Assessing the Adequacy of Proposed Updates to the Hospital Inpatient Prospective Payment System

On April 18, 2022, the Centers for Medicare & Medicaid Services (CMS) released its annual proposed rule for the fiscal year (FY) 2023 Inpatient Prospective Payment System (IPPS), projecting a market basket update of 3.1 percent, to be reduced by a 0.4 percent productivity adjustment.¹ This year marks the third consecutive rate setting period mired in pandemic-related uncertainty. While federal relief funding sustained hospitals and health systems through the initial waves of COVID-19, providers continue to grapple with myriad financial pressures, from supply chain disruptions to labor shortages to rising inflation. FTI Consulting’s analysis finds that reliance on lagging indicators of hospital costs to determine prospective market basket and productivity adjustments in this highly dynamic and uncertain health care environment would likely result in significant underpayments to acute care hospitals in FY 2023.

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Footnotes:

1: FY 2023 Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospitals (LTCH PPS) Proposed Rule - CMS-1771-P.” CMS, April 18, 2022. https://www.cms.gov/newsroom/fact-sheets/fy-2023-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-hospitals-ltch-pps.