, measuring disparities in care quality, and moving to digital quality measures, into future policy development.

Graduate Medical Education

Changes to GME Payments Based on Litigation

Key Takeaway: CMS adopted its proposal to change GME FTE caps for certain hospitals 

In Milton S. Hershey Medical Center, et al. v. Becerra, the U.S. District Court for the District of Columbia ruled against CMS’s method of calculating direct GME payments to teaching hospitals when hospital weighted FTE counts exceed their direct GME FTE cap. In response to the court’s holding, CMS proposed to modify its regulation to be consistent with statutory weighting factors.

CMS adopted its proposal without significant modification in the final rule. Specifically, effective for cost reporting periods beginning on or after October 1, 2001, if a hospital’s unweighted number of FTE residents exceeds the FTE cap, and the number of weighted FTE residents also exceeds that FTE cap, the weighted FTE counts will be adjusted to make the total weighted FTE count equal the FTE cap. If the number of weighted FTE residents does not exceed that FTE cap, then the allowable weighted FTE count for direct GME payment is the actual weighted FTE count. In addressing public comments, CMS confirmed its intention to make changes both prospectively and retrospectively, citing the fact that the method for computing FTEs was not consistent with statutory requirements, and noting the explicit statutory requirement that the Department of Health and Human Services promulgate a rule governing GME reimbursement renders retroactive application here “necessary to comply with statutory requirements” under Section 1871(e)(1)(A)(i) of the Social Security Act.

Finally, in response to comments, CMS decided to apply the new methodology to additional FTE caps that many teaching hospitals received following redistribution of unused FTE cap slots as mandated by Section 422 of the Medicare Modernization Act (MMA), reasoning that the mathematical cap concept is the same for the FTE cap under Section 422 of the MMA as it is for the regular FTE cap.

Medicare GME Affiliation Agreements within Certain Rural Track FTE Limitations

Key Takeaway: CMS will allow certain urban and rural hospitals to enter into Rural Track Medicare GME Affiliation Agreements.

The number of FTE residents that each teaching hospital may include in its indirect medical education (IME) adjustment and direct GME payment formulas is limited by a teaching hospital’s FTE resident caps. Under the final rule, CMS finalized a proposal that will allow certain urban and rural hospitals participating in Rural Training Tracks to enter into Medicare GME affiliation agreements in order to share FTE caps. Specifically urban and rural hospitals can enter “Rural Track Medicare GME Affiliation Agreements” effective with the July 1, 2023, academic year if they participate in the same separately accredited “1-2 format” family medicine rural track program or have established rural track FTE limitations. Programs that are not separately accredited in the 1-2 format or are not in family medicine would not be permitted to enter into such agreements, and urban and rural hospitals may only participate in rural track Medicare GME affiliated groups if they have rural track FTE limitations in place prior to October 1, 2022.

Conclusion

This final IPPS rule presents an improved Medicare revenue outlook compared to the proposed rule but might fall short of expectations for America’s hospitals that are facing ongoing financial instability in the long shadow of the COVID-19 pandemic. Hospital Medicare payments in FY 2023 are projected to increase by more than $1 billion, an improvement compared to projected negative growth in the proposed rule. The final rule also reflects more recent data on the U.S. economy, a lower fixed-loss cost threshold for high-cost outlier cases after CMS adopted technical modifications to address COVID-19 cases in its modeling, and a slightly larger uncompensated care payment pool based on updated projections.

CMS also adopted policies to help bring stability to hospital finances. Moving forward, hospitals won’t see a year-to-year wage index decrease by more than 5%. HVBP and HACRP penalties are waived for FY 2023. CMS also delayed proposals that would cause significant changes to the MS-DRG system. The final rule, though, does not bring relief to the new technology sector as CMS decided not to exercise its authority to grant NTAP period extensions. 

Lastly, this final rule also accelerates the implementation of the administration’s key priorities. The rule adopts three health equity-focused measures in hospital quality programs and establishes a “birthing-friendly” hospital designation to promote quality and safety of maternity health. Feedback received on several requests for information, including reporting of SDOH and effective preparation for climate change, may also be incorporated into future policy development.

Please contact AACOM Government Relations at aacomgr@aacom.org with questions or for further information.

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