Regulatory Bulletins

Bulletin 16 – CMS 2023 IPPS & LTCH Final Rule

CMS 2023 IPPS & LTCH Final Rule


On August 1, 2022, CMS released the FY 2023 Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospitals (LTCH PPS) Final Rule (CMS–1771–F), which was finalized and became effective on November 1, 2022.

Key Updates

The FY 2023 updates include several new and revised requirements for eligible hospitals and critical access hospitals (CAHs) participating in the Medicare Promoting Interoperability Program (PIP), as well as numerous new standards for several hospital incentive programs. CMS has also proposed suppressing several quality metrics of the hospital Value-Based Purchasing Program (VBP) and the Hospital Acquired-Condition Reduction Program (HAC) due to the continued impact of the COVID-19 PHE on the healthcare industry.

The updates did not deviate from what CMS has typically addressed in the annual IPPS proposed rule, with revisions proposed for payment rates, wage indices and DSH payment estimates.

The Final Rule has resulted in a 4.3% increase to the IPPS acute care hospital payment rate, which now ticks and ties with successful participation in the Hospital Inpatient Quality Reporting Program (IQR). This increase is 1.1 percentage points higher than the proposed update for FY 2023, though it is partially offset by decreases in outlier payments for extraordinarily costly cases. CMS also projects Medicare disproportionate share hospital (DSH) payments and Medicare uncompensated care payments combined will decrease in FY 2023 by approximately $0.3 billion, resulting in a net increase in FY 2023 hospital payments by $2.6 billion. 

CMS made no updates to the MS-DRG list for FY 2023, but did acknowledge the continued existence and impact of COVID-19 on Medicare beneficiaries. Although the MS-DRG list will be maintained at 767 for FY 2023, CMS reiterated the presumption that there will be a certain number of hospitalizations directly related to COVID-19 in FY 2023.Therefore they would continue to comprehensively review existing diagnosis codes, in addition to the current procedure code list to ensure consistently accurate MS-DRG assignment.

The proposed rule had also solicited feedback regarding the impact of social determinants of health (SDOH) on a provider’s ability to adequately identify a patient’s severity of illness, the complexity of service necessary and/or potential utilization of resources under the MS-DRGs. CMS noted a multitude of comments indicating a general opportunity to better identify the social and economic circumstances of patients, specifically identifying homelessness. This particular circumstance was strongly encouraged for reconsideration as a complication/comorbidity to elicit more rigorous documentation, which CMS indicated would be taken into consideration for future rulemaking.

Another finalized change includes revisions to hospital-acquired Condition of Participation (CoP) infection prevention and control reporting requirements. The revision creates an incentive for hospitals to reduce instances of hospital-acquired conditions by penalizing the worst performing hospitals (per quartile) with a 1% payment reduction. This CoP reporting requirement would commence either upon the conclusion of the current COVID-19 PHE or the effective date of the proposed rule – whichever is later – and would stay in effect until April 30, 2024. 

Also, in the realm of COVID-19, CMS finalized a unique payment rate adjustment for N95 respirators manufactured wholly in the United States. Based upon the comments received in response to the IPPS proposed rule, CMS included a provision in the CY 2023 Outpatient Prospective Payment System (OPPS) rule to make an adjustment under both the OPPS and IPPS for the additional resource cost of domestic National Institute of Occupational Safety and Health (NIOSH)-approved surgical N95 respirators.

Beginning with reporting periods occurring on or after January 1, 2023, it has been proposed that payments will be provided biweekly, with providers receiving interim lump-sum payments to be reconciled through cost-report settlement. The Agency noted that NIH-approved N95 respirators, made domestically, are typically more expensive for healthcare providers than foreign-made alternatives. The payment adjustment resulting in an incentive to purchase domestic medical supplies and to “[S]upport the strategic policy goal of sustaining a level of supply resilience….”  On November 1, 2022, CMS issued a Fact Sheet regarding the CY 2023 OPPS Final Rule, which addressed the N95 payment adjustment proposal.

Several proposed changes to hospital quality reporting programs were also finalized. Among the noteworthy modifications, CMS recommended the exclusion of patients diagnosed with COVID-19 from the measure denominator, for the FY 2023 Hospital Readmission Reduction Program (HRRP).  Additionally, CMS has also modified all six condition/procedure-specific measures to include a covariate adjustment for patients with a history of COVID-19 within 1-year prior to index admission.

The Agency also finalized several modifications to the Medicare Promoting Interoperability Program. The incentives provided by this program encourage providers to adopt, implement and show meaningful use of certified electronic health record technology (CEHRT). Notably, CMS has proposed making mandatory the monitoring of electronically prescribed prescription drugs for FY 2023, as well as requiring the submission of the level of active engagement and general public health data reporting enhancements. Among the most meaningful incentives, CMS finalized several programs intended to mandate the capture and reporting of key quality and use data.

The FY 2023 IPPS Final Rule also addressed the comments received in response to the RFI regarding several White House initiatives relating to healthcare disparities, maternal morbidity rates and climate change. The Agency acknowledged receipt of numerous comments with regard to healthcare disparities which fell into five (5) categories including: identifying goals and approaches for measuring disparities; establishing guiding principles for selecting and prioritizing measures; establishing principles for social risk factor and demographic data and use; identification of meaningful performance differences; and guidelines for reporting disparity data.  CMS also acknowledged comments received regarding how hospitals, nursing homes, hospices and home health agencies could prepare for climate change, indicating the comments provided would be used to inform potential future policy development. 

Most notably, this Final Rule directly addresses the Biden Administration’s initiative to reduce maternal morbidity and mortality by establishing the “Birthing-Friendly” hospital designation. This new hospital designation is slated to become effective in Fall 2023, and is defined as a publicly-reported, public-facing hospital designation on the quality and safety of maternity care. Further, CMS has indicated possible future rulemaking to include quality reporting measures and the potential for the Conditions of Participation to be leveraged to address the U.S. maternal health crisis.

For additional information CMS has released a Fact Sheet which highlights the updates and offers additional insight into Agency intent and initiatives.



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