On August 1, 2024, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2025 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System (PPS) final rule.
The final rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for fiscal year (FY) 2025. CMS is publishing this final rule to meet the legal requirements for updating Medicare payment policies for IPPS hospitals and LTCHs on an annual basis. This fact sheet discusses major provisions of the final rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/public-inspection/current
Background on the IPPS and LTCH PPS
CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays based on the patient’s diagnosis, the services or treatment provided, and severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are: IPPS: Medicare Severity Diagnosis-Related Groups (MS-DRGs) and LTCH PPS: Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).
The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services used by these hospitals in treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital “market basket.” The IPPS pays hospitals for services provided to people with Medicare using a national base payment rate, adjusted for several factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. Similarly, CMS updates LTCHs’ payment rates annually according to a separate market basket based on LTCH-specific goods and services.
Hospital Changes to Payment Rates under IPPS
The increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users is 2.9%. This reflects a projected FY 2025 hospital market basket percentage increase of 3.4%, reduced by a 0.5 percentage point productivity adjustment. If hospitals fail to successfully participate in the report to IQR program and/or are not meaningful EHR users, their payment update will be decreased.
Overall, for FY 2025, CMS expects the changes in operating and capital IPPS payment rates – in addition to other changes – will generally increase hospital payments by $2.9 billion. Specifically, operating and capital IPPS payment rates will increase hospital payments in FY 2025 by approximately $3.2 billion. In addition, CMS projects Medicare uncompensated care payments to disproportionate share hospitals (DSH) will decrease in FY 2025 by approximately $0.2 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $0.3 billion in FY 2025, primarily driven by the approval of new technology add-on payments for several technologies. Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals are set to expire December 31, 2024. In the past, these payments have been extended by legislation, but if they were to expire, CMS estimates that payments to these hospitals would decrease by $0.4 billion in FY 2025.
Changes to Payment Rates under LTCH PPS
For FY 2025, CMS is increasing the LTCH standard payment rate by 3.0%. LTCH PPS payments for discharges paid the LTCH standard payment rate are expected to increase by approximately 2.0% or $45 million, due primarily to a projected 0.8% percentage point decrease in high-cost outlier payments as a percentage of total LTCH PPS standard Federal payment rate payments. CMS is finalizing an increase to the LTCH outlier threshold for FY 2025 that is higher than. historical norms. This increase is needed to ensure that estimated outlier payments are approximately 8 percent of total payments, as required by statute.
Updated Labor Market Areas
The law requires that Medicare adjust its inpatient hospital payment for area differences in the cost of labor — an adjustment known as the wage index. CMS is finalizing the proposal to revise the labor market areas used for the wage index based on the most recent core-based statistical area delineations issued by the Office of Management and Budget (OMB) using 2020 Census data.
Continuation of the Low-Wage Hospital Policy
CMS is extending the temporary policy finalized in the FY 2020 IPPS/LTCH PPS final rule that addresses wage index disparities affecting low-wage index hospitals, which includes many rural hospitals. Specifically, we are establishing that this policy will be effective for at least three more years, beginning in FY 2025. CMS believes it is necessary to wait until the low wage index hospital policy has been in place for a sufficient period of time following the end of the COVID-19 public health emergency (PHE) to evaluate its effects before making any decision to modify or discontinue the policy. The first full fiscal year of wage data after the COVID-19 PHE is the FY 2024 wage data, which we anticipate will be available for FY 2028 rulemaking.
We note that the FY 2020 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 section 1886(d)(3)(E) or 1886(d)(5)(I)(i) 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, Nos. 22-5249, 22-5269, (D.C. Cir. July 23, 2024). As of the date of this final rule publication, the time to seek further review of the D.C. Circuit’s decision in Bridgeport Hospital has not expired. The government is evaluating the decision and considering options for next steps.
Separate IPPS Payment for Establishing and Maintaining Access to Essential Medicines
Many hospitals have experienced drug shortages — from antibiotics used to treat severe bacterial infections to crash cart drugs necessary to stabilize and resuscitate critically ill patients. Shortages can have profound impacts on the care hospitals are able to provide to their patients, including medication errors, delays in critical treatments, and increased risk of hospital-acquired infections and in-hospital mortality. These impacts result in reduced quality of care for patients, and in some instances, increased costs borne by the Medicare program to provide payment for services otherwise avoidable had a medicine been readily available when needed. The Biden-Harris Administration is focused on this issue, with HHS recently releasing a white paper highlighting steps taken to date and proposing a set of additional solutions that are critically needed to address drug shortages.
As one part of this initiative, CMS is finalizing a separate payment under the IPPS for small, independent hospitals to establish and maintain a buffer stock of essential medicines as a preventive measure to guard against future shortages. These hospitals are particularly vulnerable to supply disruptions during shortages because they lack the resources of hospitals that are larger and/or are part of a chain organization. This policy can be leveraged to help foster access to a more reliable, resilient supply of essential medicines for patients of these hospitals. In the future, CMS will assess the program’s impact and consider program expansion and other revisions, where appropriate, to help ensure availability of essential medicines for patients.
Distribution of GME residency slots under section 4122 of the Consolidated Appropriations Act (CAA), 2023
Section 4122 of the CAA, 2023, requires the distribution of an additional 200 Medicare-funded residency positions (or “slots”) to train physicians. Consistent with the Biden-Harris Administration’s Unity Agenda and focus on tackling the mental health crisis, this provision dedicates at least one-half of the total number of positions to psychiatry or psychiatry subspecialty residencies. The law requires CMS to notify hospitals receiving residency positions under section 4122 by January 31, 2026. To meet that deadline, CMS is implementing policies that will govern the application and award process in a manner consistent with the statutory requirements. This policy will focus on health professional shortage areas to help bolster the health care workforce in rural and underserved areas to the extent slots are available. CMS estimates that this additional funding will total approximately $74 million in support for teaching hospitals from FY 2026 through FY 2036.
Resources for Treating Patients with Inadequate Housing
IPPS payment is made based on the use of hospital resources in the treatment of an individual severity of illness, complexity of service, and/or consumption of resources. Generally, a higher severity level designation of a diagnosis code results in a higher payment to reflect the increased hospital resource use. After review of our data analysis of the impact on resource use generated using claims data, CMS is finalizing the proposal to change the severity designation of the seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes. This builds on our policy from last year for diagnosis codes describing homelessness (e.g., unspecified, sheltered, and unsheltered). This final policy also aligns with the Biden-Harris Administration’s broader work to recognize the influence of social factors on health and resources, including efforts of the U.S. Interagency Council on Homelessness, which recognizes housing stability as essential to the health and well-being of individuals and families. The finalized policy will more accurately reflect the resource costs associated with each health care encounter when hospitals take care of people who have inadequate housing, or have housing instability, and will also improve the reliability and validity of the coded data including in support of efforts to advance health equity.
Changes to New Technology Add-on Payment (NTAP) for FY 2025
New gene therapies hold tremendous promise to cure previously incurable diseases, including sickle cell disease (SCD). To better promote access to these potentially lifesaving therapies and consistent with CMS’ Sickle Cell Disease Action Plan, CMS is finalizing the proposal to increase the NTAP percentage from 65% to 75% for certain gene therapies approved for new technology add-on payments when indicated and used specifically for the treatment of SCD, beginning in FY 2025 and concluding at the end of the 2- to 3-year newness period for each such therapy.
CMS is finalizing the proposal to use the start of the fiscal year, October 1, instead of April 1, to determine whether a technology is within its 2- to 3-year newness period. This change will be effective starting in FY 2026 for new applicants for NTAP and when extending NTAP for an additional year for technologies initially approved for NTAP in FY 2025 or a subsequent year.
In addition, CMS is finalizing the proposal to no longer consider an FDA marketing authorization hold to be an inactive status for the purpose of NTAP application eligibility beginning with applications for NTAP for FY 2026.
Hospital Inpatient Quality Reporting Program
In the FY 2025 IPPS/LTCH PPS final rule, CMS is adopting seven new quality measures, removing five existing quality measures, and modifying two current quality measures. CMS is also finalizing two changes to current policies related to data validation and increasing the total number of mandatory electronic clinical quality measures (eCQMs) reported by hospitals over three years.
Specifically, CMS is finalizing the adoption of two new eCQMs, one claims-based measure, two structural measures, and two healthcare-associated infection (HAI) measures:
- Hospital Harm – Falls with Injury eCQM, with inclusion in the eCQM measure set beginning with the CY 2026 reporting period/FY 2028 payment determination.
- Hospital Harm – Postoperative Respiratory Failure eCQM, with inclusion in the eCQM measure set beginning with the CY 2026 reporting period/FY 2028 payment determination.
- Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications measure beginning with the July 1, 2023 – June 30, 2025 reporting period which impacts the FY 2027 payment determination.
- Patient Safety Structural Measure beginning with the CY 2025 reporting period/FY 2027 payment determination, with modification.
- Age Friendly Structural Measure beginning with the CY 2025 reporting period/FY 2027 payment determination.
- Catheter-Associated Urinary Tract Infection Standardized Infection Ratio measure stratified for oncology locations beginning with the CY 2026 reporting period/FY 2028 payment determination.
- Central Line-Associated Bloodstream Infection Standardized Infection Ratio measure stratified for oncology locations beginning with the CY 2026 reporting period/FY 2028 payment determination.
CMS is modifying two current measures:
- Global Malnutrition Composite Score eCQM beginning with the CY 2026 reporting period/FY 2028 payment determination. This modification adds patients ages 18 to 64 to the current cohort of patients 65 years or older.
- Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey measure beginning with the CY 2025 reporting period/FY 2027 payment determination. The modifications refine the current HCAHPS Survey by adding three new survey sub-measures, removing one existing survey sub-measure, and revising one existing survey sub-measure.
CMS is finalizing the removal of five measures:
- Four payment measures:
- Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Acute Myocardial Infarction (AMI Payment).
- Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Heart Failure (HF Payment).
- Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Pneumonia (PN Payment).
- Hospital-level, Risk-Standardized Payment Associated with a 30-Day Episode of Care for Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (THA/TKA Payment).
- We are finalizing these removals beginning with the FY 2026 payment determination, which is associated with a performance period of: July 1, 2021 – June 30, 2024, for the AMI Payment, HF Payment, and PN Payment measures; and April 1, 2021 – March 31, 2024, for the THA/TKA Payment measure.
- CMS PSI-04 Death Among Surgical Inpatients with Serious Treatable Complications measure beginning with the FY 2027 payment determination, associated with a July 1, 2023 – June 30, 2025, reporting period. We are finalizing the removal of this measure to replace it with the more broadly applicable Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications measure, as described above.
CMS is finalizing, with modifications, the proposal to increase the total number of eCQMs reported. Currently, the Hospital IQR Program requires reporting of six total eCQMs, three selected by CMS and three self-selected by hospitals. For the CY 2026 reporting period/FY 2028 payment determination, hospitals will be required to report on eight total eCQMs with five selected by CMS and three self-selected by hospitals. For the CY 2027 reporting period/FY 2029 payment determination, hospitals will be required to report on nine total eCQMs with six selected by CMS and three self-selected by hospitals. Beginning with the CY 2028 reporting period/FY 2030 payment determination, hospitals will be required to report on 11 total eCQMs, with eight selected by CMS and three self-selected by hospitals. In addition, CMS is finalizing the beginning of scoring for eCQM data validation, beginning with CY 2025 discharges that will impact the FY 2028 payment determination.
We also note that in the recently published CY 2025 Outpatient Prospective Payment System proposed rule, we propose to continue voluntary reporting of the core clinical data elements (CCDEs) and linking variables for both the Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Standardized Mortality (HWM) measures in the Hospital IQR Program.
We recently received results of voluntary reporting on these measures. Based on the results of the voluntary reporting, the data currently indicates that many of the hospitals that participated in voluntary reporting would not have met the reporting thresholds for the CCDEs and linking variables if the reporting requirement had been mandatory and would therefore have been subject to a payment reduction under the program. After considering this and feedback we received from hospitals, we proposed this extension of voluntary reporting for CCDE and linking variables.
Request for Comment to Advance Patient Safety and Outcomes Across the Hospital Quality Programs
CMS requested feedback on ways the agency can encourage hospitals to place greater focus on care coordination to improve post-discharge outcomes for patients. Specifically, CMS sought public feedback related to building on current measures in several quality reporting programs that could be considered in value-based purchasing programs where such measures could account for unplanned, post-discharge hospital visits to account for the full range of post-discharge outcomes beyond inpatient readmissions, including unplanned returns to the emergency department and receipt of observation services within 30 days of a patient’s discharge from an inpatient stay. The final rule provides a summary of the responses we received.
Medicare Promoting Interoperability Program
In 2011, CMS established the Medicare and Medicaid EHR Incentive Programs (now known as the Medicare Promoting Interoperability Program after the Medicaid EHR Incentive Program ended in CY 2022) to encourage eligible professionals, eligible hospitals, and critical access hospitals (CAHs) to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record (EHR) technology (CEHRT).
In the FY 2025 IPPS/LTCH PPS final rule, CMS is finalizing proposals to separate one existing measure into two distinct measures, to adopt two new eCQMs, to modify one current eCQM, and to increase the performance-based scoring threshold. CMS is also finalizing the proposal, with modification, to increase the total number of mandatory eCQMs reported by hospitals to increase the total number reported over three years. CMS also issued two notifications on changes to the definition of CEHRT and to the definition of Meaningful EHR User in the Medicare Promoting Interoperability Program at 42 CFR 495.4.
CMS is finalizing the following measures in the Medicare Promoting Interoperability Program for eligible hospitals and CAHs:
- Separation of the Antimicrobial Use and Resistance (AUR) Surveillance measure into two measures, Antimicrobial Use (AU) Surveillance and Antimicrobial Resistance (AR) Surveillance, beginning with the CY 2025 EHR reporting period; addition of a new exclusion for eligible hospitals or CAHs that lack discrete electronic access to data elements that are required for AU or AR Surveillance reporting; modification to the applicability of the existing exclusions to either the AU or AR Surveillance measures, respectively; and treatment of the AU and AR Surveillance measures as two new measures with respect to active engagement beginning with the CY 2025 EHR reporting period.
- Adoption of two new eCQMs for eligible hospitals and CAHs to select as one of their three self-selected eCQMs, in alignment with the Hospital IQR Program, beginning with the CY 2026 reporting period:
- Hospital Harm – Falls with Injury eCQM; and
- Hospital Harm – Postoperative Respiratory Failure eCQM.
- Modification of the Global Malnutrition Composite Score eCQM, beginning with the CY 2026 reporting period.
- Modification of eCQM data reporting and submission requirements in alignment with the Hospital IQR Program by finalizing a progressive increase in the number of mandatory eCQMs eligible hospitals and CAHs will be required to report on beginning with the CY 2026 reporting period.
CMS issued the following notifications:
- Notified eligible hospitals and CAHs of the changes to the definition of CEHRT in the Medicare Promoting Interoperability Program at 42 CFR 495.4 beginning with the CY 2024 EHR reporting period based on revisions made in the CY 2024 Medicare Physician Fee Schedule final rule.
- Notified eligible hospitals and CAHs of the changes to the definition of Meaningful EHR User at 42 CFR 495.4, which become effective when the Department of Health and Human Services (HHS) final rule, 21st Century Cures Act: Establishment of Disincentives for Health Care Providers That Have Committed Information Blocking (89 FR 54662) becomes effective on July 31, 2024.
CMS is also finalizing an increase to the performance-based scoring threshold for eligible hospitals and CAHs reporting to the Medicare Promoting Interoperability Program, with modification, from 60 points to 70 points for the CY 2025 EHR reporting period and from 70 points to 80 points beginning with the CY 2026 EHR reporting period.
PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
The PCHQR Program is a quality reporting program for the eleven cancer hospitals statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2025 IPPS/LTCH PPS final rule, CMS is finalizing the following:
- Adoption of the Patient Safety Structural measure beginning with the CY 2025 reporting period/FY 2027 program year, with modification.
- Adoption of sub-measure updates to the HCAHPS Survey measure beginning with the CY 2025 reporting period/FY 2027 program year.
- Moving up the start date for publicly displaying hospital performance on the Hospital Commitment to Health Equity measure to January 2026 or as soon as feasible thereafter.
Hospital Readmissions Reduction Program
The Hospital Readmissions Reduction Program is a type of value-based purchasing program that reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving health care for patients by linking payment to the quality of hospital care. CMS did not propose and is not finalizing any changes to the Hospital Readmissions Reduction Program in the FY 2025 IPPS/LTCH PPS final rule. We note that all previously finalized policies under this program will continue to apply and refer readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 49081 through 49094) for information on these policies.
Hospital-Acquired Condition (HAC) Reduction Program
The HAC Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions by reducing payment by 1% for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions. CMS did not propose and is not finalizing any changes to the HAC Reduction Program in the FY 2025 IPPS/LTCH PPS final rule. We note that all previously finalized policies under this program will continue to apply and refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 59108 through 59114) for information on these policies.
Hospital Value-Based Purchasing (VBP) Program
The Hospital VBP Program is a budget-neutral program funded by reducing participating hospitals’ base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments. In the FY 2025 IPPS/LTCH PPS final rule, CMS is finalizing the proposals to:
- Modify scoring on the HCAHPS Survey measure in the Person and Community Engagement Domain for the FY 2027 through FY 2029 program years to only score on the six unchanged dimensions of the survey while updates to the survey are adopted and publicly reported in the Hospital IQR Program.
- Adopt sub-measure updates to the HCAHPS Survey measure in the Person and Community Engagement Domain beginning with the FY 2030 program year after the updates have been publicly reported for one year in the Hospital IQR Program.
- Modify scoring on the HCAHPS Survey measure in the Person and Community Engagement Domain beginning with the FY 2030 program year to account for the updates to the survey.
Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
The LTCH QRP is a pay-for-reporting program. LTCHs that do not meet reporting requirements are subject to a two-percentage-point reduction in their Annual Increase Factor. In the FY 2025 IPPS/LTCH PPS final rule, CMS finalized the following proposals for the LTCH QRP:
CMS finalized the addition of four assessment items, the modification of one assessment item, and one administrative change on the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS). CMS also summarized comments received in response to two Requests for Information (RFIs) for the LTCH QRP.
First, CMS finalized the adoption of four new assessment items in the SDOH category, to be collected via the LCDS when a patient is admitted to an LTCH beginning October 1, 2026: (1) Living Situation (one item), (2) Food (two items), and (3) Utility (one item). These assessment items support a culture of engagement and advancing equity in LTCHs. Collecting this information from patients at admission may assist LTCHs in addressing health disparities and identifying a patient’s health-related social needs to direct effective discharge planning, facilitate coordinated care, and enable better health outcomes. An LTCH will be required to collect these four SDOH assessment items from patients at admission only.
Second, CMS finalized modifications of the Transportation SDOH assessment item, currently collected via the LCDS, beginning October 1, 2026. As part of our routine item and measure monitoring work, CMS identified an opportunity to improve the data collection for this item. Specifically, the finalized modifications of the Transportation item will improve and align data collection in three ways: (1) specify the look-back period for identifying if and when a patient experienced a lack of reliable transportation, (2) simplify the response options for the patient, and (3) require collection at admission only, which will decrease provider burden since the current assessment item is collected at both admission and discharge.
Third, CMS finalized extending the admission assessment window for the LCDS from three days to four days, beginning with LTCH admissions on October 1, 2026. We routinely review the LCDS for opportunities to simplify data submission requirements. CMS had received feedback regarding the difficulty of collecting the required LCDS data elements within the three-day assessment window when medically complex patients are admitted prior to and on weekends, and extending the assessment window would ease this difficulty.
In the final FY 2025 IPPS/LTCH rule, CMS summarized feedback it received on two Requests for Information (RFIs) related to the LTCH QRP. In the proposed rule, CMS sought feedback on Future Measure Concepts for the LTCH QRP. Specifically, CMS sought feedback on three measure concepts of vaccination composite, pain management, and depression. In this final rule, we summarized the comments we received and will take this feedback into consideration regarding our future measure development efforts for the LTCH QRP.
CMS also sought feedback in the FY 2025 IPPS/LTCH proposed rule on creating an LTCH QRP Star Rating System. Currently, the LTCH QRP does not have a star rating system to supplement existing publicly reported quality information for people to use when comparing LTCH quality of care. CMS intends to develop a five-star methodology for LTCHs that can meaningfully distinguish between quality of care offered by providers and would also be reported on both Care Compare and the Provider Data Catalog. Star ratings for LTCHs will be designed to help consumers quickly identify differences in quality when selecting a provider while also helping to promote competition in health care markets. In the final rule, we summarized the comments we received and will take these recommendations into consideration in our future star rating development efforts.
Hospital and CAH Respiratory Infection Data Reporting
CMS is renewing and revising the hospital and critical access hospital (CAH) Conditions of Participation (CoPs) data reporting requirements for data related to respiratory infections. Sustained data collection and reporting of respiratory illnesses outside of emergencies will help ensure that hospitals and CAHs have appropriate insight related to evolving infection control needs. Specifically, CMS is requiring that, beginning on November 1, hospitals and CAHs electronically report information about COVID-19, influenza, and RSV on a schedule specified by the Secretary.
CMS is also requiring that, in the event of a declared PHE for an acute respiratory illness, the Secretary may require reporting of additional categories, such as: facility structure and infrastructure operational status; hospital/ED diversion status; staffing and staffing shortages; supply inventory shortages; and relevant medical countermeasures and therapeutics. The frequency and format of these additional data measures are at the discretion of the Secretary.