CMS Issues FY 2023 IPPS Final Rule: What Hospitals Need to Know

by Emily Jones

Regulatory Affairs & Administration Policy Director

Each year, the Centers for Medicare & Medicaid Services (CMS) publishes regulations to update the Medicare hospital payment rules. In April, CMS issued its proposed rule to update the Inpatient Prospective Payment System (IPPS) for Fiscal Year (FY) 2023. The proposed rule contained key policy proposals, and Vizient provided comments, including insights and recommendations, to advocate for hospitals. CMS issued the final rule on August 1, which provides final policies relevant to hospitals that will generally take effect October 1, 2022.  

Here are some key takeaways hospitals need to know about the IPPS final rule, including information about Vizient’s comments, and how these changes may impact hospitals in FY 2023 and future years.  

Overall payment increase 

The IPPS Final Rule increases IPPS operating payment rates by 4.3 percent in FY 2023 for hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program and are meaningful electronic health record users. This operating payment rate is a 1.1 percent increase from CMS’s initial proposal of 3.2 percent and reflects Vizient’s comments that the proposed rate, particularly the market basket component, was insufficient due to inflation and the increased costs hospitals are facing and will continue to face through 2023. With access to updated data, which better reflects these financial hardships, CMS provided the highest market basket update implemented since FY 1998.  

However, this increase does not reflect other changes provided in the final rule, such as proposed policies related to MS-DRGs, geographic adjustment and outlier payments. After considering these factors, overall payments to hospitals are estimated to increase by only 2.6 percent for FY 2023. As a result, the modest overall increase may still present a challenge to hospitals, despite the needed increase to the market basket.   

Focus on health equity  

Consistent with the Administration’s priorities, CMS has stated its commitment to advancing health equity and incorporated various proposals and requests for information throughout the IPPS proposed rule, specifically seeking 

• Comments and information on reporting social determinants of health (SDOH) diagnosis codes 
• Feedback for hospital performance for serving socially at-risk populations in the hospital readmissions reduction program 
• Feedback on overarching principles for measuring equity and healthcare quality across CMS quality programs 
• Proposals for health equity-related measures in hospital quality programs 

Vizient submitted recommendations regarding the proposed health equity related measures and emphasized the importance of incorporating health equity into care while being mindful of a provider’s locus of control.  For example, providers have a unique position that supports open communication with patients and opportunities to assess patient and community needs, however, it is also important that demands on providers be reasonable, especially given that they may have limited control regarding SDOHs.  

In response to significant stakeholder feedback, the agency incorporated modifications into the final rule. CMS finalized a policy to adopt three health equity-related measures for incorporation into the inpatient quality reporting program for future years.  These measures relate to hospital commitment to health equity, the screening for social drivers of health measure and screen positive rate for social drivers of health measure. The two screening measures will be voluntary in the CY 2023 reporting period and become mandatory with the CY 2024 reporting period.  CMS also finalized its proposal for the first-ever designation of “birthing-friendly hospital” to hospitals that attest yes to both questions under the maternal morbidity structural measures previously finalized in the Hospital Inpatient Quality Reporting Program and anticipates further growth of this program in future rulemaking. 

These changes reflect the agency’s ongoing commitment to health equity as the agency finalized several policies related to health equity in its quality and reporting programs. It remains to be seen whether the agency will pursue additional rulemaking regarding SDOH code reporting, among other topics.   

COVID-19 and seasonal influenza reporting requirements  

As the Administration considers unwinding the policies associated with the COVID-19 Public Health Emergency (PHE), the IPPS final rule includes various policies to help healthcare providers transition “back to more normal routines.” For example, in response to stakeholder concerns around the burden of data reporting and revising hospital Medicare conditions of participation, CMS ultimately finalized a smaller scope for continued reporting around COVID-19 and seasonal influenza, which reduce burden for hospitals compared with CMS’s proposed policy. CMS finalized that COVID-19 reporting will be required through April 30, 2024. Notably, after reviewing stakeholder comments, CMS withdrew the proposal to establish reporting requirements for an infectious disease in the event of a PHE declaration. CMS indicates that it is looking for a solution that will allow robust data collection to occur in a way that does not overly burden providers and healthcare systems, particularly during an emergency when resources are limited. CMS provides that it plans to pursue a longer-term strategy working with stakeholders to ensure these goals are met.  

IPPS quality and reporting program payment adjustments  

Previously, CMS finalized suppression policies for hospital quality measures to account for the impact of the COVID-19 PHE on hospital quality data. These suppression policies were for inpatient quality programs, including the Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Conditions Reduction (HAC) Program. After reviewing the data that would traditionally be used and assessing the impact of the COVID-19 emergency on inpatient data, CMS opted again in FY 2023 program year to suppress various measures in hospital quality and reporting programs. Notably, related to the suppression policies, CMS finalized policies such that hospitals participating in the Hospital VBP Program, and the HAC Reduction Program will effectively not receive a penalty in FY 2023. This final policy may provide financial relief to hospitals that would have been penalized under these programs.   

Hospitals and other industry stakeholders should be aware of the IPPS final rule as FY 2023 rapidly approaches. The final rule includes notable policy changes directly impacting hospitals’ finances, such as those related to HAC Reduction Program and Hospital VBP Program and overall payments to hospitals under the IPPS. The rule additionally impacts hospital operations and reporting requirements which will evolve as the pandemic continues and more normal routines are established. Thus, the final rule’s breadth of topics has far-reaching implications for hospitals. If you have any questions or concerns, don’t hesitate to reach out to Vizient’s Office of Public Policy and Government Relations.