The Centers for Medicare & Medicaid Services (CMS) released the final rule for the Inpatient Prospective Payment System on August 1, resulting in a 2.9% increase in inpatient hospital payments for fiscal year 2025.
This 2.9% increase is slightly higher than the 2.6% proposed in April. However, the American Hospital Association (AHA) argues that this “inadequate” adjustment fails to support the inpatient hospital sector, where 40% of hospitals are currently losing money.
“AHA is deeply troubled by the impact of these insufficient payment updates on patient access to care, particularly in rural and underserved communities,” stated Molly Smith, AHA group vice president for public policy, on August 1. “These updates will worsen the already unsustainable negative or breakeven margins under which many hospitals are operating.”
Key points include:
1. The 2.9% payment update includes a 3.4% increase in the hospital market basket and a 0.5% productivity cut, with CMS projecting a total hospital payment increase of $3.2 billion in 2025.
2. CMS has finalized several provisions of the Transforming Episode Accountability Model (TEAM), mandating participation for IPPS hospitals in certain regions and establishing a five-year program starting January 1, 2026. The TEAM model will bundle payments for five surgical episodes: lower extremity joint replacement, surgical hip/femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure.
3. The AHA has expressed concerns about mandatory participation in the TEAM model, arguing it places excessive risk on providers with limited potential for shared savings. Molly Smith noted that the model is similar to other bundled payment approaches that have not reduced program costs or generated net savings, particularly affecting smaller hospitals lacking the resources to succeed.
4. CMS has finalized changes to its quality reporting and value programs, including:
– Adding seven new measures to the inpatient quality reporting program focused on patient safety-related practices and outcomes while removing five existing measures.
– Updating the Hospital Consumer Assessment of Healthcare Providers and Systems survey, impacting sub-measures used in the IQR and the hospital value-based purchasing program.
– Increasing the mandatory electronic clinical quality measures hospitals must report for both the IQR and Promoting Interoperability programs.
5. The final rule includes a provision to implement a separate payment to small, independent hospitals for maintaining a buffer stock of essential medicines.
6. Starting November 1, CMS will require hospitals and critical access hospitals to report data on acute respiratory illnesses, such as COVID-19, influenza, and respiratory syncytial virus, to the CDC, including information on hospital capacity and limited patient demographics like age.
Most provisions of the final rule take effect on October 1.
To read the entire legislation from the Federal Register, click here.
