Proposed inpatient payment rates ‘woefully inadequate’ AHA says

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Acute care hospitals are getting a 2.6% payment increase in a proposed rule released by the Centers for Medicare and Medicaid Services last week. 

The proposal reflects a projected 2025 hospital market-basket-percentage increase of 3%, reduced by a 0.4 percentage-point productivity adjustment. 

Overall, for 2025, CMS expects the proposed changes in operating and capital inpatient payment rates – in addition to other changes – will generally increase hospital payments by $3.2 billion. 

CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $94 million in 2025, primarily driven by the continuation of new technology add-on payments for several technologies. 

Under current law, additional payments for Medicare-Dependent Hospitals and the temporary change in payments for low-volume hospitals are set to expire December 31. In the past, these payments have been extended by legislation, but, if they were to expire, CMS estimates that payments to these hospitals would decrease by $0.4 billion in 2025.


The increase is not enough, the American Hospital Association said.

“CMS’ proposed inpatient hospital payment update of 2.6% is woefully inadequate, especially following years of high inflation and rising costs for labor, drugs, and equipment,” said Ashley Thompson, senior vice president, Public Policy Analysis and Development for the American Hospital Association. “Many hospitals across the country, especially those in rural and underserved communities, continue to operate under unsustainable negative or break-even margins. We urge CMS to reconsider their policy in the final rule so that all hospitals can provide high-quality, around the clock, essential care to their communities.”

The AHA is also concerned about a proposed mandatory model for five clinical episodes which expands substantially on the current Comprehensive Care for Joint Replacement model and Bundled Payment for Care Improvement model. Neither has yielded significant net savings, the AHA said. 

“We continue to encourage CMS to ensure that episode-based payment models are voluntary,” Thompson said. “Many organizations are not of an adequate size or in a financial position to support the investments necessary to transition to mandatory bundled payment models. Requiring them to take on risk for large, diverse bundles may require more financial risk than they can bear.” 

Hospitals may be subject to other payment adjustments under the Inpatient Prospective Payment System proposed rule, including:

  • Payment reductions for excess readmissions under the Hospital Readmissions Reduction Program.
  • Payment reduction (1%) for the worst-performing quartile of hospitals under the Hospital Acquired Condition Reduction Program.
  • Upward or downward adjustments under the Hospital Value-Based Purchasing Program.

For long-term care hospitals, CMS has proposed a payment rate increase of 2.8%. Payments for discharges that are paid the long-term care hospital standard payment rate are proposed to increase by approximately 1.2%, or $26 million, due primarily to a projected 1.3% decrease in high-cost outlier payments as a percentage of total payments.

Long-term care hospitals care for complex patients who require extended hospitalization – at a financial loss, the AHA said. 

CMS has proposed to increase the long-term care hospital outlier threshold, “once again, by an extraordinary amount,” Thompson said. “Expecting LTCHs to absorb an additional $31,048 loss per patient would greatly exacerbate the resource challenges these hospitals face. As such, we continue to call on CMS to modernize its high-cost outlier policy to ensure access to these essential services for some of Medicare’s most severely ill beneficiaries.”

In addition, CMS projects Medicare uncompensated care payments to disproportionate share hospitals will increase in 2025 by approximately $560 million. 


CMS sets base payment rates prospectively for inpatient stays, generally based on the patient’s diagnosis, the services or treatment provided, and severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are for: IPPS, Medicare Severity Diagnosis-Related Groups (MS-DRGs) and for LTCH PPS, Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs). 

CMS is seeking comment on the proposed methodology used to determine the LTCH PPS outlier threshold for discharges paid the LTCH standard federal payment rate and an alternative methodology that would result in a lower outlier threshold.

More information on the proposed rule is available at CMS.


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