The Centers for Medicare & Medicaid Services (CMS) released the Final Rule for the Fiscal Year (FY) 2025 Medicare Hospital Inpatient Prospective Payment System (IPPS) on August 1, 2024. The Final Rule includes updates to Medicare fee-for-service payment rates and policies for inpatient hospitals.
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Payment Rate Changes
Several modifications – including increases and decreases – are apparent in the FY 2025 Final Rule.
Operating & Capital Payment Rate Increases
The Final Rule increases operating payment rates by 1.67% for general acute care hospitals paid under the IPPS that participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users. This update demonstrates a hospital market basket percentage projection increase of 3.4% for FY 2025, reduced by a 0.5 percentage point productivity adjustment and an additional reduction of 1.23% related to budget neutrality factors. However, if healthcare organizations fail to meet the IQR and EHR guidelines, their payment rates will decrease.
Additionally, CMS expects that operating and capital IPPS payment rates (among other changes) will raise hospital payments by $2.9 billion in 2025. In particular, operating and capital IPPS payment rates will increase payments to hospitals by approximately $3.2 billion.
CMS also projects that additional payments for inpatient cases involving new technologies will increase by approximately $0.3 billion in 2025. This is thanks to the approval of add-on payments for several types of technology.
Payment Rate Decreases for DSH & MDH
Disproportionate share hospitals (DSH) and Medicare-dependent hospitals (MDH) should prepare for payment rate decreases. CMS projects that Medicare uncompensated care payments to DSH will decrease by about $0.2 billion in 2025.
Under the current law, additional payments for MDHs and temporary changes for low-volume hospitals are expected to expire on December 31, 2024. While legislation has extended these payments in the past, if they were to expire, CMS estimates that these hospitals would receive $0.4 billion less in FY 2025.
Labor Market Area Changes
Known as the wage index adjustment, the law requires Medicare to accommodate its inpatient hospital payments for area differences in the cost of labor. CMS is currently finalizing a proposal to revise the labor market areas used to determine the wage index, using core-based statistical area delineations from the Office of Management and Budget (OMB) and 2020 Census data.
Low-Wage Hospital Policy Continues
CMS plans to extend the temporary policy finalized in the FY 2020 IPPS Final Rule, addressing wage index disparities that affect many rural hospitals. The policy will remain in effect for at least three more years, starting in FY 2025.
The organization believes it’s necessary to keep the policy in place for a sufficient period following the end of the COVID-19 public health emergency. The goal is to evaluate its effects before deciding whether to modify or discontinue. Since the first full fiscal year of wage data after the public health emergency is FY 2024, CMS expects an update for FY 2028 rulemaking.
CMS also acknowledged the fact that the low wage index policy and its related budget neutrality adjustments are the focus of pending litigation in various courts.
Separate IPPS Payments for Essential Medicine Access
Drug shortages – from antibiotics to treat several bacterial infections to crash cart drugs required to stabilize and resuscitate patients – are apparent in many hospitals. These shortages can have lasting impacts on the care provided:
- Medication errors.
- Critical treatment delays.
- Increased risk of hospital-acquired infections.
- Elevated risk of in-hospital mortality.
As a result, the quality of care is reduced. In some instances, Medicare bears increased costs to provide adequate payment for avoidable services had medicine been readily available.
To help combat this issue, CMS is finalizing a separate payment under IPPS for small, independent hospitals to create and maintain an inventory of essential medicines as a preventative measure. Independent hospitals are more vulnerable to supply disruptions due to a lack of resources compared to those associated with chain organizations.
This policy can foster access to reliable, resilient medicine supplies for patients who need them.
GME Residency Slot Distribution
As per Section 4122 of the Consolidated Appropriations Act (CAA), 2023, an additional 200 Medicare-funded residency positions (or “slots”) will be created. This law requires CMS to notify receiving hospitals by January 31, 2026.
Policies that will govern the application and award process are in progress and will abide by statutory requirements. Consistent with the Biden-Harris Administration’s Unity Agenda and focus on tackling the mental health crisis, at least one-half of the total positions will be dedicated to psychiatry or subspecialty residency programs.
The policy focuses on healthcare professional shortage areas in rural and underserved areas, given that slots are available. CMS estimates that the additional funding will total $74 million to support teaching hospitals from FY 2026 to FY 2036.
Treating Patients with Inadequate Housing
Generally speaking, a diagnosis code with a higher severity level designation results in a higher IPPS payment to reflect the increased resource usage. After reviewing the impact on resource use generated from claims data, CMS is actively finalizing a proposal to change the severity designation of the seven ICD-10-CM diagnosis codes.
These codes describe inadequate housing and unstable housing from non-complication or comorbidity (NonCC) to complication or comorbidity (CC) based on the higher average cost of cases utilizing the codes compared to similar cases without. The final policy will more accurately reflect resource costs associated with hospitals caring for individuals with inadequate housing or housing instability, and it will improve the validity of coded data to advance health equity.
New Technology Add-On Payment (NTAP)
New gene therapies have the potential to cure previously incurable diseases such as sickle cell disease (SCD). CMS is finalizing a proposal that increases the NTAP percentage from 65% to 75% for specific gene therapies approved for new technology add-on payments when indicated and used for SCD treatment, beginning in FY 2025 and concluding at the end of each therapy’s 2- to 3-year newness period.
The goal is to use the new policy starting October 1, rather than April 1, to determine whether a technology is within its newness period. This policy change will be effective starting FY 2026 for new NTAP applicants and when extending it for an additional year for initially approved technologies in FY 2025 or subsequent years.
Lastly, CMS plans to remove an FDA marketing authorization hold as an inactive status for NTAP application eligibility for those applying for FY 2026.
Quality Measure Updates
The FY 2025 IPPS Final Rule adopts seven new quality measures, removes five existing ones, and modifies two. CMS is also finalizing two policy changes related to data validation and increasing the number of mandatory electronic clinical quality measures (eCQMs) reported over three years.
New Quality Measures
CMS will adopt two new eCQMs, one claims-based measure, two structural, and two healthcare-associated infection (HAI) measures:
- Hospital Harm – Falls with Injury eCQM, with inclusion in the measure set beginning with the CY 2026 reporting period and FY 2028 payment determination.
- Hospital Harm – Postoperative Respiratory Failure eCQM, with inclusion in the measure set beginning with the CY 2026 reporting period and FY 2028 payment determination.
- 30-Day Risk-Standardized Death Rate Among Surgical Inpatients with Complications beginning with the July 1, 2023 – June 30, 2025, reporting period, impacting the FY 2027 payment determination.
- Patient Safety Structural Measure beginning with the CY 2025 reporting period and FY 2027 payment determination, with modification.
- Age Friendly Structural Measure beginning with the CY 2025 reporting period and 2027 payment determination.
- Catheter-Associated Urinary Tract Infection Standardized Infection Ratio measure stratified for oncology locations beginning with the CY 2026 reporting period and FY 2028 payment determination.
- Central Line-Associated Bloodstream Infection Standardized Infection Ratio measure stratified for oncology locations beginning with the CY 2026 reporting period and FY 2028 payment determination.
Modification of Current Quality Measures
The following existing quality measures will be modified:
- Global Malnutrition Composite Score beginning with the CY 2026 reporting period and FY 2028 payment determination, adding patients aged 18 to 64 to the current cohort of those 65 or older.
- Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure beginning with the CY 2025 reporting period and FY 2027 payment determination, adding three new sub-measures, removing one existing, and revising one existing.
Quality Measure Removal
Four out of the five removed measures pertain to payments:
- Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Acute Myocardial Infarction (AMI Payment).
- Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Heart Failure (HF Payment).
- Hospital-Level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Pneumonia (PN Payment).
- Hospital-Level, Risk-Standardized Payment Associated with a 30-day Episode of Care for Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (THA/TKA Payment).
These removals will be finalized beginning with the FY 2026 payment determination. The performance period is July 1, 2021 – June 30, 2024, for the AMI, HF, and PN Payments and April 1, 2021 – March 31, 2024, for the THA/TKA Payments.
Lastly, the CMS PSI-04 Death Among Surgical Inpatients with Serious Treatable Complications measure will be removed, beginning with the FY 2027 payment determination associated with a reporting period of July 1, 2023 – June 30, 2025. CMS will replace it with the 30-Day Risk-Standardized Death Rate Among Surgical Inpatients with Complications measure.
Increases
CMS is proposing to increase the total number of eCQMs from six to eleven over two years. Currently, the IQR program requires hospitals to report six total, three selected by CMS and three self-selected.
The proposal includes nine total eCQMs, six selected by CMS and three self-selected for the CY 2026 reporting period and FY 2028 determination. For the CY 2027 reporting period and FY 2029 determination, CMS is proposing that hospitals report on eleven total, with eight selected by CMS and three self-selected.
Data Validation Requirements
There are two potential data validation requirement modifications. First, CMS is proposing to modify the current data validation scoring into two – one for clinical processes of care (CPOC) measures and one for eCQMs, equally weighted at 50% each.
Previously, eCQM validation was weighted at zero to allow hospitals to gain experience. However, based on recent validation periods, CMS believes hospitals are ready to be assessed via an eCQM validation score separate from the current CPOC.
Secondly, CMS will modify the data validation reconsideration request guidelines to make medical record submission optional, beginning with FY 2026 data validation and CY 2023 discharges. The update removes inefficiencies, as hospitals typically submit the same records used for quality reporting yet still allow them to submit additional information if necessary.
Updates to the Medicare Promoting Interoperability Program
In the FY 2025 IPPS Final Rule, CMS proposes to separate an existing measure into two, adopt two new eCQMs, modify a current eCQM, increase the performance-based scoring threshold, and notify eligible healthcare providers and CAHs of one Request for Information.
CMS is proposing the following measure-related updates in the Medicare Promoting Interoperability Program:
Antimicrobial Use and Resistance (AUR) Surveillance Measures
- Separate the Antimicrobial Use and Resistance (AUR) Surveillance measure into two – Antimicrobial Use (AU) Surveillance and Antimicrobial Resistance (AR) Surveillance, beginning with the EHR reporting period in CY 2025.
- Add a new exclusion for eligible organizations or CAHs lacking electronic access to data points required for AU or AR Surveillance reporting.
- Modify existing exclusion applicability for the AUR Surveillance measure to apply to the AU Surveillance and AR Surveillance measures.
- Treat the AU Surveillance and AR Surveillance measures as two new measures with active engagement beginning with the EHR reporting period in CY 2025.
New eCQMs for Eligible Hospitals & CAHs
CMS will adopt two new eCQMs for eligible hospitals and CAHs to choose as one of their three self-selected, aligning with the Hospital IQR Program and beginning with the CY 2026 reporting period:
- Hospital Harm – Falls with Injury eCQM.
- Hospital Harm – Postoperative Respiratory Failure eCQM.
Modifications
Two notable modifications in the Medicare Promoting Inoperability Program include:
- Global Malnutrition Composite Score eCQM.
- eCQM data reporting and submission requirements.
The Global Malnutrition Composite Score eCQM will be modified by adding patients 18-64 years old to the current group of patients 65 years or older. Additionally, the eCQM data reporting and submission requirements may increase progressively in the number of mandatory eCQMs hospitals and CAHs must report on, beginning with the EHR reporting period in CY 2026.
Hospital Value-Based Purchasing (VBP) Program
The Hospital VBP Program is budget neutral. It reduces participating hospitals’ base operating DRG payments by 2% each fiscal year and redistributes the money as value-based incentive payments. CMS proposes to:
- Update scoring on the HCAHPS Survey measure in the Person and Community Engagement Domain for the FY 2027 through FY 2029 program years to solely score on the six unchanged dimensions while modifications are adopted and publicly reported on in the Hospital IQR Program.
- Adopt updates to the HCAHPS Survey measure in the Person and Community Engagement Domain beginning with the FY 2030 program year after the changes are publicly reported on for one year.
- Modify scoring on the HCAHPS Survey measure in the Person and Community Engagement Domain starting with the FY 2030 program year to account for updates.
Hospital & CAH Data Reports
CMS is proposing to update the hospital and CAH infection prevention and control and antibiotic stewardship programs’ Conditions of Participation (CoPs), extending a subset of the current COVID-19 and influenza data reporting requirements. Specifically, CMS looks to replace the reporting standards for COVID-19 and seasonal influenza with one that addresses acute respiratory illnesses.
Beginning on October 1, 2024, hospitals and CAHs will have to electronically report on specific data points regarding COVID-19, influenza, and respiratory syncytial virus (RSV). Factors influencing whether reporting will be required include:
- Confirmed infections of respiratory illnesses among hospitalized patients.
- Hospital bed consensus and capacity.
- Limited patient demographic information, such as age.
Outside of a public health emergency, CMS proposes that hospitals report on these data weekly.
No Changes
Among the updates, additions, and removals outlined in the FY 2025 IPPS Final Rule, a couple of programs will not see any changes. These include the Hospital Readmissions Reduction Program (finalized in the FY 2023 IPPS Final Rule) and the Hospital-Acquired Condition (HAC) Reduction Program (finalized in the FY 2024 IPPS Final Rule).
BESLER is Your Guide to the FY 2025 IPPS Final Rule
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