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FY 2024 IPPS Proposed Rule 'Woefully Inadequate,' 'Threatens Access to Care'

Analysis  |  By Amanda Norris  
   April 25, 2023

Hospital groups have voiced their displeasure with CMS' payment increase within the recent IPPS proposed rule.

CMS recently issued its fiscal year (FY) 2024 inpatient prospective payment system (IPPS) proposed rule. While updating Medicare payments and policies for hospitals, the rule also would adopt hospital quality measures to promote safety and equity, as well as reduce preventable harm, according to CMS' press release.

Under the proposed rule, acute care hospitals that report quality data and are meaningful users of EHRs will see a net 2.8% increase in payments in FY 2024 (compared to 2023). However, disproportionate share hospitals could be facing a payment cut of $115 million.

While CMS says the 2.8% rise would increase hospital payments by $3.3 billion, the American Hospital Association (AHA) says it is not enough.  

“The AHA is deeply concerned with CMS’ woefully inadequate proposed inpatient hospital payment update of 2.8% given the near decades-high inflation and increased costs for labor, equipment, drugs, and supplies. Moreover, long-term care hospitals would see a staggering negative 2.5% payment update under this proposal. These insufficient adjustments are simply unsustainable,” Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said in a statement.

“2022 was the most financially challenging year for hospitals during the pandemic, with half of hospitals finishing the year with a negative operating margin. So far, this worrying trend has continued in 2023, most recently with reports of record high hospital defaults. The AHA has repeatedly requested that CMS and the Administration remedy shortcomings in its previous market basket forecasts for all hospitals, Thompson said.

For example, The AHA says CMS’ inpatient payment update was a full three percentage points less than what actual market basket inflation was in 2022 and the long-term care update was 2.9 percentage points less.

“Layering these inadequate inflationary adjustments on top of Medicare’s existing underpayments to hospitals does not reflect the reality of the world hospitals are providing care in. Without more substantial updates in the final rule, hospitals’ ability to continue caring for patients and providing essential services for their communities will be threatened.”

The Federation of American Hospitals piggy-backed on the AHA’s sentiment and called the update "disappointing."

“As the cost of groceries and gas continue to rise, so does the cost of caring for patients. Just as the ravages of record setting inflation are affecting every American family – community hospitals are being hit too. Hospitals aren’t immune to inflation. They are contending with rising labor costs combined with the growing challenges of a deepening caregiver shortage, drug price increases, and supply chain breakdowns, among other inflation challenges. All reasons why hospitals need more support from Medicare,” President Chip Kahn said in a statement.

“This IPPS proposed inflationary payment update is disappointing. It fails to recognize today’s headwinds that will strain the health safety net in 2024, which will further threaten patients’ access to care as hospitals are forced to reduce services or in some cases, especially rural areas, close completely.”

The IPPS proposed rule came at the same time that data from the AHA found that hospitals and health systems are dealing with an increase in financial pressures.

According to the AHA’s report, overall hospital expenses increased by 17.5% between 2019 and 2022, outpacing Medicare reimbursement, which only grew by 7.5% during the same period.

Labor costs, which typically account for half of a hospital’s budget, grew by 20.8% between 2019 and 2022. The growth in labor expenses was primarily the result of a rise in reliance on contract staffing. There has been a 258% increase in total contract labor expenses for hospitals in 2022 compared to 2019, according to AHA research.

“This IPPS proposed inflationary payment update is disappointing. It fails to recognize today’s headwinds that will strain the health safety net in 2024, which will further threaten patients’ access to care as hospitals are forced to reduce services or in some cases, especially rural areas, close completely.”

Amanda Norris is the Director of Content for HealthLeaders.


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