CMS Final Rule: 4.3% Payment Increase Announced in FY 2023 Hospital IPPS and 2.4% Boost to LTCH PPS

The rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and long-term care hospitals (LTCH) and builds on key priorities to advance health equity, including better measurements for healthcare quality disparities and improving the safety and quality of maternity care by establishing a “Birthing-Friendly” hospital designation.

Inpatient and long-term care hospitals celebrated the inpatient payment boost instead of the proposed pay cuts and lobbyists had to be tired after hounding lawmakers for months to pressure the Centers for Medicare & Medicaid Services (CMS) to do better than its proposed 3.2% market update amid inflation and a rise in expenses. The American Hospital Association (AHA) expressed appreciation for “the bipartisan groups of senators and representatives who expressed their support for hospitals and health systems by weighing in with CMS on their proposed policy.”

Nevertheless, AHA said the ruling fell short of expectations and doesn’t take into account, “the extraordinary inflationary expenses in the cost of caring hospitals are being forced to absorb, particularly related to supporting their workforce while experiencing severe staff shortages.”

According to the CMS final rule, the 4.3% increase in operating payment rates reflects a FY 2023 projected hospital market basket update of 4.1%, reduced by a statutorily required productivity adjustment of a 0.3 percentage point plus a 0.5 percentage point adjustment required by statute. This is the highest market basket update in the last 25 years and is primarily due to higher expected growth in compensation rates for hospital workers.

CMS reversed its unpopular proposal to suppress the reporting of hospital safety measures, instead, reports will be public but hospitals won’t face penalties for faring worse than their peers, according to Chief Healthcare Executive. Leah Binder, president and CEO of the Leapfrog Group, told the publication that it’s vital for the public to have access to that information.

It’s a win for everybody. The most important thing for us and the hundreds of people who were part of this campaign was transparency, public reporting of patient safety data by hospitals.

CMS is adopting health equity-focused measures in the Hospital Inpatient Quality Reporting (IQR) Program.

• Assesses a hospital’s commitment to establishing a culture of equity and delivering more equitable health care by capturing concrete activities across five key domains:
  • strategic planning
  • data collection
  • data analysis
  • quality improvement
  • leadership engagement
• Capture screening and identification of patient-level, health-related social needs:
  • food insecurity
  • housing instability
  • transportation needs
  • utility difficulties
  • interpersonal safety.

“By screening for and identifying such unmet needs, hospitals will be in a better position to serve patients holistically by addressing and monitoring what are often key contributors to poor physical and mental health outcomes,” said CMS.

CMS’ decision to not finalize a policy that would change how 1115 waiver days are counted for purposes of determining Medicare supplemental payments that aid hospitals serving a large volume of low-income and uninsured patients received praise from AHA which had warned the policy, “would have put at risk hundreds of millions of dollars for patient care, and potentially jeopardize the eligibility of some hospitals for the 340B drug pricing program, which requires drug companies to provide discounts to hospitals serving low-income patients and vulnerable communities.”

The rule also establishes new and revises existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program. CMS also provides estimated and newly established performance standards for the Hospital Value-Based Purchasing (VBP) Program and updated policies for the Hospital Readmissions Reduction Program (HRRP), Hospital Inpatient Quality Reporting (IQR) Program, Hospital VBP Program, Hospital-Acquired Condition (HAC) Reduction Program, PPS-Exempt Cancer Hospital Reporting Program, and LTCH Quality Reporting Program.

CMS is establishing new requirements and revising existing requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program. 

The agency’s creation of a “Birthing-Friendly” hospital designation — a publicly-reported, public-facing hospital designation on the quality and safety of maternity care. is the first-ever hospital quality designation by HHS that specifically focuses on maternal health. CMS is establishing this hospital designation in Fall 2023.

To learn more about this rule that covers 2,087 pages including the establishment of a “Birthing Friendly” hospital designation, check out the CMS Fact Sheet.