CHA News

CMS Finalizes Inadequate Inpatient Payment Update

What’s happening: The Centers for Medicare & Medicaid Services’ (CMS) finalized fiscal year (FY) 2025 inpatient prospective payment system (IPPS) rule falls short of what hospitals need to keep up with rising costs and health care needs.   

What else to know: The rule includes a net market basket update of 2.9%. As a result of all changes, CMS estimates that hospital inpatient payments will increase by $2.9 billion in FY 2025.  

Other key provisions of the final rule include:  

  • Uncompensated Care to Disproportionate Share Hospitals: Payments to qualifying hospitals are projected to decrease by 200 million nationally. This is a drastic change from the proposed rule, which projected payments would increase by $560 million.   
  • Low Wage Index Policy: Despite a recent loss in federal appeals court, CMS finalized a continuation of “bottom quartile” policy for three more years. This policy, which CHA continues to challenge in court, increases the wage index for low wage hospitals while reducing payments to all hospitals to make the adjustment budget neutral.   
  • Mandatory Episodic Payment Model: A five-year Transforming Episode Accountability Model for hospitals in select markets for 30-day episodes would begin with procedures for lower extremity joint replacement, coronary artery bypass, major bowel procedure, spinal fusion, and surgical hip/femur fracture treatment. Hospitals that are participating in current CMS episodic payment models will also have a one-time opportunity to opt into the model. The model will begin on Jan. 1, 2026.  
    • Hospitals in the following selected core-based statistical areas will be required to participate in the model: Bakersfield-Delano, Crescent City, Eureka-Arcata, Hanford-Corcoran, Riverside-San Bernardino-Ontario, San Diego-Chula Vista-Carlsbad, San Francisco-Oakland-Fremont, San Jose-Sunnyvale-Santa Clara, San Luis Obispo-Paso Robles, Santa Rosa-Petaluma. 
    • CHA will host a webinar on this model Aug. 14; read more on the CHA website
  • Increasing Severity of Housing Instability: CMS increased payments for diagnosis codes describing inadequate housing and housing instability.  
  • New Technology Payment for Sickle Cell Disease: This rule also increases the new technology add-on payment from 65% to 75% for gene therapies indicated and used for treatment of sickle cell disease.   
  • Separate Payment for Essential Medicines: CMS established a separate payment for small (100 or fewer beds), independent hospitals for the IPPS share to establish and maintain a six-month stock of essential medicines. The payment will be made in a non-budget-neutral manner and is effective for cost reporting periods beginning on or after Oct. 1.  
  • Hospital Inpatient Quality Reporting (IQR) and Value-Based Purchasing (VBP) Programs: The rule includes seven new measures for the hospital IQR program, five measure removals, and two measure modifications, including changes to the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) measure. Related changes are made to the scoring methodology of the hospital VBP program to account for the HCAHPS modifications. 
  • Electronic Clinical Quality Measures (eCQMs): CMS finalized several new eCQMs for the Hospital IQR and promoting interoperability programs. The number of eCQMs hospitals must report under each program will increase significantly beginning in 2026.   
  • Promoting Interoperability Program: The rule includes modifications to measures and an increase to the performance-based scoring threshold that hospitals must meet to be considered meaningful users of electronic health record technology.  
  • Hospital and Critical Access Hospital (CAH) Data Respiratory Illness Reporting: CMS updated the conditions of participation to require hospital and CAH reporting on acute respiratory illnesses outside of a public health emergency.   

A CMS fact sheet is available. CHA will make a detailed summary in the coming weeks.