The 3-Pronged Battle: How CFOs Are Staying Afloat Amongst Inflation, Labor Cost, and Inadequate Payment Rates

CMS' OPPS proposed rule checks some boxes for hospitals, but misses the mark for others.

On July 10, CMS released its OPPS proposed rule for 2025, and on par with previous reactions, it’s been met with mixed feelings.

CMS has proposed an increase of 2.6% for outpatient payments for hospitals next year, which would raise rates for roughly 3,500 hospitals and 6,100 ASCs in 2025. This rate is based on the projected hospital market basket increase of 3%, factoring in a 0.4% point for productivity adjustment.

The rule would increase hospital payments by $2.9 billion, plus a proposed $560 million increase in disproportionate share hospital payments and proposed $94 million increase in new medical technology payments.

Although these are substantial numbers, it’s a drop in the bucket compared to rising inflation and labor costs. On top of this, the proposed rule would bring several service and reporting adjustments that hospital CFOs will have to contend with.

CFOs have a cost battle ahead, so let’s examine what’s in store.

CFO Gameplan

While this year started with an optimistic outlook for hospitals, between labor costs and inflation, rising costs continue to be an issue. CFOs will need to strategize where they can, examining alternative revenue paths that fit with their organization.

As discussed by CFOs at this year’s HFMA conference, a focus on implementing AI automation and tech investments in revenue cycle could potentially help. CFOs can look to invest in automation to stay on top of administration burden costs and data reporting under the proposed rule. CFOs can also look to growth opportunities in outpatient services including joint ventures to examine sustainable and profitable expansion avenues. 

The AHA reliably hit back at CMS for the proposed rule, once again referring to the new rate as “woefully inadequate.”

In a media statement, AHA’s senior vice president for public policy analysis and development, Ashley Thompson said, “CMS has yet again proposed an inadequate update to hospital payments.”

Thompson also went on to address the financial risk for hospitals under the proposed rule.

“This proposed increase for outpatient hospital services of only 2.6% comes despite the fact that many hospitals across the country continue to operate on negative or very thin margins that make providing care and investing in their workforce very challenging,” Thompson said. 

The Big Changes

So, let’s take a look at what these proposed changes would mean, if finalized, and how CFOs can prepare for the challenges ahead.

Remote and Telehealth Payment Alignment:

Seeking to closer align hospital payments for remote care and telehealth services, the agency’s rule would bill mental health care, outpatient therapy, diabetes management training and medical nutrition therapy services provided by hospitals to patients in their homes all under the physician fee schedule.

Rural Emergency Hospitals:

For rural emergency hospitals there are several new measures that focus on health equity and the screening for social drivers of health. Beginning in 2025, the REH reporting period for hospital visits within seven days after hospital outpatient surgery measure would be extended from one year to two years. On top of this, all REHs would be required to report their data under the REHQR program.

Reporting:

The proposed rule would also change aspects of the hospital outpatient quality reporting program, including a greater focus on health equity measure and removing the MRI lumbar spine for low back pain measure in 2025.

Voluntary reporting, a measure hospitals favor, will be upheld for core clinical data elements and linking variables for both the hybrid hospital-wide readmission and hybrid hospital-wide standardized mortality measures from  2023. This will affect payment determination for the hospital inpatient quality reporting program in 2026.

Hospital CFOs will need to ensure their organizations meet these requirements in order to receive full payments under this program.

Medicare Rates:

Lastly, the proposed rule would update Medicare payment rates for intensive outpatient program services provided in hospital outpatient departments, as well as for partial hospitalization. While the existing program structures would stay in place, CMS would use claims data from 2023 and updated cost data from reports conducted three fiscal years prior.

Public comments on the proposed rule are being sought through Sept. 9 and CMS will issue the final rule by early November.