The final rule includes rate increases for inpatient and long-term care hospitals as well as a new mandatory model to improve health outcomes post-surgery and advance climate resiliency. Hospital payments will increase by an estimated $2.9 billion. Long-term care hospitals will see an increase of $45 million.
The Centers for Medicare & Medicaid Services (CMS) late Thursday issued the 2025 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) final rule. The final rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for fiscal year (FY) 2025.
Here is a summary of the major changes:
Rate increases: Acute care hospitals that receive CMS payments under IPPS, successfully participate in the Hospital Inpatient Quality Reporting program, and are meaningful users of electronic health records will see an increase in operating payment rates of 2.9 percent. CMS explained in an announcement that the increase reflects the FY 2025 projected Hospital Market Basket percentage increase of 3.4 percent, reduced by a projected 0.5 percentage point Productivity Adjustment for FY 2025. CMS expects this increase in operating and capital IPPS payment rates, in addition to other changes, will increase hospital payments by an estimated $2.9 billion.
Long-term care hospitals will see a three percent increase in the LTCH PPS standard federal payment rate. CMS said it expects LTCH payments to increase by two percent, or $45 million, primarily due to the update to the rate partially offset by a projected decrease in high-cost outlier payments in FY 2025 compared to FY 2024.
Support for patients with inadequate housing: Hospitals will receive higher payments to care for patients experiencing housing insecurity. Under the final rule, CMS will change the severity designation of seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability from non-complication or comorbidity to complication or comorbidity based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes. The updated codes build on last year’s final rule that described homelessness in diagnosis codes and recognizes that housing stability is essential to the health and well-being of individuals and families.
CMS said the finalized policy will more accurately reflect the resource costs associated with each health care encounter when hospitals take care of people who have inadequate housing, or have housing instability, and will also improve the reliability and validity of the coded data including in support of efforts to advance health equity.
Additional support to underserved communities: CMS will promote access to treatments that could help support rural and underserved communities. The increased new technology add-on payments will help improve access to new gene therapy for sickle cell disease. In addition, CMS said it will finalize a separate payment to small independent hospitals, including many rural hospitals, for establishing and maintaining access to a buffer stock of essential medicines, which will help to mitigate drug shortages and improve the care hospitals can provide to their patients.
“Hospitals are a critical part of the diverse communities they serve,” said Meena Seshamani, M.D., Ph.D., CMS deputy administrator and director of the Center for Medicare, in the announcement. “CMS recognizes the cost of unmet social needs hospitals face, as well as the need to advance access to innovative and essential treatments and expand the behavioral health workforce. Our payments to hospitals further recognize this and ultimately help provide hospitals the vital tools they need to better serve all communities.”
New quality initiatives: CMS finalized new hospital quality initiatives, including digital measures for patient harm events, expansion of healthcare-associated infection measures to oncology wards, and structural measures to support safety and age-friendly care. The new attestation-based structural measures assess whether hospitals demonstrate a structure, culture, and leadership commitment that prioritizes and implements best practices for patient safety and age-friendly care.
Data reporting for emergency preparedness: Building on lessons learned from the COVID-19 pandemic, CMS said it will finalize a permanent streamlined data reporting structure for COVID-19, influenza, and respiratory syncytial virus (RSV), with additional reporting requirements that could be activated in the event of a declared public health emergency.
Mandatory care model: CMS will institute a five-year mandatory CMS Innovation Center model, beginning in January 2026, to test whether episode-based payments for five common, costly procedures performed at participating acute care hospitals would reduce Medicare expenditures while preserving or enhancing the quality of care. The mandatory Transforming Episode Accountability Model (TEAM) offers incentives for improved coordination between health care providers during surgery, as well as the services provided during the 30 days that follow. CMS said the new model will complement other CMS value-based care initiatives by promoting collaboration with accountable care organizations and will require referrals to primary care services to support continuity of care and drive positive long-term health outcomes.
“Before and after surgery, people on Medicare often experience fragmented care, especially following hospital discharge. This can lead to complications, prolonged recovery, unnecessary care, and even readmissions,” said Liz Fowler, CMS deputy administrator and director of the CMS Innovation Center, in the announcement. “By bundling all the costs of care for an episode, this model is designed to incentivize care coordination, improve patient care transitions and outcomes, and decrease the risk of an avoidable readmission.”
TEAM will also support CMS and Department of Health and Human Services efforts to improve quality of care by aiming to bolster the health system’s climate resilience and sustainability. Participants may choose to collect and voluntarily share greenhouse gas emissions data with CMS, and CMS will provide technical assistance to them to enhance climate sustainability for their organizations. Through TEAM, CMS will provide information to assist participating hospitals in addressing threats to the health of individuals and the health care system presented by climate change.
For more information, read the final rule, a fact sheet, and a TEAM fact sheet and FAQ.