CMS Proposes a Hospital Payment Increase of $1.6B for FY 2023

CMS is proposing a 3.2% payment rate update for hospitals as well as a new, publicly-reported hospital designation for maternity care.

CMS released the fiscal year (FY) 2023 inpatient prospective payment system (IPPS) proposed rule with proposals for the annual ICD-10 code update, new programs for quality reporting, and increases to hospital payment rates to which providers are already reacting negatively. 

For FY 2023, CMS proposed 1,495 changes to the ICD-10-CM diagnosis code set. Diagnosis code changes should be finalized in June and would take effect October 1 this year.

According to the proposed rule, CMS is increasing operating payment rates by a net 3.2% for FY 2023 for hospitals that are meaningful users of electronic health records and submit quality measure data.

This reflects a FY 2023 projected hospital market basket update of 3.1% reduced by a projected 0.4 percentage point productivity adjustment and increased by a 0.5 percentage point adjustment required by statute, according to CMS.

The proposed increase in operating and capital IPPS payment rates, partially offset by decreases in outlier payments for extraordinarily costly cases, will generally increase hospital payments in FY 2023 by $1.6 billion, CMS said.

CMS is already receiving pushing back on this proposal as many organizations feel that a payment update of only 3.2% is not enough given the "extraordinary inflationary environment" and continued labor and supply cost pressures.

According to the proposed rule, CMS is also suggesting to permanently apply a 5% cap on any decrease to a hospital’s wage index from the prior fiscal year as well as continue the low wage index hospital policy for FY 2023.

As it relates to revenue cycle, CMS is not proposing any new Medicare Severity Diagnosis-Related Groups (MS-DRG) for FY 2023, which means the number of MS-DRGs would be maintained at 767 for FY 2023. But, CMS says, it is discussing a request to reclassify laser interstitial thermal therapy (LITT) procedures under the MS-DRGs in connection with a proposal to create new procedure codes to describe LITT.

Regarding COVID-19, CMS is proposing a return to applying the most recent data available for rate setting, but with several modifications to account for the COVID-19 pandemic. CMS is also proposing to revise the COVID-19 hospital data reporting condition of participation adopted in 2020 so that hospital reporting would continue after the current public health emergency through April 30, 2024.

According to the proposed rule, CMS also wishes to establish new policies for future public health emergencies involving an infectious disease that would require hospitals and critical access hospitals to report certain data to the Centers for Disease Control and Prevention.

CMS is also proposing an ample number of changes to its quality reporting and value programs. For FY 2023, CMS proposes to overturn most of the measures in its Hospital Value-based Purchasing Program, and all of the measures in its Hospital-Acquired Condition Reduction Program. According to the proposed rule, this means hospitals would not experience FY 2023 payment adjustments under either program.

CMS is also proposing 10 new measures for the Inpatient Quality Reporting (IQR) program, including two perinatal electronic clinical quality measures.

CMS also wishes to establish a publicly-reported hospital designation on maternity care in fall 2023. This proposal is in conjunction with Vice President Harris’ nationwide call to action to reduce maternal mortality and morbidity, which included CMS’ intention to establish this proposed hospital designation.

According to the rule, under this proposal, CMS would award this designation to hospitals that report "yes" to both questions in the Maternal Morbidity Structural Measure, previously finalized for adoption in the Hospital IQR Program.

CMS invites the public to comment on all proposals. For more information on the rule, see the Federal Register. Comments are due to CMS no later than June 17.