To comply with a summer court order, the Biden administration made a last-minute change to its inpatient rates that will reduce payments to low wage hospitals.
Released Monday, just before the start of the new federal fiscal year, the Centers for Medicare and Medicaid Services’ (CMS’) interim final action with comment period implements revised Medicare wage index values previously outlined in the FY 2025 Inpatient Prospective Payment System (IPPS) final rule.
The update is primarily focused on the low wage index hospital policy, which since FY 2020 has provided extra funds to hospitals whose workers earn lower wages to encourage higher pay.
CMS enacted the policy for those in the lowest quartile following feedback that its pay methodology’s use of historical wage data to prospectively set hospitals’ wage indexes created a “lag” between when a hospital increased its wages and when it received higher payments.
Of note, the low wage index hospital policy was required to be budget neutral, meaning that payments stemming from the increased wage index values would need to be paid for by lowering other hospitals’ pay rates.
CMS had planned to extend the policy for at least three more years beginning with FY 2025, a move backed by some bipartisan lawmakers (PDF). However, a July decision from the Court of Appeals for the D.C. Circuit held that the administration lacked authority to adopt the policy, and that the policy and related budget neutrality adjustment must be vacated.
“Although we respectfully disagree with the D.C. Circuit’s decision in Bridgeport Hosp. v. Becerra and continue to believe that the low wage index hospital policy and the related budget neutrality adjustment should be effective for at least three more years, … in this [interim final action with comment period] we are recalculating the IPPS hospital wage index to remove the low wage index hospital policy for FY 2025,” CMS wrote in the rule (PDF).
“Because we are now no longer applying the low wage index hospital policy in FY 2025, we are also removing the low wage index budget neutrality factor from the FY 2025 standardized amounts,” the agency added.
The low wage index hospital policy redirected $245 million in Medicare funds to benefitting hospitals during FY 2020 via a more than 0.2% reduction in the national standardized Medicare payment rate, the court case revealed.
CMS said it held off on vacating the policy in August’s IPPS final rule because it was “evaluating the decision and considering options for next steps” during the decision’s review period. The timing of the court’s decision also “necessitated swift action by the agency” to publish Monday and implement the fix ahead of public comment.
That fix, CMS explained, will be a “transition policy” similar to the agency’s established wage index cap policy that limits substantial year-to-year decreases in a hospital’s wage index, which holds any year-to-year decreases to a hospital’s wage index at 5%.
Unlike that cap, however, CMS said that it is “not required by the statute to budget neutralize this transition policy,” and so will be creating a “narrow transitional exception” for those low wage hospitals that would be “significantly impacted by the removal of the low wage index policy.”
In practice, this sets hospitals that would have a wage index decrease of more than 5% in FY 2025 (due to the court decision) at a wage index “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% of its FY 2024 wage index,” CMS wrote.
Monday’s rule update also included other conforming changes to IPPS rates and factors used to determine certain payments under the Long-Term Care Hospital Prospective Payment System. These changes, broadly speaking, involved the calculation of certain budget neutrality adjustment factors following the removal of the low wage index hospital policy and CMS’ transitional exception.
The rule is scheduled to be published in the Federal Registrar on Thursday. Though it has already gone into effect, CMS will be receiving public comments for consideration until Nov. 29.
For the FY 2025 IPPS final rule, CMS had initially proposed a topline 2.6% pay increase that was later bumped up to 2.9%. Industry groups bemoaned the raise, which they said did little to cover the rising costs of providing care.
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