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CMS FFY 2025 IPPS Interim Final Rule: Hospital reimbursements impact

CMS FFY 2025 IPPS Interim Final Rule

On Sept. 30, the Centers for Medicare & Medicaid Services (CMS) released the FFY 2025 IPPS Interim Final Rule with comment period (IFC), marking a significant shift in how hospitals manage their wage index challenges. Designed to address disparities between low and high wage index hospitals, the rule modifies the federal fiscal year (FFY) 2025 hospital inpatient prospective payment system (PPS) low wage index policy.  

This blog post will explore the IFC and its implications for the healthcare industry. In addition, we'll provide insights on the IPPS analysis based on the final rule — so you can best navigate these changes with the most up-to-date adoptions. 

Key changes in the FFY 2025 IPPS Interim Final Rule 

The FFY 2025 IPPS IFC brings several critical changes to the existing structure of hospital reimbursements under Medicare. Initially implemented in FFY 2020, the low wage index policy aimed to adjust hospital reimbursements to bridge the gap between high and low wage index hospitals. However, due to legal challenges highlighted in Bridgeport Hosp. v. Becerra, CMS was compelled to discontinue this policy for FFY 2025. 

1. Discontinuation of low wage index policy 

While CMS disagreed with the court's decision on the FFY 2020 low wage index policy, the low wage index policy, which increased the wage index for hospitals below the 25th percentile, was removed for FFY 2025.  

2. Budget neutrality adjustment 

The budget neutrality adjustment that accompanied the low wage index policy has been discarded for FFY 2025 as well. This is a significant change, as it impacts the financial calculations previously used to maintain equilibrium within the payment system. 

3. New transitional payment adjustment 

Instead of the previous approach, CMS will provide an additional payment to hospitals who were eligible for the bottom quartile policy in FFY 2024 and whose FFY 2025 wage index is more than 5% lower than their FFY 2024 wage index. These payments for affected hospitals equal the difference between payments calculated using a wage index that is 95% of their FFY 2024 wage index and payments calculated using their FFY 2025 wage index.  
 
This adjustment aims to mitigate the financial impact on hospitals previously benefiting from the low wage index policy and will not be implemented in a budget-neutral manner. Hospitals not eligible for the low wage index policy in FFY 2024 are still subject to the permanent 5% wage index stop loss policy finalized in previous rules, if applicable.  

Implications for healthcare 

Financial impact on hospitals 

The FFY 2025 IPPS IFC will have varying effects based on a hospital's position within the wage index quartiles: 

  • Bottom quartile hospitals: These hospitals will experience reductions to their wage index values for FFY 2025, creating potential financial challenges as they transition to their new wage index levels. 

  • Non-bottom quartile hospitals: These hospitals will benefit from increased payments due to the removal of the budget-neutrality factor, offering some financial relief and potentially enhancing their competitive positioning. 

DataGen estimates show that about 20% of the hospitals paid under IPPS would have a net payment decrease due to the removal of this policy, which totals $247 million nationally. The other 80% of hospitals will see a total increase in payments of about $249 million due to the removal of the budget neutrality component from payment rates.  

Broader industry impacts 

  • Wage index disparities: The removal of the low wage index policy brings wage index disparities back into focus, particularly for hospitals struggling with different economic conditions. 

  • Payment adjustments and sustainability: The new payment adjustments aim to cushion hospitals against abrupt financial shifts, but stakeholders must still prepare for the long-term sustainability challenges posed by fluctuating Medicare reimbursement rates. 

Navigating the transition 

Healthcare administrators and policy analysts must prepare for the changes introduced by the FFY 2025 IPPS IFC. 

1. Review and analyze impacts 

Hospitals should analyze their current position in the wage index quartiles and assess the financial impact of the new rule. 

2. Strategize for sustainability 

Developing strategic plans to manage reduced reimbursements and optimize operational efficiency will be crucial for hospitals in the bottom quartile. 

3. Engage with CMS and stakeholders 

Engaging in discussions with CMS and other stakeholders can help hospitals influence future policy adjustments and advocate for their specific needs. 

What's ahead 

The FFY 2025 IPPS IFC represents a pivotal moment for hospitals navigating Medicare reimbursement complexities. By understanding these changes and proactively addressing their implications, healthcare stakeholders can better position themselves for success in an evolving industry landscape. 

CMS encourages hospitals and healthcare professionals to submit comments on the rule by Nov. 29.  

For more detailed analysis and support, don't hesitate to reach out — DataGen is here to help you translate policy changes into strategic opportunities for your organization. Learn more about delivering constant quality improvement through our Medicare Fee-for-service quality suite. 

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