An in-depth look: CMS FFY 2025 IPF PPS Final Payment Rule

On July 31, the Centers for Medicare and Medicaid Services (CMS) released the federal fiscal year (FFY) 2025 final payment rule for the Inpatient Psychiatric Facility (IPF) Prospective Payment System (PPS). The significant updates made in this rule have been a long time coming, considering this payment setting has not seen substantial revisions in many years.  

Let's break down what these changes mean for healthcare providers and policy analysts: Think of this as your IPF PPS fact sheet!  

Understanding the adopted changes 

Aligning ECT payments 

One of the pivotal changes in the FFY 2025 IPF PPS final payment rule is the alignment of IPF PPS payments that include electroconvulsive therapy (ECT) payments with the increased cost of furnishing ECT. CMS analyzed the most recent outpatient PPS (OPPS) cost data to consider changes to the IPF ECT payment for FFY 2025. Based on this analysis, CMS will use the calendar year (CY) 2024 OPPS pre-scaled, pre-adjusted geometric mean cost for ECT of $675.93, updated by the finalized FFY 2025 IPF PPS update factors. 

Revisions to facility- and patient-level adjustments 

For FFY 2025, CMS is also revising the facility- and patient-level adjustments using CY 2019-2021 MedPAR files and FFY 2019-2021 cost report data. These revisions include changes to the following adjustment categories. For all the details, please review the 2025 IPF final rule document. 

1. Patient Condition Medicare-Severity Diagnosis-Related Groupings  

For FFY 2025, CMS will continue to utilize the MS-DRG system used under the IPPS to classify Medicare patients treated in IPF, with revisions CMS is maintaining a specific add-on to 15 of the existing 17 MS-DRGs and will apply an add-on to 4 additional MS-DRGs. 

2. Patient Comorbid Conditions 

Patient comorbid condition adjustments adopted changes are most notable. For instance, the adjustment factor for oncology treatment is finalized to increase from 1.07 to 1.44, which gives the per diem rate for this category the potential to increase significantly. 

3. Patient Age 

CMS analysis has shown that the IPF per diem costs increase with patient age. The revisions to the patient age adjustment include updating adjustment factors as well as: 

• merging “45 and under 50” with “50 and under 55” to form the new age group “45 and under 55”; and 
• merging “70 and under 75” with “75 and under 80” to form the new age group “70 and under 80”. 

4. Patient Variable Per Diem and Facility ED 

Patient variable per diem adjustment factors will undergo some of the most significant changes. Currently, variable per diem adjustments begin on day one (adjustment of 1.19 or 1.31 depending on the presence of an emergency department (ED)) and gradually decline until day 21 of a patient's stay. After day 21, the variable per diem adjustment remains constant and less than 1.00.  

However, a more recent analysis by CMS shows there is no statistically significant decrease in cost per day after day 10. Consequently, beginning FFY 2025 CMS will increase the adjustment factors for days one through nine, with days 10 and above receiving an adjustment of 1.00. This means that longer stays will no longer see a decrease in payments below their baseline. Additionally, the per diem adjustment for day one for IPF with a qualifying ED will increase to 1.57. 

5. Budget neutrality and refinement standardization factor 

The Consolidated Appropriations Act (CAA) of 2023 includes a provision that any revisions in payment adjustments implemented for the IPF PPS for FFY 2025 and onwards must be budget neutral. To achieve this, CMS will apply a refinement standardization factor for FFY 2025 to account for updates to IPF patient- and facility-level adjustment factors and the ECT per treatment amount.  

This factor of 0.9524 is applied to the IPF per diem base rate and the ECT per treatment amount when calculating payments by claim. 

Key takeaways 

Healthcare providers and policy analysts should note the significant changes adopted in the FFY 2025 IPF PPS final rule. Critical points include: 

• substantial revisions to facility- and patient-level adjustments; 

• the alignment of ECT payments with outpatient costs; and 

• the introduction of a refinement standardization factor to ensure budget neutrality. 

By staying informed, providers can better prepare for the financial impacts and adjustments necessary to comply with the new regulations. The CMS FFY 2025 IPF PPS final payment rule marks a pivotal shift in the way IPFs will be reimbursed, aiming to make payments more reflective of actual costs and ensuring financial sustainability across the healthcare landscape. 

Get ahead of future CMS rulemaking 

DataGen’s analysis 

DataGen indicates that the nation would experience an estimated $120.3 million decrease in payments due to the refinement standardization budget neutrality, where the ECT refinement adjustment would only increase national payments by an estimated $4.0 million, only benefiting providers who perform ECT. Separately, the facility- and patient-level adopted adjustments are estimated to have a $104.4 million positive impact on providers nationwide. 

Final thoughts 

If you have any questions or need further insights into how these changes may affect your facility, contact DataGen and explore our Medicare fee-for-service policy analytics platform.  

Use our four primary products: Medicare FFS quality suite, PPS annual regulatory rules, legislative analyses, and financial and operational performance, to: 

• deliver continuous quality improvement with time-saving Medicare data analysis; 

• analyze major Medicare policy changes before and after they take effect; 

• create reports that help clients and their members strategize, advocate, adjust and budget; and 

• guide the future of your facility. 

Stay ahead of the curve and ensure your organization is ready for the future of IPF PPS. Contact us today for a free demo.