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FY2023 IPPS Final Rule Summary [PODCAST]

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The Hospital Finance Podcast

In this episode, we welcome back Christina Brown, Reimbursement Manager at BESLER, to give us the highlights of the Fiscal Year 2023 IPPS Final Rule.

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Highlights of this episode include:

  • FY2023 IPPS Final Rule
  • Highlight of the most significant and impactful rules proposed
  • GME cap changes
  • Disproportionate Share Hospital payments changes
  • Updates to the Provider Reimbursement Manual
  • How to prepare for the updates to the PRM

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. As we do every year, BESLER releases a summary of the IPPS Final Rule. Here to give us the highlights of the 2023 rule is Christina Brown, a Reimbursement Manager at BESLER, who is going to discuss the Fiscal Year 2023 IPPS Final Rule summary with us today. Welcome to the show, Christina.

Christina Brown: Thanks, Kelly. I appreciate you having me.

Kelly: And we’re just going to go ahead and jump in here today. The last couple of years, we have seen a lot of changes to reimbursement. CMS recently published the Federal Fiscal Year 2023 Inpatient Prospective Payment System Proposed Rule. Can you tell us if this publication will prove to be as impactful as some in previous years?

Christina: Sure thing, Kelly. That’s a great question. The short answer is yes. But before I begin, I do just want to address that the FY 2023 IPPS rule has not been finalized, and due to the magnitude of updates and comments, I’ll be discussing the directions we think that CMS will go. However, our speculation could differ from CMS’s future legislation. For purposes of this podcast, I’ll focus on areas with the most significant impact. Now that I’ve got that disclaimer out of the way, just to summarize, there were several adjustments to payment rates and policies. CMS summarized that the proposed policies in the IPPS and LTCH PPS rule also build on key priorities to better measure health care quality disparities and to improve the safety and quality of maternity care. Just to highlight a few of the updates specifically, for Federal Fiscal Year 2023, CMS is proposing to allow the Medicare-Dependent Hospital program to expire. We have seen CMS propose this in the past, but Congress voted in recent years to extend the program through various acts. The expiration of the MDH program in FY 2023 will result in a $219,000,000 reduced reimbursement for the MDH facilities.

Another policy change is related to the low-volume add-on. CMS is proposing to revert the qualifications of a low-volume hospital back to the original criteria. For FY 2019 through 2022, to receive a low-volume add-on payment, a hospital had to be greater than 15 miles from the nearest Section D facility and have fewer than 3,800 total inpatient discharges. For FY 2023, CMS is proposing to allow the original criteria to qualify for the add-on to revert to the original FY 2005 criteria, which is a hospital must be greater than 25 miles from the nearest Section D facility and have less than 200 total inpatient discharges. There are also proposed changes to the Hospital Readmissions Reduction Program and the Hospital-Acquired Conditions Program. Some good news is CMS is proposing to not penalize hospitals for non-representative performance due to COVID-19 implications under the Hospital-Acquired Condition Reduction and Value-Based Purchasing programs for FY 2023. You may also have heard about a recent court case decision that has made its way into the proposed rule. That change relates to GME payments and more specifically to Direct Graduate Medical Education full-time equivalent cap.

Essentially, CMS is proposing to eliminate the reduction and to pay facilities up to their full FTE cap with no reduction. CMS is also proposing to continue policies in the FY 2020 IPPS Final Rule to address wage index disparities, specifically for low-wage index hospitals by proposing to limit the year-to-year decreases. For DSH hospitals, the proposed rule also finds an area of significant impact. So just to start, CMS is projecting a $654,000,000 decrease in the uncompensated care pool. There are also a number of changes noted for Factor 3, which is the calculation of a provider’s share of the pool. Some other policy revisions noted relate to the conditions of participation for infection prevention and control and antibiotic stewardship programs. This proposal would require hospitals and critical access hospitals to continue reporting for seasonal flu and COVID-19 even after the conclusion of the current COVID-19 public health emergency.

And speaking of COVID-19 and its potential impact on hospitalizations, given the anticipation and decline in COVID-19 hospital stays for Medicare patients, CMS is proposing to return to the historical practice of using most recent data for rate setting. This would be the FY 2021 Medicare claims and FY 2020 cost reports. And the last thing I’ll mention is, in addition to policy changes, there are also a number of payment rate adjustments. Operating payment rates are proposed to increase by 3.2% for acute care hospitals that participate in the Hospital Inpatient Quality Reporting program and our electronic health record users.

Kelly: Wow. That’s a lot of great information. Thank you, Christina. Given the extent of the areas covered in the proposed rule, can you highlight some of the most significant or impactful rules proposed?

Christina: Sure thing, Kelly. Another great question because in PDF format, the proposed rule is nearly 640 pages. And obviously, each area of the proposed rule will vary in weight of impact based on the type of facility. I would say that GME hospitals with FTE cap implications will be happy with the changes to the FTE cap calculation methodology. Well, I would say hospitals that receive Medicare DSH payments will be especially interested in the updates to the DSH calculation and how it’s prepared for any reporting changes.

Kelly: Okay. Great. We’ve already received some questions around the rule related to the GME cap changes. Can you summarize this rule for us?

Christina: Sure thing. So, for Federal Fiscal Year 2023, CMS is proposing to change the methodology of the Direct Graduate Medical Education calculation on Worksheet E-4. Currently, teaching facilities who are training intern and resident FTEs over their cap are experiencing a penalty reduction in their reimbursement. CMS takes a ratio of a provider’s FTE cap to current year total unweighted FTEs times the current year weighted FTEs. If a provider’s unweighted FTE count for the year exceeds their FTE cap, the provider will experience a reduction in their current year FTE count by the ratio of how many unweighted FTEs over the cap that they are. This provision if finalized will only be retroactive for open cost reports and those within the three-year reopening window. So essentially, this proposal would eliminate the reduction and pay the provider up to their full FTE cap with no reduction.

Kelly: Okay. Makes sense. Another significant proposed change you mentioned relates to the Disproportionate Share Hospital payments. Can you summarize what CMS is proposing?

Christina: Certainly. And as I mentioned previously, the total pool amount is proposed to decrease from FY ’22 by $654,000,000. And in addition to the adjustment in the total pool amount, CMS is also proposing the adjustment to Factor 3. So, for FY 2023, they are suggesting to use the two most recent years of audited data from Worksheet S-10, which would be FY 2018 and FY 2019. Additionally, CMS would like to move for FY 2024 and subsequent years to a three-year rolling average. And we actually agree with that methodology. It kind of eliminates those outlier eaters. Additionally, for Indian Health Service and Tribal hospitals and hospitals located in Puerto Rico, CMS is proposing to discontinue the use of low-income insured days as a proxy for uncompensated care to determine Factor 3. However, to compensate for the loss to these providers, CMS is proposing to establish a new supplemental payment for the Indian Health Service and tribal hospitals and hospitals located in Puerto Rico.

Additionally, as we saw in the FY 2022 proposed rule, and we had anticipated a revision for FY 2023, CMS has proposed to revise the regulation governing the calculation of the Medicaid fraction of the DSH calculation to explicitly reflect the interpretation of the “eligible for medical assistance under the state plan approved under Title 19.” So, yeah, they’re just trying to make the states more liable on those Medicaid claims and they’re trying to make sure that the states are paying their part.

Kelly: Very interesting. Thank you. In Fiscal Year 2022, CMS released updates to the Provider Reimbursement Manual. Are you aware if any draft updates have been issued?

Christina: Great question. And yes, I did check it recently and I did just see very recently that a draft update has been released for Chapter 40 of the Provider Reimbursement Manual. But as you’re aware, these are draft changes and as we have previously observed, and it’s always subject to change. I will say most notably in the draft for updates to Worksheet S-10, along with the return of the exhibits 3B and 3C for support, which was no surprise as we anticipated some form of the FY 2022 proposed rule would be revisited for FY 2023 because they subsequently took it out in the Final Rule for ’22. So other than S-10, there is an additional section for Worksheet D-6 for the computation of cellular therapy acquisition costs, but that would only be applicable to a limited number of providers.

Kelly: Okay. Got it. Sounds good. Given the release of the draft updates to the PRM, what do you suggest people do to prepare in the event the draft becomes final this time?

Christina: Okay. Great. So, yeah, we all understand by this point the importance of S-10 and have all seen the evolution of audits. And as mentioned in the previous webinars on S-10 and bad debt, we recommend having solid bad debt charity policies, as well as a thorough understanding of your transactional detail and how to report all the necessary fields in the new exhibits. Another thing to consider would be to be prepared to identify and exclude any data for services related to non-hospital units such as SAIC, SNF, ESRD, and HHAs for the new draft, part two of Worksheet S-10 if the proposed is finalized. And as I mentioned initially, these are all proposed changes and draft updates to the Provider Reimbursement Manual, are subject to change when the FY 2023 IPPS rule becomes final.

Kelly: Well, we’ve covered quite a bit today about the 2023 IPPS Final Rule summary. We appreciate you joining us today, Christina.

Christina: Thank you very much. I appreciate you having me.

Kelly: And don’t miss our related webinar that Christina is presenting live on August 10th. You can register for that webinar on our website: The webinar recording and corresponding slides will also be available on our website after the webinar. Thank you for joining us today on the Hospital Finance Podcast.

[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit The Hospital Finance Podcast is a production of BESLER, SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.

If you are still intrigued, please read our full summary on the FY 2023 IPPS Final Rule

If you have a topic that you’d like us to discuss on the Hospital Finance podcast or if you’d like to be a guest, drop us a line at

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