Details on the proposed rule

Under the proposed rule, CMS plans to increase payments to inpatient hospitals by 2.6% for FY 2025 — a slight decline from the 2.8% increase in FY 2024. The update would increase hospital payments by $2.9 billion, as well as increase disproportionate share hospital payments by $560 million, and new medical technology payments by $94 million.

Other provisions in the proposed rule include:

• The continuation of the low-wage index hospital policy for FY 2025
• The establishment of a separate IPPS payment for creating and maintaining access to essential medicines
• New incentives to encourage hospitals to offer new gene therapies for sickle cell disease
• The creation of a new mandatory CMS Innovation Center model that would provide bundled payments for certain surgical procedures
• The distribution of new graduate medical education slots under section 4122 of the Consolidated Appropriations Act of 2023
• Efforts to seek public comments on using Medicare IPPS payments for maternity care by other payers
• Changes to CMS' quality reporting and value programs, including seven new measures for the inpatient quality reporting program

CMS also proposed a 2.8% payment increase for the long-term care hospital prospective payment system for FY 2025, which would increase payments by $41 million as compared to FY 2024. According to the agency, the increase is "primarily due to the proposed update to the rate partially offset by a projected decrease in high-cost outlier payments in FY 2025 compared to FY 2024."

"Hospitals play such a central role in the diverse communities they serve," said Meena Seshamani, CMS deputy administrator and director of the Center for Medicare. "Our proposed payments to hospitals further recognize the cost of unmet social needs, advance access to innovative and essential treatments, expand the behavioral health workforce and ultimately help provide hospitals the vital tools they need to better serve all communities."

The proposed rule will be published in the Federal Register on May 2, and will be open for public comments through June 10.

Reaction

So far, several hospital groups have been critical of the proposed IPPS rule, saying that the payment increase for FY 2025 is not enough.

According to Ashley Thompson, SVP of public policy analysis and development at the American Hospital Association, the 2.6% payment increase "is woefully inadequate, especially following years of high inflation and rising costs for labor, drugs and equipment."

"Many hospitals across the country, especially those in rural and underserved communities, continue to operate under unsustainable negative or break-even margins," Thompson added. "We urge CMS to reconsider their policy in the final rule so that all hospitals can provide high-quality, around the clock, essential care to their communities." 

Similarly, Soumi Saha, SVP of government affairs for the hospital group purchasing network Premier, said the organization was "profoundly disappointed" with the "dismally deficient" payment update.

"With a mere 2.6% payment increase that fails to align with the stark realities of inflation and operational costs, persistent labor shortages and an aging demographic, the sustainability of our healthcare system is jeopardized," Saha said.

Chip Kahn, president and CEO of the Federation of American Hospitals, said that "just like last year, with inflation still stubbornly high, CMS fails to meet the moment."

"... We need Congress to examine the inability of current payments to keep up with rising costs outside hospitals' control, which ultimately jeopardizes patient care at a time when hospitals are being threatened with Medicare cuts," he added. "These cuts could lead to closures in rural and underserved areas." (Muoio, Fierce Healthcare, 4/10; AHA News, 4/10; Goldman, Axios, 4/11; Kacik, Modern Healthcare, 4/10; CMS fact sheet, 4/10)

CMS' value-based payment models can be complex, but this field guide breaks them down for you. Discover the different payment structures and stakeholder eligibility of each model and gain a better understanding of how they disrupt the traditional fee-for-service approach.