CMS final rule boosts hospital payments by 2.9% for FY 2025; overall Medicare payments to increase by $2.9 billion despite a $200 million cut in disproportionate share hospital payments

The Centers for Medicare & Medicaid Services Aug. 1 issued a final rule that will increase Medicare inpatient prospective payment system rates by a net 2.9% in fiscal year 2025, compared with FY 2024, for hospitals that are meaningful users of electronic health records and submit quality measure data. This 2.9% payment update reflects a hospital market basket increase of 3.4% as well as a productivity cut of 0.5%. CMS expects overall payments to increase by $2.9 billion, which includes a $200 million decrease in disproportionate share hospital payments (due to a decrease in the uninsured rate), a $300 million increase in new medical technology payments, and a $400 million decrease in rural health payments if the Medicare-dependent hospital and enhanced low-volume adjustment programs are not extended by legislation.

In a statement shared with the media, Molly Smith, AHA group vice president for public policy, said, “CMS’ payment updates for hospitals will exacerbate the already unsustainable negative or break-even margins many hospitals are already operating under as they care for their patients. The AHA is deeply concerned about the impact these inadequate payments will have on patient access to care, especially in rural and underserved communities.”

Additionally, the agency finalized many of its proposed provisions in the new Transforming Episode Accountability Model (TEAM). This includes finalizing mandatory participation for inpatient PPS hospitals in certain areas, a model term of five years beginning Jan. 1, 2026, and including five different surgical episode categories. CMS did finalize a lower discount factor than proposed and a longer glidepath to downside risk for safety net hospitals. The agency stated that it will continue to finalize other elements not addressed in this final rule, including revisions to the low-volume policy, through subsequent rulemaking.

“While the AHA has long supported widespread adoption of meaningful value-based and alternative payment models to deliver high quality care at lower costs, the rule’s mandatory bundled payment model for five different surgical episodes will not advance these objectives,” Smith said. “Not only is the model extremely similar to other bundled payment approaches that have failed to meet the statutory criteria for expansion as they have not reduced program costs or generated net savings, it puts at particular risk many hospitals that are not of an adequate size or in a position to support the investments necessary to succeed.”

Among other provisions, the final rule will:

• Adopt new core-based statistical areas for the purposes of determining the area wage index.
• Create a separate IPPS payment for small, independent hospitals to establish and maintain access to essential medicines.
• Distribute new graduate medical education slots under section 4122 of the Consolidated Appropriations Act of 2023.

In addition, CMS adopted a number of changes to its quality reporting and value programs. CMS will add seven new measures to the inpatient quality reporting program that are largely focused on hospital patient safety-related practices and outcomes and will remove five IQR measures. CMS also will modify the Hospital Consumer Assessment of Healthcare Providers and Systems survey, resulting in updates to the HCAHPS sub-measures used in the IQR and the Hospital Value-based Purchasing Program. CMS also will increase the number of mandatory electronic clinical quality measures that hospitals must report for both the IQR and the Promoting Interoperability programs. 

CMS also finalized a Condition of Participation requiring hospitals and critical access hospitals to report certain data on acute respiratory illnesses. Beginning Nov. 1, CMS will require hospitals and CAHs to report data once per week to the Centers for Disease Control and Prevention on confirmed infections of COVID-19, influenza and respiratory syntactical virus among hospitalized patients, hospital capacity, and limited patient demographic information, including age. CMS will have the authority to increase the frequency and number of data elements hospitals must report in the event of declared public health emergencies.

Provisions of the final rule generally take effect Oct. 1.