FY 2025 IPPS rates changed last minute due to court decision

From ACDIS CDI Strategies

To comply with a summer court order, the fiscal year (FY) 2025 Hospital Inpatient Prospective Payment System (IPPS) was revised a day before its implementation on October 1 to reduce payments for low wage hospitals, JustCoding reported.

The update was primarily focused on the low wage index hospital policy, which since FY 2020 has provided extra funds to hospitals whose workers earn lower wages, encouraging higher pay. At the time, CMS stated that the policy “reflected a common concern that the current wage index system perpetuates and exacerbates the disparities between high and low wage index hospitals.”

Feedback had originally found that the use of historical wage data to prospectively set a hospital’s wage index created a lag between when a hospital increased its wages and when it received higher payments. As a result, CMS enacted the policy to aid those in the lowest quartile, allowing those hospitals to increase employee compensation sooner. This 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 who noted that the additional assistance “has been a valuable lifeline for more than 800 hospitals in 23 states throughout FY 2020, FY 2021, FY 2022, and now FY 2023” and continuing the policy would “allow hospitals to recruit and retain health care staff and protect access to care for millions of Americans.”

However, in July 2024, the Court of Appeals for the D.C. Circuit held that the Department of Health and Human Services lacked authority to adopt the low wage index hospital policy for FY 2020 and that the policy and related budget neutrality adjustment would need to be removed.

As a result, the interim final action with comment includes revised Medicare IPPS wage index values for FY 2025, a transition plan for low wage hospitals significantly impacted by those revisions, and conforming changes to the IPPS payment rates for FY 2025. CMS wrote in the rule that they “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.”

Although it has already gone into effect, CMS will be receiving public comments for consideration until November 29.

ACDIS Editor’s note: This article first appeared in JustCoding. To read the CMS fact sheet, click here.