Medicare Payment and Reimbursement

News Briefs: Hospitals foresee adverse impacts from the FY24 inpatient payment rule

As published in the September issue of hfm magazine, a monthly roundup of top news for healthcare finance professionals.

August 30, 2023 12:17 pm

The FY24 final rule for Medicare inpatient payments didn’t bring hospitals the type of rate update they had sought, and for some organizations, a bigger concern is changes to uncompensated care (UC) payments.

The regulations, which take effect Oct. 1, establish a 3.1% increase in operating payment rates, on average, for hospitals that meet quality-reporting requirements and fulfill the criteria to be designated as meaningful users of electronic health records.

Although the increase represents a raise from the FY24 proposed rule, which included a 2.8% update, hospitals say it doesn’t keep pace with costs.

“[CMS] continues to finalize rate increases that are not commensurate with the near decades-high inflation and increased costs for labor, equipment, drugs and supplies that hospitals across the country are experiencing,” Ashley Thompson, senior vice president with the American Hospital Association, said in a written statement.

Meanwhile, UC payments will fall by more than $950 million from FY23. The biggest difference from the proposed rule, which estimated a $115 million reduction, is a drop in the projected uninsured rate based on updated data from the National Health Expenditure Accounts.

Projected Medicare inpatient payment update based on hospital size

The FY24 Medicare payment increase for items and services provided in inpatient settings is projected to vary based on inputs such as wage-index adjustments. For example, here’s how urban hospitals with different bed counts will be affected, based on CMS’s estimates in the rule as published in the Aug. 28 edition of the Federal Register.

Bed countPayment update (%)

Hospitals face potentially disadvantageous changes to the DSH payment formula

The FY24 final rule for inpatient payments also includes changes to the calculation of the disproportionate patient percentage (DPP), which determines a hospital’s disproportionate share hospital (DSH) payment.

CMS finalized a proposal to clarify that the Medicaid fraction numerator in a hospital’s DPP includes patients covered by a Section 1115 waiver that provides either insurance covering inpatient care or fully subsidized premium assistance with which to buy such insurance.

But for hospitals in a state with an applicable Section 1115 demonstration that covers less than 100% of premium costs, patients in any such demonstration cannot be included in the numerator.

In addition, a hospital’s Medicaid fraction numerator cannot include patients whose care is subsidized by uncompensated/undercompensated care pools established by a Section 1115 demonstration. States affected are Florida, Kansas, Massachusetts, New Mexico, Tennessee and Texas.

After crunching the numbers, CMS roughly estimated that $2,477 per bed at DSH hospitals in those states could be affected by the change.

Billions of dollars are coming to hospitals as a remedy for 340B-related underpayments

Hospitals that participate in the 340B Drug Pricing Program stand to receive $9 billion in aggregate lump-sum payments as compensation for underpayments from Medicare during a nearly five-year period.

In a proposed rule issued July 7, CMS described how it would provide remedies following a 2022 Supreme Court ruling that the U.S. Department of Health and Human Services did not follow proper procedure when it lowered the Medicare payment rate for drugs purchased through 340B by 28.5 percentage points starting in 2018.

About 1,650 340B-participating hospitals would receive portions of the $9 billion. A hospital’s payment would be calculated based on its claims filed for drugs acquired through the program between Jan. 1, 2018, and Sept. 27, 2022.

CMS said its reading of the Medicare statute indicates the remedy payments are subject to budget neutrality requirements. The agency proposes to reduce the conversion factor for hospital outpatient payments by 0.5% annually over a 16-year period starting in 2025. Thus, non-340B hospitals face the prospect of a net loss from the remedy plan.

Senators ask IRS to provide information on hospitals’ tax-exempt status

A bipartisan quartet of senators wrote to the IRS in August asking for information on the agency’s oversight of nonprofit hospitals.

Sens. Bill Cassidy, MD (R-La.), Charles Grassley (R-Iowa), Raphael Warnock (D-Ga.) and Elizabeth Warren (D-Mass.) sent a letter on Aug. 7 citing examples that purportedly show some nonprofit hospitals “may not be fulfilling their required obligation to provide reduced or free care to their most vulnerable patients.”

The senators requested information from the IRS on various points, such as:

  • The most commonly reported community benefit activities that qualified a hospital for tax exemptions in FY21 and FY22
  • Hospitals that were referred to the IRS’s audit division for potential violations of the Affordable Care Act between FY19 and FY22
  • Hospitals that had their Form 990 rejected for failing to meet community benefit requirements, as well as hospitals that failed to file the form

Why the No Surprises Act arbitration portal was closed for business in early August

The U.S. Department of Health and Human Services (HHS) on Aug. 4 temporarily shut down the system for settling provider-insurer disputes over out-of-network payment amounts under the No Surprises Act.

A day earlier, a federal judge gave the Texas Medical Association (TMA) the latest in the association’s string of legal victories involving the independent dispute resolution (IDR) process dating back to early 2022. Judge Jeremy D. Kernodle of the Eastern District of Texas court ruled that a 2023 change in the administrative fee from $50 to $350 per IDR case was unlawful because HHS did not use a notice-and-comment period before enacting the increase.

Kernodle also decided in favor of the TMA on the question of whether HHS acted properly in restricting the batching of IDR cases to items or services that share the same service code. HHS should have opened that decision to a notice-and-comment period, the judge said.

Portal operations subsequently were halted while CMS made updates to IDR processes, templates and systems.

Full operations were set to resume sometime after Aug. 11, when CMS issued an FAQ stating that the fee was reverting to $50 for any disputes initiated Aug. 3 or later. Per the court decision, however, no refunds are in the offing for disputes sent to the portal earlier this year.

Note: See this article for an update on why the portal was shut down again Aug. 24 and remained closed as of Aug. 30.

CMS seeks to strengthen hospital price transparency requirements

Hospital price transparency regulations are set to undergo changes heading into their fourth year.

In a proposed rule for 2024, CMS added to the requirement for hospitals to maintain a machine-readable file of their charges.

Hospitals would need to encode fields for all the required data elements in the file. Newly required elements that pertain to payer-specific negotiated charges include:

  • The contracting method used to establish the charge
  • Whether the charge should be interpreted as a dollar amount or percentage, or by using an algorithm
  • The expected allowed amount in instances when the charge can’t be expressed as a dollar figure


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );