Medicare Payment and Reimbursement

Hospital advocates bemoan the small Medicare payment increase proposed for FY25

A silver lining for some hospitals is an increase in uncompensated care payments, while the wage index would lead to a significant disparity in the payment update among different regions.

April 11, 2024 4:44 pm

The payment increase described in Medicare’s FY25 proposed rule for acute care and long-term care hospitals falls well short of what hospitals need to keep up with costs, advocates say.

The payment rate would rise by 2.6% for hospitals that fulfill quality-reporting requirements and meet the criteria to be designated as meaningful users of electronic health records. A 3% increase in the market basket would be reduced by 0.4% via a statutory cut known as the productivity adjustment.

Given reports of steadily increasing expenses over the past year, especially for supplies and drugs, hospitals could use a more generous update, according to stakeholder reaction. Advocates such as the American Hospital Association (AHA) and Federation of American Hospitals warned that operational sustainability for some hospitals could be jeopardized.

“Payment policies should empower hospitals to deliver exceptional, patient-centric care, but the proposed update falls short on this objective,” Soumi Saha, senior vice president of government affairs for Premier, said in a written statement. “CMS can course-correct by implementing more robust methodologies and incorporating new data sources to accurately gauge hospitals’ true costs, including comprehensive labor expenses.”

The Medicare Payment Advisory Commission (MedPAC) recommended in its March report to Congress that hospital inpatient payment rates for FY25 should rise by 1.5% on top of what is established under current law. That would mean a 4.1% increase. Congress theoretically can step in and order an additional increase before the final rule is published, but such action seems unlikely.

As has happened in past years, however, the payment adjustment could increase modestly from the proposed rule to the final rule based on updates to the market-basket inputs.

Comments on the proposed rule are due by June 10 at

Supplemental payments

One welcome change for hospitals, relative to the FY24 rule, is that uncompensated care (UC) payments to Medicare disproportionate share hospitals are initially projected to increase by $568 million. In this year’s final rule, UC payments fell by more than $950 million as a result of estimated changes to the uninsured rate.

Payments for using new medical technologies would increase by $94 million, per the proposed rule. For a two- to three-year period starting in FY25, the new-technology add-on payment (NTAP) would increase from 65% to 75% for using specific gene therapies to treat sickle cell disease. It’s not yet clear whether any such therapy will meet the NTAP criteria.

Provisions that would reduce payments to low-volume hospitals and Medicare-dependent hospitals are likely to be rendered moot by congressional action later this year. If Congress does not act, however, the annual discharge threshold for a low-volume hospital to receive an additional Medicare payment would drop from 3,800 to 200 starting Jan. 1, 2025. The distance criteria also would become tighter, increasing from 15 miles to 25 miles from the nearest hospital.

CMS estimates the number of qualifying hospitals would drop from around 600 to fewer than 10 in that scenario.

Payments to Medicare-dependent hospitals would expire Jan. 1 in the unlikely event the MDH program is not extended by Congress.

The proposed rule also calls for a new payment to help small, independent hospitals voluntarily establish a six-month buffer stock of essential medicines to guard against potential shortages. Eligible hospitals would have no more than 100 beds and would not receive a payment for establishing a buffer stock after the medication already is in shortage.

Wage index adjustments

The Medicare wage index would be updated using 2020 census data. The budget-neutral aspect of the wage index largely explains the significant differences that are projected in the payment rate for hospitals in different regions and markets.

For example, urban hospitals in the East South Central Region (a 4.8% increase) and West South Central Region (4.5%) would fare better than those in the New England Region (0.1%). The table on page 1768 of the rule draft has a full breakdown of the disparities across regions and hospital categories.

CMS also proposes to continue the low-wage-index policy through at least FY27. The budget-neutral policy, which first was incorporated in FY20 to boost payments for hospitals in the 25th percentile or lower of the wage index, otherwise would expire after this year.

In setting the FY24 federal budget in March, Congress included guidance to HHS that the low-wage policy should be extended to allow for further evaluation.

“We believe it is necessary to wait until we have usable data from fiscal years after the [COVID-19 public health emergency] before reaching any conclusions about the efficacy of the policy,” CMS wrote in the rule.

Incentive payments

Numerous tweaks over the next several years are proposed for the Inpatient Quality Reporting (IQR) Program and the Promoting Interoperability Program. Participation in both is required for hospitals to get the full market-basket update.

The Value-Based Purchasing (VBP) Program, a mandatory pay-for-performance program, would undergo minor changes as well.

IQR Program. Changes that would take effect in 2025 include adoption of a Patient Safety Structural measure and an Age Friendly Hospital measure. The former consists of five sub-components, among them leadership commitment to eliminating preventable harm.

A Failure-to-Rescue measure for surgical patients with complications would be added for claims spanning July 1, 2023, through June 30, 2025, replacing the narrower Death Among Surgical Inpatients with Serious Treatable Complications measure.

The HCAHPS Survey measure would undergo changes to sub-measures over the next couple of years, starting in FY25 with a change to questions about hospital staff responsiveness.

Measures that no longer would have to be reported include those for hospital-level, risk-standardized payments associated with 30-day episodes of care for acute myocardial infarction, heart failure, pneumonia, and total hip arthroplasty or total knee arthroplasty. CMS said the Medicare Spending per Beneficiary measure in the VBP program renders those measures unnecessary.

Data requirements for electronic clinical quality measures (eCQMs) would include an increase in the number to be reported, from six currently to nine in 2026 and 11 in 2027 (still with three measures self-selected by hospitals).

Promoting Interoperability Program. Among other changes, the Antimicrobial Use and Resistance Surveillance measure would be split into separate measures that gauge use and resistance. The program’s performance-based scoring threshold would increase from 60 points to 80 points.

VBP Program. Changes would mirror a few of the proposed changes to the IQR program, including adopting the Patient Safety Structural measure and modifying the HCAHPS Survey measure.

Other care settings

The proposed rule also includes the FY25 payment rate and accompanying policies for long-term care hospitals, which would receive a 2.8% increase for discharges paid under the standard payment rate. However, the net payment change is expected to be only 1.2% due to a projected decrease in high-cost outlier payments. CMS is seeking comment on the proposed methodology for determining the LTCH outlier threshold.

“We continue to call on CMS to modernize its high-cost outlier policy to ensure access to these essential services for some of Medicare’s most severely ill beneficiaries,” the AHA said in a statement attributed to Ashley Thompson, senior vice president for public policy and development. “Any loss of access would affect not only long-term care hospitals and patients but also would have ripple effects across the care continuum, such as placing additional burdens on short-term acute care hospitals and their intensive care units.”

Other rules published in recent weeks set proposed payment rates and policies for hospices, inpatient psychiatric facilities, inpatient rehabilitation facilities and skilled nursing facilities (SNFs). The SNF rule includes provisions enhancing CMS’s authority to monitor the safety and quality of care in those facilities through the use of civil monetary penalties.


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