CMS 2023 IPPS Final Rule: Highest Rate Increase in Quarter Century


Final Rule Includes Updated Rates, Pause on Certain Quality Programs + Expanded Focus on Health Equity

The CMS FY 2023 hospital inpatient prospective payment systems (IPPS) final rule includes a $2.6 billion increase in hospital reimbursement and health equity advancements. Acute care hospitals paid via IPPS and who meaningfully use electronic health records (EHR) can see a 4.3% increase in payment rates that reflect a market basket update of 4.1%. This rate is a 25-year high influenced mostly from hospital worker compensation demands. Additionally, long-term care hospitals (LTCHs) will see an increase of 2.4% or $71 million. However, uncompensated care payments will be roughly $6.8 billion, a decrease by $318 million from FY 2022 resulting from the decreasing COVID-19 impact. 

A noteworthy inclusion in the final rule is health equity measurement requirements. Highlighted areas include evaluating the screening and identification of social determinants of health needs (e.g., transportation) and the organization’s commitment to a culture of health equity. Additionally, the hospital-acquired conditions (HAC) reduction program is on pause and hospitals will not receive a measure score, but data will continue to be reported.

IPPS + LTCH PPS Background

The final rule is effective October 1, 2022, impacting over 3,000 acute care hospitals and 300 LTCHs. CMS updates payment rates annually, typically in the summer, for IPPS hospitals including pricing changes for items and services related to treating Medicare patients. This is known as the hospital “market basket.” 

Specifically, hospitals receive a single payment for the services provided based on the payment classification assigned at discharge. For IPPS, it’s Medicare Severity Diagnosis-Related Groups (MS-DRGs) and for LTCH PPS it’s Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).

CMS’ DRG relative weights were also updated. The DRG calculation was based on claims data averages of two data sets, one with COVID-19 claims and one without. Additionally, CMS noted no new DRGs were added for FY 2023, and they don’t anticipate other COVID-19 related payment increases to continue as cases decline.

A noteworthy and permanent Medicare payment change is a cap on wage index decreases. Starting FY 2023, there is a permanent 5% cap on any decrease to a hospital’s wage index from the prior year. In other words, a hospital’s wage index cannot be less than 95% of the prior year.   

Certain Quality Programs on Hold, Others Expanded

Multiple scoring measures are also paused. For example, CMS is pausing all six measures in the HAC reduction program. During this pause hospitals will not be penalized, and payment adjustments will not occur. However, all paused measures will continue to be publicly reported.

Additionally, the hospital value-based purchasing (VBP) program scoring is on pause. However, CMS is implementing a special scoring methodology for FY 2023 providing each hospital a value-based incentive payment amount that matches their 2% reduction to the base operating MS-DRG payment amount.

CMS is also adding 10 measures to the Inpatient Quality Reporting Program including health equity. One focuses on a hospital’s commitment to health equity in which hospitals will begin reporting in CY 2023. The other is for screening for the Social Drivers of Health (e.g., transportation) measure and the Screen Positive Rate for Social Drivers of Health Measure but hospitals will have a voluntary reporting period in CY 2023 with mandatory reporting beginning in CY 2024.

Other Final Rule Changes Include Designations, Reporting Requirements + Interoperability

The final rule includes birthing-friendly hospital designations for hospitals that provide consumers with information on how they reduced maternal morbidity and mortality. COVID-19 reporting requirements will continue for hospitals and critical access hospitals.

CMS also included 10 changes to the Medicare Promoting Interoperability Program for eligible hospitals and critical access hospitals, which encourages health systems to adopt, implement, upgrade and demonstrate meaningful use of EHR technology. Roughly half of the updated requirements will be effective for the CY 2023 EHR reporting period and the remainder go live in CY 2024. The near-term changes include program scoring updates (e.g., electronic prescribing) and implementation of public reporting about the Medicare Promoting Interoperability Program data.

Click here for more information about the final rule.



  • CMS Final Rule Fact Sheet:
  • CMS IPPS Final Rule Federal Register:
  • CMS Final Rule Home Page:


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