2024 IPPS final rule announced: 3 changes you need to know

In August, CMS published the final Medicare Inpatient Prospective Payment rule for the federal fiscal year 2024. Most changes announced in the proposed rule were adopted and several are significant, including:

• Disproportionate Share Hospitals payment cuts; and
• a Rural Wage Index recalculation with diverse impacts.

In this blog, we’ll cover these updates, the IPPS rule's total payment increase and how CMS continues to prioritize health equity in its rulemaking.

The most significant IPPS final rule impacts

1. DSH UCC pool payment cuts

For FFY 2024, DSH uncompensated care pool payments will decrease by $595 million due to decreased funding projections and a big adjustment to Factor 2 (see below), even though the DSH methodology is the same.

This means DSH hospitals will need to find a way to recoup these losses, a challenge given the disadvantaged areas where they operate. If Affordable Care Act Marketplace plan enrollment continues to increase, Factor 2 cuts will continue.

DSH UCC pool payments are based on three factors:

• Factor 1 – Represents 75% of the traditional DSH payment calculation for uncompensated care.
• Factor 2 – Adjusts Factor 1 using estimated annual national insurance coverage rates.
• Factor 3 – Applies the ratio of an individual hospital's uncompensated care costs to the national UCC total.

Because fewer Americans are uninsured, Factor 2 cut payments by more than 40%. That number was 34% in FFY 2023 and 31% in FFY 2022. Overall FFY 2024 DSH UCC pool payments will be $5.938 billion, less than the $6.713 billion CMS projected in the proposed rule.

2. RWI updates impact hospitals differently

Since the courts determined that HHS cannot establish a rural floor lower than a state's RWI, CMS had to comply and recalculate. Thus, CMS finalized the RWI as proposed.

To recap, CMS will now calculate each state’s RWI with data from rural hospitals and reclassified hospitals, even if those facilities are not rural geographically. State RWI impacts will vary, with higher hospital payments where the index increases and lower where it decreases. Additionally, RWI payments are budget neutral, meaning that even hospitals otherwise unaffected by the RWI will have payments decreased to pay for it. Hospitals in lower RWI states that are also DSH eligible will face a greater payment cut.

3. Additional significant updates

In addition to DSH and RWI, you should take note of four important updates:

1. IPPS platform update – DataGen's broader IPPS analysis now includes every major rule shift, allowing you to get the most accurate data.
2. IPPS overall increase – CMS finalized net rates at lower than proposed, but payment will still increase by about $2.2 billion. This is good news for hospitals whose already tight margins suffered during the pandemic.
3. Social determinants of health pause – While the agency sought input on Z code severity levels and did alter three homelessness codes, it stopped short of broader implementation.
4. Quality and payment moves – CMS had proposed a health equity bonus to the Value-Based Purchasing Program. Its approach was unclear, however, and it won't implement the bonus until FFY 2026. Overall, CMS' focus on SDOH and health equity will help make these drivers a priority for hospitals and value-based models, perhaps just not as quickly.

What the final IPPS rule means for you

The IPPS changes will be effective on or after Oct. 1, 2023, unless otherwise noted. With the IPPS rule now final, hospitals can safely project their FFY 2024 budgets.

Looking for help with the final IPPS rule? DataGen’s PPS annual regulatory rules solution can help. Our comprehensive analytics platform will analyze major components of rules, providing you with granular estimates, national comparisons and more. Get the insights you need and contact us today for a free consultation.