CMS Issues Interim Final Action for FY 2025 IPPS Rate Changes
On September 30, 2024, the Centers for Medicare and Medicaid Services (CMS) issued an Interim final action with comment period (CMS-1818-IFC) for fiscal year (FY) 2025 Inpatient Prospective Payment System (IPPS) rates. Specifically, this document outlines changes to the Medicare wage index values and establishment of a traditional payment exception for low wage hospitals substantially impacted by the revisions, as well as the corresponding changes to the IPPS payment rate. These changes reflect the low wage index hospital policy removal as a result of the appellate court decision in Bridgeport Hosp vs Beverra.
The hospital wage index is one factor determining a hospital’s overall payment from CMS and is calculated and assigned to hospitals based on the labor market area in which the hospital is located. In the FY 2025 IPPS final rule, CMS finalized the continuation of the low wage index hospital policy, which was adopted in FY 2020 to help certain low wage index hospitals increase employee compensation by increasing the wage index values for these locations. This was done in a budget neutral manner through a related adjustment applied to the standardized amounts for all hospitals. CMS determined it needed more data for analysis before deciding to change or discontinue this policy. Therefore, it was finalized to be effective for three more years, starting in FY 2025, for sufficient wage data from after the end of the COVID-19 Public Health Emergency (PHE) to become available.
Currently, the low wage index hospital policy and the related budget neutrality adjustment are the subject of pending litigation in multiple courts. On July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary “lacked authority under…the Act or under the ‘adjustments’ language of…the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated.” Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). At the date of the IPPS final rule’s publication, the time to further review the D.C. Circuit’s decision in Bridgeport Hospital had not expired. Therefore, after additional consideration of the D.C. Circuit’s decision, CMS recalculated the FY 2025 IPPS hospital wage index by removing the low wage index policy and related low wage index budget neutrality factor from the standardized amounts.
As a result of this change, many of the hospitals that have been helped from the low wage index policy will see decreases of 5 percent or more, which will counteract the current 5 percent wage index cap policy (specifically, a hospital’s final wage index will not be less than 95 percent from its final wage index from the prior fiscal year, regardless of the cause of the decline). To offset this, CMS is applying a one-time narrow transitional exception policy which applies to hospitals that were helped with the FY 2024 low wage index policy. If the hospital is “significantly impacted” by the removal of the low wage index hospital policy, meaning its wage index has decreased more than 5 percent of the hospital’s FY 2024 wage index, then the transitional payment exception for FY 2025 for the hospital is equal to the additional FY 2025 amount the hospital would be paid under the IPPS if its FY 2025 wage index were equal to 95 percent of its FY 2024 wage index.
Comments to CMS regarding the Interim final action must refer to file code CMS-1808-IFC and be received by November 29, 2024. Electronic and mail submissions are acceptable, electronic submissions are encouraged: http://www.regulations.gov. Follow the instructions under the “submit a comment” tab.
