Medicare Payment and Reimbursement

Medicare’s proposed FY24 update to inpatient payments falls short, hospitals say

In addition to an overall payment increase that was less than they were hoping for, hospitals are looking at the prospect of a decrease in uncompensated care payments.

April 12, 2023 4:53 pm

Hospitals are less than pleased with Medicare’s proposed FY24 payment update for inpatient care.

In proposed regulations, the net inpatient payment update is 2.8% after factoring in a mandatory productivity adjustment of -0.2 percentage points. As usual, the update would be reduced for any hospital that does not fulfill quality-reporting requirements or qualify as a meaningful user of electronic health records.

The market basket update of 3% was derived from input data as of 2022 Q3. Assuming more recent data becomes available, the update can be adjusted in the final rule.

CMS projects the update will be 3.3% for rural hospitals after factoring in geographic reclassifications. And hospitals in some regions will fare better than those in others based largely on budget-neutral updates to the wage index and payment adjustments stemming from the rural wage floor (which ensures that an urban hospital’s wage index is not lower than the wage index for rural hospitals in the same state).

Among urban hospitals, for example, those in the Pacific Region are in line for a 6.4% update, compared with 0.1% for those in the Mountain Region and -0.2% for those in the New England Region (see the table on page 1383 of the rule a full breakdown).

The outlier payment threshold of 5.1% would carry over from FY23. CMS estimates that the actual FY23 rate will end up closer to 5.3%. The 0.2% net reduction is factored into the overall projected payment increase for FY24.

Long-term care hospitals (LTCHs) especially would take a hit under the proposed rule. Their projected payment update is a decrease of 2.5% after factoring in an estimated 4.7% reduction in high-cost outlier payments. CMS is seeking comments on the methodology for determining the LTCH outlier threshold, with changes potentially mitigating the impact.

The comment period for all provisions in the rule runs through June 9 at

Hospitals say the update doesn’t cut it

The overall update is “woefully inadequate,” Ashley Thompson, senior vice president for public policy analysis and development with the American Hospital Association, said in a written statement, especially given “the near-decades-high inflation and increased costs for labor, equipment, drugs and supplies.”

The Federation of American Hospitals said the update “fails to recognize today’s headwinds that will strain the health safety net in 2024,” while America’s Essential Hospitals said, “Ongoing pressures … demand a stronger investment by Medicare.”

In its most recent update on hospital finances, Kaufman Hall reported that the median operating margin for 2023 was -1.1% through February. Even as labor costs appear to be steadying, the report states, “Inflation and pricing pressures are leading to significant cost increases in goods and services.”

While labor costs in February were down 1% year-over-year, supply costs had risen by 4%, drug costs by 1% and purchased service expenses by 8%. Expenses overall were 3% higher.

In the FY24 rule, CMS explained that the annual payment update is set at a level “to create incentives for hospitals to operate efficiently and minimize unnecessary costs, while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs in delivering necessary care to Medicare beneficiaries.”

Supplemental payments also a concern

Based on the proposed rule, hospitals can’t count on supplemental payments to make up for any shortfall. Medicare uncompensated care (UC) payments would decrease by 2.4%, or $168 million (that total includes changes to special supplemental payments for Indian Health Service/Tribal hospitals and Puerto Rico hospitals).

As was the case this year, a three-year average of data from Worksheet S-10 of Medicare cost reports will factor into a hospital’s UC payment by reflecting the hospital’s share of UC care relative to all Medicare DSH-eligible hospitals. For FY24, the three most recent years for which data are available will be FY18-20.

As with the overall payment update, a hospital’s actual UC payment update would vary based on location and other factors (see the table on page 1413 of the rule). For example, rural hospitals are looking at a 1.17% increase, compared with a 2.61% decrease for urban hospitals. Rural hospitals with more than 250 beds would be in line for a 7.34% increase.

CMS noted that any updates to the underlying data could change the tallies in the final rule.

New-technology add-on payments would decline by $466 million, with payments expiring for several technologies. The dollar figure is subject to change based on pending applications of other technologies.

Quality programs in line for tweaks

The Inpatient Quality Reporting (IQR) Program would undergo a few modifications, including, in 2025, the addition of three electronic clinical quality measures (eCQMs) used to gauge hospital-based harm in the form of pressure injuries, acute kidney injuries, and excessive radiation doses or inadequate image quality for diagnostic CT.

Hospital-wide all-cause mortality and readmission measures would be modified to include Medicare Advantage admissions starting with the FY27 payment determination. And a measure on COVID-19 vaccination for healthcare personnel would be updated to align with the CDC’s definition of up-to-date vaccination, starting with the last quarter of 2023.

One measure would be removed for 2024: elective deliveries prior to 39 weeks of gestation. In future years, measures on Medicare spending per beneficiary and complication rates following total hip or total knee arthroplasty both would be removed in conjunction with updates to the same measures as applied in the Hospital Value-Based Purchasing (VBP) Program (see below).

The Promoting Interoperability (PI) Program would face a handful of changes, including one for 2024: Requiring hospitals to attest yes to having conducted a self-assessment of all nine Safety Assurance Factors for EHR Resilience (SAFER) Guides at any point during the calendar year.

Changes on the way for 2025 would include modifying the definition of the EHR reporting period to mean any continuous 180-day or longer period. And the three new eCQMs for the IQR Program also would be available as self-selected measures in the PI Program.

The Hospital VBP Program, which can affect up to 2% of a hospital’s Medicare reimbursement, would adopt several changes to measures in coming years. In FY26, the management bundle for severe sepsis and septic shock would be added to the Safety Domain. In FY27, technical changes to the administration and submission requirements of the HCAHPS survey measure would be implemented.

In FY28, the measure used to assess Medicare spending per beneficiary would incorporate an update allowing readmissions to trigger new episodes. In FY30, additional ICD-10 codes for mechanical complication would be used in the measure on complication rates following elective total hip arthroplasty or total knee arthroplasty.

Changes to the methodology for determining a hospital’s total performance score starting in FY26 would accommodate the increasing policy emphasis on health equity. Specifically, a scoring adjustment would reward hospitals that fare well in the program while treating high numbers of patients who are dually eligible for Medicare and Medicaid.


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