CMS proposes 2.6% bump to inpatient pay in fiscal 2025

By Dave Muoio / April 10, 2024

The Biden administration is proposing a 2.6% increase for inpatient hospitals’ payments for the coming fiscal year, a $3.3 billion increase over the current year’s payout, as well as other policy adjustments intended to shore up surgical care coordination, drug supply, emergency preparedness monitoring, maternal health and care for the underserved.

The potential updates came under the Centers for Medicare & Medicaid Services' (CMS') proposed Inpatient Prospective Payment Systems (IPPS) and the Long-Term Care Hospital pay rule, which were unveiled Wednesday afternoon.

Hospitals that participate in the IPPS Quality Reporting Program and meaningfully use electronic records are projected to get a 2.6% increase to payments for fiscal year 2025, which begins in October. The pay raise is based on a projected hospital market basket update of 3%, which is reduced by a projected 0.4 percentage point productivity adjustment, according to a release on the rule.

Long-term care hospitals are looking at a proposed 2.8% pay increase, which is a 1.6% or $41 million bump over the current year. This is “primarily due to the proposed update to the rate partially offset by a projected decrease in high-cost outlier payments in FY 2025 compared to FY 2024,” CMS wrote in a release.

The proposed increases were met with a near-immediate condemnation from hospital industry groups.

Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association (AHA), said the 2.6% inpatient update "is woefully inadequate, especially following years of high inflation and rising costs for labor, drugs and equipment."

Soumi Saha, senior vice president of government affairs for hospital group purchasing network Premier Inc., said her group is "profoundly disappointed" with the "dismally deficient" update. 

“With a mere 2.6% payment increase that fails to align with the stark realities of inflation and operational costs, persistent labor shortages and an aging demographic, the sustainability of our healthcare system is jeopardized,” Saha said in a statement.

Industry groups similarly pushed back on fiscal year 2024’s proposed 2.8% increase, which CMS later lifted to a 3.1% pay bump in the final rule.

Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profit health systems, said in a statement that "just like last year, with inflation still stubbornly high, CMS fails to meet the moment.

"... We need Congress to examine the inability of current payments to keep up with rising costs outside hospitals’ control, which ultimately jeopardizes patient care at a time when hospitals are being threatened with Medicare cuts," he continued. "These cuts could lead to closures in rural and underserved areas."

CMS floats health equity, surgical care coordination, hospital preparedness updates

Beyond the annual pay bump, CMS headlined a release and fact sheet accompanying the proposed rule with new equity incentives and policies for hospitals.

The agency said it will be building on last year’s increase in payments for hospitals treating those experiencing homelessness by changing seven diagnosis codes’ severity designations to “more accurately reflect each healthcare encounter for hospitals … and also improve the reliability and validity of the coded data.”

CMS will also be increasing new technology add-on payments for novel gene therapies for sickle cell disease, which disproportionately impacts Black and other underserved demographics; carving out a separate payment for small independent hospitals that maintain a buffer stock of essential medicines; and requiring that at least half of the 200 new graduate medical education slots being made available in 2026 go toward psychiatry.

“Hospitals should be a place you go into and get the care you need, regardless of whether you’re struggling to afford your rent, the color of your skin, or what else is going on in the world around you,” U.S. Department of Health and Human Services Secretary Xavier Becerra said in a release. “The Biden-Harris Administration is doing everything in its power to ensure hospitals have the prescription drugs and supplies they need so providers can focus on what they do best—helping our loved ones be healthy.”

Another part of the proposed rule outlines CMS’ plans for the mandatory Transforming Episode Accountability Model (TEAM), which would test whether episode-based payments for five common procedures would incentivize better coordination between providers during and after surgery.

Liz Fowler, Ph.D., deputy administrator at CMS and director of the CMS Innovation Center, said the model is a direct response to post-discharge care breakdowns that lead to complications and increased utilization down the line.

“By bundling all the costs of care for an episode, this proposed rule can incentivize care coordination, improve patient care transitions, and decrease the risk of an avoidable readmission,” she said in a statement.

Premier’s Saha said that her organization generally views voluntary models as “ideal” but values CMS’ interest in stakeholder feedback as it designs TEAM and urged the agency to continuously monitor the mandatory model for any implementation challenges.

AHA's Thompson went a step further, saying her organization is "very concerned" by the mandatory model proposal. Existing models like the Comprehensive Care for Joint Replacement model and the Bundled Payment for Care Improvement model have not yielded "significant" net savings, she said. And for smaller or financially strained providers, the requirement "to take on risk for large, diverse bundles may require more financial risk than they can bear," she said.

CMS said other areas of its proposed rule would support emergency preparedness by implementing a permanent streamlined data reporting structure for infectious diseases like COVID-19, influenza and respiratory syncytial virus.

The agency also said it is soliciting public comment on how hospital Conditions of Participation could be updated to improve maternal health services. These could relate to standards of practice, obstetrical services staffing and training, the agency said.

“Hospitals play such a central role in the diverse communities they serve,” said Meena Seshamani, M.D., Ph.D., CMS deputy administrator and director of the Center for Medicare, said in a statement. “Our proposed payments to hospitals further recognize the cost of unmet social needs, advance access to innovative and essential treatments, expand the behavioral health workforce and ultimately help provide hospitals the vital tools they need to better serve all communities.”

The public will have 60 days to comment on the proposed rule, which is set to be published in the Federal Register May 2.