On September 30, 2024, CMS issued an interim final rule (IFR) for the 2025 Inpatient Prospective Payment System (IPPS) that cancels the low wage index policy for 2025.
The agency makes this change as a result of the July 23, 2024 decision by the Court of Appeals for the D.C. Circuit in Bridgeport Hosp. v. Becerra, which found that CMS lacked the authority to adopt the low wage index policy. However, the rule is silent on how the agency will address years 2020 through 2024. CMS estimates 768 hospitals will receive a lower wage index value due to the changes in the IFR. Of the 768 hospitals projected to receive a lower wage index, 445 are urban hospitals and 323 are rural hospitals.
For hospitals that previously benefited from the fiscal year (FY) 2024 bottom quartile policy and experience a decrease of 5% or more to their area wage index (AWI) value (CMS estimates 113 facilities), the agency will apply the 5% cap in a non-budget-neutral manner. Therefore, the AWI 5% cap budget neutrality adjustment does not increase, which would have reduced the payments to all hospitals paid under IPPS.
Given CMS is canceling the bottom quartile policy, it also is removing the bottom quartile budget neutrality adjustment from the 2025 IPPS. This impacts the calculation of:
- Operating base rate: Increases from $6,606.51 to $6,624.39 for hospitals that met inpatient quality reporting and meaningful use requirements in a prior period
- Capital rate: Increases from $510.51 to $512.14
- Fixed loss outlier threshold: Increases from $46,152 to $46,217
Uncompensated Care for Disproportionate Share Hospital (UC DSH) Factor 3 amounts (included in Table 18 here) also were impacted; however, CMS notes the changes in the IFR have limited impact for the majority of hospitals.
Overall, the provisions laid out in the IFR are estimated to increase operating payments by approximately $37 million and capital payments by approximately $3 million for acute care hospitals.
If you have questions about the FY 2025 IPPS final rule and how it may impact your organization, please reach out to a professional at Forvis Mazars.