An overview for healthcare executives with key takeaways and next steps

Recently, the Centers for Medicare and Medicaid Services (CMS) published its FY2024 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Proposed Rules. 

Federal law requires the CMS to update its annual IPPS and LTCH PPS criteria and payment rates. With each proposed update, the CMS releases the information to the public for review and comments.

These rules will go into effect October 1, 2023, and all public comments must be submitted to CMS online or via mail by 5 pm EST on June 9, 2023. 

Last month, the CMS published a fact sheet with all the details for FY2024 IPPS and LTCH PPS Proposed Rule.

To save you and your team time, we put together a brief overview of the Proposed Rule, including key takeaways, dates, and next steps (if applicable).

What is IPPS and LTCH PPS?

Hospital Inpatient Prospective Payment System (IPPS)

In 1983, the federal government launched the IPPS program to reward cost-efficient hospital behavior with financial incentives and penalties to standardize payments, control costs, improve quality, and ensure equitable access for Medicare beneficiaries who receive inpatient care. 

Under IPPS, CMS pays acute hospitals (with some exceptions) a pre-determined rate for each Medicare admission based on diagnostic criteria, treatment, and the severity of illness. It also includes quality measures that financially reward or penalize hospitals based on their performance. 

Long-Term Care Hospital Prospective Payment System (LTCH PPS)

While the IPPS applies to most acute inpatient hospital facilities, the LTCH PPS focuses only on hospitals that provide extended inpatient medical and rehabilitative care. These patients often have more complex medical conditions that require longer inpatient care than a typical acute inpatient.

In addition, CMS pays these facilities long-term based on a patient’s length of stay and the severity of their condition.


The FY2024 IPPS and LTCH PPS Proposed Rule applies to acute inpatient and long-term care hospitals with Medicare fee-for-service payment rates and policies.

Key Takeaways: FY2024 IPPS & LTCH PPS

Hospitals Predicted to Receive $3.3B More in IPPS Payments

The good news is that CMS predicts a $3.3B increase in hospital payments with the proposed operating and capital IPPS rate adjustments. 

However, CMS also estimates a reduction of $575M in hospital payments due to the expiration of new technology add-on payments ($460M) and decreased uncompensated care and disproportionate share hospital (DSH) reimbursements ($115M).

Standard Operating IP Rates Will Increase by 2.8 – 2.9%

IPPS: Projected to increase by 2.8%

CMS proposes a 3.0% hospital market basket increase for general acute inpatient hospitals with a .2% productivity adjustment. 

To qualify, general acute inpatient hospitals paid under IPPS must:

  • Successfully participated in the Hospital Inpatient Quality Reporting Program (IQR)
  • Used meaningful use electronic health records (EHR)

The additional adjustments that can reduce IPPS payment rates will include the following:

  • Reduced payments for excess readmissions under the Hospital Readmissions Reduction Program (HRRP)
  • Reduced payment of 1% for bottom quartile performers under the Hospital Acquired Condition (HAC) Reduction Program
  • Upward and downward adjustments based on the Hosptial Value-Based Purchasing (VBP) Program

LTCH: Projected standard rate increase of 2.9% 

CMS predicts a 2.9% increase in its standard payment rates, but also estimates a $59M reduction in high cost outlier payments to LTC facilities. This reimbursement reduction is primarily due to a predicted 4.7% decrease in the total discharges paid high cost outlier rates.

CMS is asking the public to make comments on this methodology and prediction for high cost outlier discharges.

Will Provide More Support for Graduate Medical Training in Rural Areas

This Proposed Rule includes additional Graduate Medical Education payments for new Rural Emergency Hospitals (REH) provider types.

New COVID Treatments Add-on Payments (NCTAP) Will Continue for Eligible Products Through September 30, 2023 (FY2023)

Inpatient discharges involving eligible products will continue to qualify for the NCTAP through September 30, 2023 (that is, through the end of FY 2023). 

The NCTAP will expire at the end of FY 2023, and no NCTAP will disperse beginning in FY 2024 (for discharges on or after October 1, 2023). 

Will Add 15 New Health Equity Categorizations

This proposed change aims to measure the impacts of policies on health equity more explicitly. These additions will expand standardized health equity data collection, reporting, and analysis.

Will Change Homelessness Diagnosis Codes

CMS is proposing to change the severity designation of the three ICD-10-CM diagnosis codes describing homelessness (e.g., unspecified, sheltered, and unsheltered) from non-complication or comorbidity (NonCC) to complication or comorbidity (CC), based on the higher average resource costs of cases with these diagnosis codes compared to similar cases without these codes.

In addition to these takeaways, the CMS also has proposed changes that affect the following areas:

  • Changes to NTAP Policies for FY 2024
  • Changes to the Rural Wage Index Calculation Methodology
  • Physician-owned Hospitals
  • Hospital Inpatient Quality Reporting Program
  • Medicare Promoting Interoperability Program
  • PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
  • Hospitals Readmissions Reduction Program
  • Hospital-Acquired Condition Reduction Program
  • Hospital Value-Based Purchasing (VBP) Program
  • Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

CMS Seeks Your Input 

Be sure to add your comments here before 5 pm EST, June 9, 2023, if your hospital or facility will be impacted by these FY24 IPPS and LTCH PPS Proposed Rule changes/requests:

Methodology for LTCH PPS high cost outlier threshold 

The FY2024 LTCH PPS predicts a 4.7% decrease in discharges as a percentage of the overall federal LTCH PPS payments. If your facility’s predictions vary, include your methodology for the CMS to consider.

Safety Net Hospitals’ Unique Challenges

To advance health equity, CMS seeks public input on the unique challenges of making health services accessible and affordable to historically underserved populations, like racial and ethnic minorities, rural areas, and LGBTQ+ communities.

Key Dates & Deliverables

May 1, 2023 – June 9, 2023

The public can submit comments electronically or via mail for CMS to review and consider. June 9, 5:00 pm EDT, must submit all comments.

October 1, 2023

The Proposed Rule goes into effect for FY2024.

Next Steps

  • Review detailed CMS FY2024 IPPS and LTCH PPS Proposed Rule documents for specific areas of interest
  • Meet with teams to assess the impact and risk to your hospital’s finance and operations
  • If concerned, add comments to the documentation before the deadline

Check out the FY2024 IPPS and LTCH PPS Proposed Rule Fact Sheet for more information on our key takeaways or the additional proposed changes. To learn more about Advantum Health and how we can support your hospital, visit our website.