Can You Even Break Even?


New Medicare IPPS Rates and the Battle to Stay Solvent

Through the beginning of 2022, the average hospital’s operating margin is -4%. Operating expenses are up 30% compared to last year and inflation is at a 40-year high. With only a 3.2% increase to Medicare IPPS rates for 2023, how are hospitals expected to keep up? 

The Medicare Hospital Inpatient Prospective Payment System (IPPS) determines how much an acute care hospital will be paid for an inpatient stay based on the patient’s diagnosis and severity of illness (so make sure your CDI is on point). The annual IPPS rate updates are supposed to account for “changes in the prices of goods and services used by these hospitals in treating Medicare patients, as well as for other factors” but the proposed 3.2% increase issued by CMS Monday is far short of the increased cost pressures hospitals are facing.

“We are extremely concerned with CMS’ proposed payment update of only 3.2%, given the extraordinary inflationary environment and continued labor and supply cost pressures hospitals and health systems face. Even worse, hospitals would actually see a net decrease in payments from 2022 to 2023 under this proposal because of proposed cuts to DSH and other payments. This is simply unacceptable,” said Stacy Hughes, executive vice president of the American Hospital Association in a statement Monday.

So, What’s the Financial Impact of the Proposed Rule?
  • $25 million increase in long-term care hospitals’ payments
  • $6 billion increase to hospital payments compared to last year, but…
  • $650 million decrease in disproportionate share hospital payments, which cover qualifying hospitals that serve a large number of Medicaid and uninsured individuals
  • $800 million decrease in new medical technology payments
  • $600 million decrease due to expiration of the Low-Volume Hospital and Medicare Dependent Hospital programs
Potential Wins for Hospitals
  • Permanent 5% cap on any decrease to a hospital’s wage index
  • CMS using more than one year of data to determine uncompensated care costs
  • No penalization for non-representative performance under the Hospital-Acquired Condition Reduction and Value-Based Purchasing Programs for FY 2023
  • The opportunity to provide feedback on the appropriateness of a payment adjustment for 2023 and beyond to recognize the additional resource costs associated with acquiring approved surgical N95 respirators that are wholly domestically made
Changes to the Promoting Interoperability Program:
  • Points associated with the Electronic Prescribing objective increase from 10 to 20
  • The Query of Prescription Drug Monitoring program measure would be mandatory and expanded to include schedule II, III and IV drugs
  • Points associated with the Public Health and Clinical Data Exchange objective increase from 10 to 25 and include a required antimicrobial use and resistance surveillance measure
  • Points associated with the Health Information Exchange objective decrease from 40 to 30 and include an optional attestation measure reflecting whether hospitals enable exchange under the Trusted Exchange Framework and Common Agreement (TEFCA)
  • Points associated with the Provide Patients with Electronic Access to their Health Information decrease from 40 to 25 points
  • The same changes to the Promoting Interoperability Program’s electronic clinical quality measures (eCQM) measure set and required reporting proposed for the Inpatient Quality Reporting (IQR) program.
Updates to Quality Reporting + Value Programs
  • 10 new measures added to the IQR program including:
    • A health equity-related practice attestation
    • Measures reflecting whether hospitals screen admitted patients for food insecurity, housing instability, transportation problems, utility needs and interpersonal safety
    • Two electronic clinical quality measures (eCQMs) reflecting hospital performance on opioid-related adverse events and malnutrition
  • Neutral payment adjustment under the Value-based Purchasing program
  • The Hospital Readmissions Reduction Program (HRRP) will resume scoring hospitals on pneumonia readmission measures with the same COVID-19 diagnosis exclusion that apply to other five program measures
  • All six HRRP measures must include 12-month patient history of COVID-19 as a co-variate in the measures’ risk adjustment models
  • The eCQMs required for reporting would increase from four to six, with the previously adopted Safe Use of Opioids eCQM and new perinatal eCQM required

Read the American Hospital Association’s complete summary of the proposed rule.

Make Your Voice Heard
Comments on the proposed rule must be submitted to CMS by 5 p.m. ET on June 17, 2022. The final rule will be published in August with the policies and payment rates taking effect October 1. Submit comments electronically here or mail written comments to:

Centers for Medicare & Medicaid Services, Department of Health and Human Services
Attention: CMS-1771-P
P.O. Box 8013
Baltimore, MD 21244-1850

These materials are for general informational purposes only. These materials do not, and are not intended to, constitute legal or compliance advice, and you should not act or refrain from acting based on any information provided in these materials.Neither Ensemble Health Partners, nor any of its employees, are your lawyers.Please consult with your own legal counsel or compliance professional regarding specific legal or compliance questions you have.