CMS Finalized a FY 2024 Payment Rate Increase, But Will it Help?

Hospitals will be seeing a payment bump, but will it be enough to ward off rising inflation and labor costs?

CMS recently released the fiscal year (FY) 2024 Inpatient Prospective Payment System (IPPS) final rule increasing payment rates by a net 3.1% for FY 2024 for hospitals that are meaningful users of electronic health records and submit quality measure data.

This 3.1% payment update reflects a hospital market basket increase of 3.3% as well as a productivity cut of 0.2%. Overall, the agency will increase hospital payments by $2.2 billion compared to FY 2023, which also includes a $957 million decrease in disproportionate share hospital payments and a $364 million decrease in new medical technology payments, according to the IPPS final rule.

While a $2.2 billion increase seems significant, hospitals are facing historic financial challenges. In fact, hospital margins for the year rose in June, but the divide between the haves and have-nots widened as expenses and economic pressures remained high according to a recent Kaufman Hall analysis.

Most hospitals underperformed in June, even as the median year-to-date operating margin index increased to 1.4%, compared to 0.7% in May.

These challenges highlight the fact that leaders need to stop relying on payment rate increases to keep them afloat.

"This 'new normal' is an incredibly challenging environment for hospitals," Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a press release regarding it's market analysis.

"It's time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized," Swanson said.

The AHA doubled down on the “woefully inadequate” payment rate increase for FY 2024.

In a statement shared with the media, Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said, “The AHA is deeply concerned with CMS’ woefully inadequate inpatient and long-term care hospital payment updates. The agency continues to finalize rate increases that are not commensurate with the near decades-high inflation and increased costs for labor, equipment, drugs and supplies that hospitals across the country are experiencing.”