The Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 Medicare hospital inpatient prospective payment system (IPPS) and long-term care hospital prospective payment system (LTCH PPS) final rule on August 1, 2024. This rule aims to update Medicare fee-for-service payment rates and policies for inpatient hospitals and long-term care hospitals (LTCHs) for FY 2025. The annual update is a legal requirement to ensure Medicare payment policies remain current and effective. The final rule will go into effect on October 1, 2024, and below are six key highlights.
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IPPS Payment Rates
CMS proposed a 2.9% increase in operating payment rates for general acute care hospitals under IPPS, contingent on participation in the Hospital Inpatient Quality Reporting (IQR) program and meaningful use of electronic health records (EHRs). This increase reflects a projected FY 2025 hospital market basket percentage of 3.4%, adjusted by a 0.5 percentage point productivity reduction.
Hospitals under IPPS may also face other payment adjustments, including penalties for excess readmissions (Hospital Readmissions Reduction Program), a 1% reduction for the lowest-performing quartile on hospital-acquired conditions (HAC) (HAC Reduction Program), and adjustments based on performance in the Hospital Value-Based Purchasing (VBP) Program. Overall, CMS anticipates that theses changes will increase hospital payments by $3.2 billion in FY 2025. This includes a $2.9 billion increase in operating and capital IPPS payment rates and an additional $560 million for Medicare uncompensated care payments to disproportionate share hospitals (DSH). CMS also expects approximately $0.3 billion in additional payments for inpatient cases involving new medical technologies. However, payments for Medicare-Dependent Hospitals (MDHs) and low-volume hospitals are set to expire by December 31, 2024, potentially leading to a $0.4 billion decrease in payments if not extended by legislation.
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CMS Proposal for IPPS Payment on Essential Medicines
Recognizing the critical need to address drug shortages, CMS will implement a new IPPS payment category aimed at supporting small, independent hospitals. These hospitals often struggle more during supply disruptions because they lack the resources of larger or chain-affiliated hospitals. The policy enables these hospitals to establish and maintain a buffer stock of essential medicines to mitigate future shortages. This initiative aims to ensure more reliable and resilient access to necessary medicines for patients in these hospitals, improving overall healthcare delivery.
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Social Determinants of Health Diagnosis (SDOH) Codes
CMS determines IPPS payments based on hospital resource use related to patient severity, service complexity, and resource consumption. As a result of data analysis showing higher resource costs associated with certain ICD-10-CM diagnosis codes for inadequate housing and housing instability, CMS proposed changing their severity designation from non-complication or comorbidity (NonCC) to complication or comorbidity (CC). This adjustment aims to better re