Medicare Program; Changes to the Fiscal Year 2025 Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision, 80405-80421 [2024-22765]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 89, Number 192 (Thursday, October 3, 2024)]
[Rules and Regulations]
[Pages 80405-80421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22765]



[[Page 80405]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1808-IFC]
RIN 0938-AV34


Medicare Program; Changes to the Fiscal Year 2025 Hospital 
Inpatient Prospective Payment System (IPPS) Rates Due to Court Decision

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Interim final action with comment period.

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SUMMARY: This interim final action with comment period (IFC) implements 
revised Medicare wage index values for FY 2025, establishes a 
transitional payment exception for low wage hospitals significantly 
impacted by those revisions, and makes conforming changes to the 
hospital Inpatient Prospective Payment System (IPPS) payment rates for 
FY 2025. These changes reflect the removal of the low wage index 
hospital policy following the appellate court decision in Bridgeport 
Hosp. v. Becerra. This rule also makes conforming changes to IPPS rates 
and factors used to determine certain payments under the Long-Term Care 
Hospital Prospective Payment System (LTCH PPS).

DATES: 
    Effective date: This action is effective on September 30, 2024.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, by November 29, 2024.

ADDRESSES: In commenting, please refer to file code CMS-1808-IFC.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1808-IFC, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1808-IFC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Donald Thompson and Michele Hudson, 
(410) 786-4487 or [email protected].

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following 
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to 
view public comments. CMS will not post on Regulations.gov public 
comments that make threats to individuals or institutions or suggest 
that the commenter will take actions to harm an individual. CMS 
continues to encourage individuals not to submit duplicative comments. 
We will post acceptable comments from multiple unique commenters even 
if the content is identical or nearly identical to other comments.

I. Background

A. Scope and Authority

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to use a prospective payment system (PPS) to pay for the 
capital-related costs of inpatient hospital services for these 
``subsection (d) hospitals.'' Under these PPSs, Medicare payment for 
hospital inpatient operating and capital-related costs is made at 
predetermined, specific rates for each hospital discharge. Discharges 
are classified according to a list of diagnosis-related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of certain low-income 
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the 
disproportionate share hospital (DSH) adjustment, provides for a 
percentage increase in Medicare payments to hospitals that qualify 
under either of two statutory formulas designed to identify hospitals 
that serve a disproportionate share of low-income patients. For 
qualifying hospitals, the amount of this adjustment varies based on the 
outcome of the statutory calculations. The Affordable Care Act revised 
the Medicare DSH payment methodology and provides for an additional 
Medicare payment beginning on October 1, 2013, that considers the 
amount of uncompensated care furnished by the hospital relative to all 
other qualifying hospitals.
    If the hospital is training residents in an approved residency 
program(s), it receives a percentage add-on payment for each case paid 
under the IPPS, known as the indirect medical education (IME) 
adjustment. This percentage varies, depending on the ratio of residents 
to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. In general, to qualify, a new technology or medical 
service must demonstrate that it is a substantial clinical improvement 
over technologies or services otherwise available, and that, absent an 
add-on payment, it would be inadequately paid under the regular DRG 
payment. In addition, certain transformative new devices and certain 
antimicrobial products may qualify under an alternative inpatient new 
technology add-on payment pathway by demonstrating that, absent an add-
on payment, they would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments and, beginning in FY 2023 for Indian Health Service (IHS) 
and Tribal

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hospitals and hospitals located in Puerto Rico, the new supplemental 
payment.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate, which 
is determined from their costs in a base year. For example, sole 
community hospitals (SCHs) receive the higher of a hospital-specific 
rate based on their costs in a base year (the highest of FY 1982, FY 
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the 
standardized amount. SCHs are the sole source of care in their areas. 
Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a 
hospital that is located more than 35 road miles from another hospital 
or that, by reason of factors such as an isolated location, weather 
conditions, travel conditions, or absence of other like hospitals (as 
determined by the Secretary), is the sole source of hospital inpatient 
services reasonably available to Medicare beneficiaries. In addition, 
certain rural hospitals previously designated by the Secretary as 
essential access community hospitals are considered SCHs.
    With the enactment of section 307 of the Consolidated 
Appropriations Act, 2024 (CAA, 2024) (Pub. L. 118-42), under current 
law, the Medicare-dependent, small rural hospital (MDH) program is 
effective through December 31, 2024. For discharges occurring on or 
after October 1, 2007, but before January 1, 2025, an MDH receives the 
higher of the Federal rate or the Federal rate plus 75 percent of the 
amount by which the Federal rate is exceeded by the highest of its FY 
1982, FY 1987, or FY 2002 hospital-specific rate. MDHs are a major 
source of care for Medicare beneficiaries in their areas. Section 
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is 
located in a rural area (or, as amended by the Bipartisan Budget Act of 
2018, a hospital located in a State with no rural area that meets 
certain statutory criteria), has not more than 100 beds, is not an SCH, 
and has a high percentage of Medicare discharges (not less than 60 
percent of its inpatient days or discharges in its cost reporting year 
beginning in FY 1987 or in two of its three most recently settled 
Medicare cost reporting years). As section 307 of the CAA, 2024, 
extended the MDH program through the first quarter of FY 2025 only, 
beginning on January 1, 2025, the MDH program will no longer be in 
effect absent a change in law. Because the MDH program is not 
authorized by statute beyond December 31, 2024, beginning January 1, 
2025, all hospitals that previously qualified for MDH status under 
section 1886(d)(5)(G) of the Act will no longer have MDH status and 
will be paid based on the IPPS Federal rate.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services in accordance with 
a prospective payment system established by the Secretary. The basic 
methodology for determining capital prospective payments is set forth 
in our regulations at 42 CFR 412.308 and 412.312. Under the capital 
IPPS, payments are adjusted by the same DRG for the case as they are 
under the operating IPPS. Capital IPPS payments are also adjusted for 
IME and DSH, similar to the adjustments made under the operating IPPS. 
In addition, hospitals may receive outlier payments for those cases 
that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR part 412, subparts A through M.
2. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective 
for cost reporting periods beginning on or after October 1, 2002. The 
LTCH PPS was established under the authority of section 123 of the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 
and section 307(b) of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (as codified under section 
1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform 
Act of 2013 (Pub. L. 113-67) established the site neutral payment rate 
under the LTCH PPS, which made the LTCH PPS a dual rate payment system. 
Under this statute, effective for LTCH cost reporting periods beginning 
in FY 2016, LTCHs are generally paid for discharges at the site neutral 
payment rate unless the discharge meets the patient criteria for 
payment at the LTCH PPS standard Federal payment rate. The existing 
regulations governing payment under the LTCH PPS are located in 42 CFR 
part 412, subpart O. Beginning October 1, 2009, we issue the annual 
updates to the LTCH PPS in the same documents that update the IPPS.

B. Wage Index for Acute Care Hospitals Paid Under the Hospital 
Inpatient Prospective Payment System (IPPS)

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary adjust the standardized amounts for area differences in 
hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level. We 
currently define hospital labor market areas based on the delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the FY 2025 hospital wage index based on the 
statistical areas can be found in section III.B. of the preamble of the 
FY 2025 IPPS/LTCH PPS final rule (89 FR 69252).
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. CMS collects 
these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-
3, Parts II, III, IV. The OMB control number for this information 
collection request is 0938-0050, which expires on September 30, 2025. 
Section 1886(d)(3)(E) of the Act also requires that any updates or 
adjustments to the wage index be made in a manner that ensures that 
aggregate payments to hospitals are not affected by the change in the 
wage index.
    We also take into account the geographic reclassification of 
hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of 
the Act when calculating IPPS payment amounts. Under section 
1886(d)(8)(D) of the Act, the Secretary is required to adjust the 
standardized amounts so as to ensure that aggregate payments under the 
IPPS after implementation of the provisions of sections 1886(d)(8)(B), 
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate 
prospective payments that would have been made absent these provisions.

II. Provisions of the Interim Final Action With Comment Period

A. General

    In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through 
42339), we finalized a policy to address increasing of wage index 
disparities, based in part on comments we received in response to our 
request for information included in our FY 2019 IPPS/LTCH PPS proposed 
rule (83 FR 20372 through 20377). In the FY 2020 IPPS/LTCH PPS final 
rule, based on those public comments and the growing disparities 
between wage index values for high- and low-wage-index hospitals, we 
explained that those growing disparities are likely caused, at least in 
part, by the use of historical

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wage data to prospectively set hospitals' wage indexes. That lag 
between when hospitals increase wages and when those wage increases are 
reflected in the historical data creates barriers to hospitals with low 
wage index values being able to increase employee compensation, because 
those hospitals will not receive corresponding increases in their 
Medicare payment for several years (84 FR 42327). Accordingly, we 
finalized a policy that provided certain low wage index hospitals with 
an opportunity to increase employee compensation without the usual lag 
in those increases being reflected in the calculation of the wage index 
(as they would expect to do if not for the lag).\1\ We accomplished 
this by temporarily increasing the wage index values for certain 
hospitals with low wage index values and doing so in a budget neutral 
manner through an adjustment applied to the standardized amounts for 
all hospitals. We increased the wage index for hospitals with a wage 
index value below the 25th percentile wage index value for a fiscal 
year by half the difference between the otherwise applicable final wage 
index value for a year for that hospital and the 25th percentile wage 
index value for that year across all hospitals (the low wage index 
hospital policy). As explained in the FY 2020 IPPS/LTCH PPS proposed 
rule (84 FR 19396) and final rule (84 FR 42329), we indicated that the 
Secretary has authority to implement the low wage index hospital policy 
proposal under both section 1886(d)(3)(E) of the Act and section 
1886(d)(5)(I) of the Act.
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    \1\ In the FY 2020 IPPS/LTCH PPS proposed rule, we agreed with 
respondents to a previous request for information who indicated that 
some current wage index policies create barriers to hospitals with 
low wage index values from being able to increase employee 
compensation due to the lag between when hospitals increase the 
compensation and when those increases are reflected in the 
calculation of the wage index. We noted that this lag results from 
the fact that the wage index calculations rely on historical data. 
We also agreed that addressing this systemic issue did not need to 
wait for comprehensive wage index reform given the growing 
disparities between low and high wage index hospitals, including 
rural hospitals that may be in financial distress and facing 
potential closure (84 FR 19394 and 19395).
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    When we adopted the low wage index hospital policy in the FY 2020 
IPPS/LTCH PPS final rule (84 FR 42326 through 42328), we stated our 
intention that this policy would be effective for at least 4 years, 
beginning in FY 2020, to allow employee compensation increases 
implemented by these hospitals sufficient time to be reflected in the 
wage index calculation. We also stated we intended to revisit the issue 
of the duration of this policy in future rulemaking as we gained 
experience under the policy. For FY 2024, we continued to apply the low 
wage index hospital policy and the related budget neutrality adjustment 
(88 FR 58977 through 58980). In the FY 2025 IPPS/LTCH PPS final rule 
(89 FR 69301 through 69308), we adopted an extension of the low wage 
index hospital policy and the related budget neutrality adjustment 
effective for at least three more years, beginning in FY 2025, in order 
for sufficient wage data from after the end of the COVID-19 Public 
Health Emergency to become available.
    In that same FY 2025 IPPS/LTCH PPS final rule (89 FR 69302), we 
also noted that the FY 2020 low wage index hospital policy and the 
related budget neutrality adjustment are the subject of pending 
litigation in multiple courts, and that on July 23, 2024, the Court of 
Appeals for the D.C. Circuit held that the Secretary lacked authority 
under section 1886(d)(3)(E) of the Act or under the ``adjustments'' 
language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage 
index hospital policy for FY 2020, and that the policy and related 
budget neutrality adjustment must be vacated. Bridgeport Hosp. v. 
Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). We also stated 
that as of the date of that final rule's publication, the time to seek 
further review of the D.C. Circuit's decision in Bridgeport Hospital 
had not expired (see Fed. R. App. P. 40(a)(1)) and the government was 
evaluating the decision and considering options for next steps.
    Although we respectfully disagree with the D.C. Circuit's decision 
in Bridgeport Hosp. v. Becerra and continue to believe that the low 
wage index hospital policy and the related budget neutrality adjustment 
should be effective for at least three more years for the reasons 
stated in the FY 2025 IPPS rulemaking, after considering the D.C. 
Circuit's decision in Bridgeport Hosp. v. Becerra, in this IFC we are 
recalculating the IPPS hospital wage index to remove the low wage index 
hospital policy for FY 2025. Because we are now no longer applying the 
low wage index hospital policy in FY 2025, we are also removing the low 
wage index budget neutrality factor from the FY 2025 standardized 
amounts.
    In the past, we have established temporary transition policies when 
there have been significant changes to payment policies, and we have 
limited the duration of each transition in order to phase in the 
effects of those payment policy changes. In taking this temporary 
approach in the past, we have sought to mitigate short-term instability 
and payment fluctuations that can negatively impact hospitals. For 
example, CMS has recognized that hospitals in certain areas may 
experience a negative impact on their IPPS payment due to the adoption 
of revised OMB delineations for wage index purposes and has finalized 
transition policies to mitigate negative financial impacts and provide 
stability to year-to-year wage index variations. We refer readers to 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 49956 through 49962) for a 
discussion of the transition period finalized when CMS adopted revised 
OMB delineations after the 2010 decennial census. For FY 2025, 
consistent with our past practice, we believe it is appropriate to 
establish a transition policy for hospitals significantly impacted by 
the removal of the FY 2025 low wage index hospital policy using our 
authority under section 1886(d)(5)(I) of the Act.
    We currently have a wage index cap policy at 42 CFR 412.64(h)(7), 
under which we apply a 5-percent cap on any decrease to a hospital's 
wage index from its wage index in the prior FY in a budget neutral 
manner, regardless of the circumstances causing the decline, so that a 
hospital's final wage index for the upcoming fiscal year will not be 
less than 95 percent of its final wage index from the prior fiscal 
year. In accordance with 42 CFR 412.64(e)(1)(ii), CMS applies a budget 
neutrality adjustment to offset the increase in total payments 
resulting from the application of that cap.
    Some hospitals that benefitted from the low wage index hospital 
policy previously will experience decreases of 5 percent or more from 
their FY 2024 wage index to the FY 2025 wage index established in this 
IFC. Similar to how 42 CFR 412.64(h)(7) would operate, we are applying 
a one-time, transitional adjustment to create a narrow transitional 
exception to the calculation of FY 2025 payments. The wage index cap 
policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2025 
decreases but would have done so in a budget neutral manner under our 
current regulations. Because section 1886(d)(5)(I) of the Act lacks any 
general budget neutrality requirement, we are not required by the 
statute to budget neutralize this transition policy. In some 
circumstances CMS has exercised discretion under section 1886(d)(5)(I) 
of the Act twice over--first to adopt an exception or adjustment, and 
then again to make that exception and adjustment budget neutral.\2\ 
However, under the

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unique circumstances and due to the timing of the appellate court's 
decision so close to the beginning of FY 2025, we do not deem it 
appropriate to provide a second exception or adjustment that would 
budget neutralize the transition policy we are establishing in this 
IFC. Unlike most policies relevant to the calculation of the hospital 
wage index, the timing of the court's decision shortly before the 
beginning of the fiscal year necessitated swift action by the agency 
via an IFC, rather than providing for prior notice and opportunity for 
comment. The agency's action in this IFC is intended to promote 
certainty regarding FY 2025 IPPS payments in light of the reasoning of 
Bridgeport and its application to the low wage index hospital policy in 
FY 2025, which would create ongoing confusion for hospitals extending 
into FY 2025 about the amount of their IPPS payments and would 
constitute an inefficient use of agency resources. In this instance, 
the lack of an opportunity prior to the effective date for interested 
parties to comment on the transition policy weighs in favor of an 
approach that does not adversely affect the significant majority of 
hospitals. Because section 1886(d)(5)(I) lacks any general budget 
neutrality requirement, we are not required by the statute to budget 
neutralize this transition policy. For these reasons, we decline to 
budget neutralize the transition policy in this case.
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    \2\ For example, CMS has stated in the past that it would 
exercise its discretion under section 1886(d)(5)(I) of the Act to 
make the low wage index hospital policy budget neutral even if 
budget neutrality were not required by statute (88 FR 58979).
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    Therefore, we are using our authority under section 
1886(d)(5)(I)(i) of the Act to create a narrow transitional exception 
to the calculation of FY 2025 IPPS payments for low wage index 
hospitals significantly impacted by the removal of the low wage index 
hospital policy.3 4
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    \3\ We note that the scope and magnitude of the transitional 
policy implemented in this IFC are much smaller than the low wage 
index hospital policy. As discussed in section VI. of this IFC, we 
estimate only 113 hospitals out of the over 3,000 hospitals paid 
under the IPPS would receive transitional exception payments, and 
the total payment impact of the transitional policy is approximately 
$41 million.
    \4\ We note that because creating an exception to the 
calculation of the FY 2025 payments is in this circumstance 
functionally equivalent to adjusting the FY 2025 payments, the 
transitional exception can be alternatively considered a 
transitional adjustment.
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    The transitional exception policy we are establishing in this IFC 
applies to hospitals that benefitted from the FY 2024 low wage index 
hospital policy. For those hospitals, we compare the hospital's FY 2025 
wage index established in this IFC to the hospital's FY 2024 wage 
index. If the hospital is significantly impacted by the removal of the 
low wage index hospital policy, meaning the hospital's FY 2025 wage 
index established in this IFC is decreasing by more than 5 percent from 
the hospital's FY 2024 wage index, then the transitional payment 
exception for FY 2025 for that hospital is equal to the additional FY 
2025 amount the hospital would be paid under the IPPS if its FY 2025 
wage index were equal to 95 percent of its FY 2024 wage index.\5\
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    \5\ We note that we are not changing the FY 2025 wage index 
values under section 1886(d)(3)(E) for hospitals eligible for the 
transitional exception policy on the basis of the exception; the 
change is applied as a separate step only for purposes of 
determining the hospitals' FY 2025 IPPS payments.
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    For example, assume the FY 2024 wage index for a hospital that 
benefitted from the low wage index hospital policy is 0.7600, and the 
hospital's FY 2025 wage index established in this IFC is 0.7100. The 
hospital's FY 2025 wage index established in this IFC is decreasing by 
more than 5 percent from the hospital's FY 2024 wage index [that is, 
0.7100 < 0.7220 where 0.7220 = (0.95 times .7600)]. The transitional 
payment exception for FY 2025 for this hospital is equal to the 
additional amount the hospital would be paid under the IPPS if its FY 
2025 wage index were equal to 0.7220, which is 95 percent of 0.7600, 
its FY 2024 wage index.
    Because the need to provide for payment stability and promote 
predictability is satisfied by the transitional payment exception under 
this IFC, we are using our authority under section 1886(d)(5)(I)(i) of 
the Act to except hospitals that are eligible for this transition 
policy for the removal of the FY 2025 low wage index hospital policy 
for FY 2025 from the application of the wage index cap policy at 42 CFR 
412.64(h)(7).
    Under the capital IPPS, the adjustment for local cost variation is 
based on the hospital wage index value that is applicable to the 
hospital under the operating IPPS. We adjust the capital standard 
Federal rate so that the effects of the annual changes in the 
geographic adjustment factor (GAF) are budget neutral. The low wage 
index hospital policy has been reflected in the capital IPPS GAFs since 
FY 2020 (84 FR 42638). The removal of the low wage index hospital 
policy for FY 2025 also affects the FY 2025 GAFs. Because we are now no 
longer applying the low wage index hospital policy in FY 2025, we are 
also no longer making an adjustment to the FY 2025 capital standard 
Federal rate to ensure budget neutrality for the low wage index 
hospital policy.
    As discussed previously, for FY 2025 we believe it is appropriate 
to establish a transition policy for low wage hospitals significantly 
impacted by the removal of the low wage index hospital policy. Since FY 
2023, the GAFs reflect the wage index cap policy that limits any 
decrease to a hospital's wage index from its wage index in the prior 
FY, regardless of the circumstances causing the decline, to 95 percent 
of its prior year value (87 FR 49435). As described previously, some 
low wage index hospitals would experience decreases of 5 percent or 
more in their FY 2025 wage index established in this IFC compared to 
their FY 2024 wage index. As such, we are establishing a transitional 
payment exception to the calculation of FY 2025 IPPS payments for low 
wage index hospitals impacted by the removal of the low wage index 
hospital policy. In this IFC, we are making a non-budget neutral 
equivalent exception under the capital IPPS.

B. Changes to Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2025

1. Calculation of the Adjusted Standardized Amount for FY 2025
    The FY 2025 IPPS/LTCH PPS final rule appeared in the August 28, 
2024, Federal Register (89 FR 68986), as corrected in a document 
scheduled for publication in the Federal Register on October 2, 2024 
(hereinafter referred to as the FY 2025 IPPS/LTCH PPS final rule 
correction). In section II. of the Addendum of the FY 2025 IPPS/LTCH 
PPS final rule (89 FR 69938) as corrected in FY 2025 IPPS/LTCH PPS 
final rule correction, we set forth a description of the methods and 
data we used to determine the prospective payment rates for Medicare 
hospital inpatient operating costs for FY 2025 for acute care 
hospitals.
    Budget neutrality is determined by comparing aggregate IPPS 
payments before and after making changes that are required to be budget 
neutral (for example, changes to MS-DRG classifications, recalibration 
of the MS-DRG relative weights, updates to the wage index, and 
different geographic reclassifications). We include outlier payments in 
the simulations because they may be affected by changes in these 
parameters. In the FY 2025 IPPS/LTCH PPS final rule, as corrected, the 
budget neutrality factors were calculated in the order in which they 
are discussed in the Addendum and shown in the table ``Summary of FY 
2025 Budget Neutrality Factors'' (see 89 FR 69944 through 69948) with 
the FY 2025 IPPS/

[[Page 80409]]

LTCH PPS final rule correction. Specifically, in determining the 
prospective payment rates for FY 2025 in that final rule, as corrected, 
the budget neutrality factors were calculated in the following order 
(after applying the applicable percentage increases):
     Reclassification and Recalibration of MS-DRG Relative 
Weights Before Cap (MS-DRG Reclassification and Recalibration Budget 
Neutrality Factor).
     Reclassification and Recalibration of MS DRG Relative 
Weights With Cap (Cap Policy MS-DRG Weights Budget Neutrality Factor).
     Updated Wage Index (Wage Index Budget Neutrality Factor).
     Reclassified Hospitals (Reclassification Budget Neutrality 
Factor).
     Rural Floor (Rural Floor Budget Neutrality Factor).
     Continuation of the Low Wage Index Hospital Policy (Low 
Wage Index Hospital Policy Budget Neutrality Factor).
     Cap Policy for Wage Index (Cap Policy for Wage Index 
Budget Neutrality Factor).
     Rural Community Hospital Demonstration Program (Rural 
Demonstration Budget Neutrality Factor).
    We note the Rural Floor Budget Neutrality Factor is applied to the 
national wage indexes while the rest of the budget neutrality 
adjustments are applied to the standardized amounts.
    Based on the order of our budget neutrality calculations, the 
removal of the low wage index hospital policy and application of the 
transitional exception policy do not impact the calculation of the 
first five budget neutrality factors (that is, MS-DRG Reclassification 
and Recalibration Budget Neutrality Factor, Cap Policy MS-DRG Weights 
Budget Neutrality Factor, Wage Index Budget Neutrality Factor, 
Reclassification Budget Neutrality Factor, and the Rural Floor Budget 
Neutrality Factor). Under the provisions of this IFC, we are no longer 
making a budget neutrality adjustment to the standardized amount for 
the low wage index hospital policy. Accordingly, in this IFC we 
recalculated the cap policy for wage index budget neutrality factor and 
rural demonstration budget neutrality factor used for determining the 
standardized amounts for FY 2025. We also calculated the FY 2025 
outlier threshold to reflect the provisions of this IFC along with 
changes to these budget neutrality factors. In addition, as described 
in section IV. of this IFC, we made updates to the calculation of 
Factor 3 of the uncompensated care payment methodology for all DSH-
eligible hospitals to reflect the updated information for the hospitals 
that are no longer projected to receive interim uncompensated care 
payments for FY 2025. We also revised the amount of the total 
uncompensated care payment calculated for each DSH-eligible hospital, 
and we updated the list that we published for the FY 2025 IPPS/LTCH PPS 
final rule, as corrected, of hospitals that we identified to be 
subsection (d) hospitals and subsection (d) Puerto Rico hospitals 
projected to be eligible to receive interim uncompensated care payments 
for FY 2025.
    As discussed earlier, we are establishing a transitional exception 
policy for certain hospitals that benefitted from the low wage index 
hospital policy adjustment during FY 2024. Because we are applying this 
transitional exception in a non-budget neutral manner, we first 
determined which hospitals would be eligible for this transition policy 
(that is, identified those that had received a higher wage index under 
the low wage index hospital policy in FY 2024). We then applied the 
transitional payment exception for eligible hospitals as described in 
section II. A of this IFC. As discussed earlier, hospitals that are 
eligible for the new transitional exception policy are excepted from 
the wage index cap policy at 42 CFR 412.64(h)(7), which is budget 
neutral by design.
    The FY 2025 budget neutrality factors that we recalculated in this 
IFC were calculated using data described in the FY 2025 IPPS/LTCH PPS 
final rule (89 FR 69941 through 69948), with the FY 2025 IPPS/LTCH PPS 
final rule correction. The budget neutrality factor for the wage index 
cap policy at 42 CFR 412.64(h)(7) was calculated in accordance with the 
existing methodology. As noted earlier, hospitals that are eligible for 
the transitional exception policy are excepted from the wage index cap 
policy at 42 CFR 412.64(h)(7) in FY 2025. To calculate a wage index cap 
budget neutrality adjustment factor for FY 2025, we used FY 2023 
discharge data to simulate payments and compared the following:
     Aggregate payments without the wage index cap policy at 42 
CFR 412.64(h)(7) using the FY 2025 labor related share percentages, the 
new OMB labor market area delineations for FY 2025, the FY 2025 
relative weights, and applied the proxy FY 2025 hospital readmissions 
payment adjustments and the proxy FY 2025 hospital value-based 
purchasing (VBP) payment adjustments.
     Aggregate payments with the wage index cap at 42 CFR 
412.64(h)(7) using the FY 2025 labor related share percentages, the new 
OMB labor market area delineations for FY 2025, the FY 2025 relative 
weights, and applied the same proxy FY 2025 hospital readmissions 
payment adjustments and the proxy FY 2025 hospital VBP payment 
adjustments applied previously.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cap Policy Wage Index Budget Neutrality Factor...............   0.999166
------------------------------------------------------------------------

    The budget neutrality factor for the rural community hospital 
demonstration program was calculated using the methodology described in 
the FY 2025 IPPS/LTCH PPS final rule (89 FR 69947 through 69948). We 
note, as mentioned earlier, that we recalculated the rural 
demonstration budget neutrality factor; however, when rounded to the 
sixth decimal, the factor (0.999811) did not change from the corrected 
factor as set forth in the FY 2025 IPPS/LTCH PPS correction.
    The standardized amounts set forth in Tables 1A, 1B, and 1C for FY 
2025 that are listed and published in section IV. of this IFC (and 
available via the internet on the CMS website) reflect these factors.
2. Outlier Payments
    In the Addendum of the FY 2025 IPPS/LTCH PPS final rule (89 FR 
69948 through 66962), with the FY 2025 IPPS/LTCH PPS final rule 
correction, we discuss outlier payments for cases involving 
extraordinarily high costs and the methodology for determining the FY 
2025 outlier threshold. To calculate the FY 2025 outlier fixed-loss 
amount that reflects the provisions of this IFC, we used the 
methodology (data, factors, etc.) as described in the FY 2025 IPPS/LTCH 
PPS final rule, as corrected, in conjunction with the wage index 
values, transitional payment exception policy for the removal of the 
low wage index hospital policy and other rates and factors established 
in this IFC (as described previously). For example, we used the 
following to calculate the FY 2025 outlier fixed-loss amount in this 
IFC:
     Targeted an outlier threshold at 5.14 percent [5.1 percent 
- (- 0.04 percent)] as reflected in the FY 2025 IPPS/LTCH PPS final 
rule.
     Applied the charge inflation factor of 4.1 percent 
(1.04118) (or 8.4 percent (1.08406) over 2 years) as reflected in the 
FY 2025 IPPS/LTCH PPS final rule.
     Applied the national average case-weighted operating and 
capital CCR adjustment factors of 1.015192 and

[[Page 80410]]

0.997234 respectively as reflected in the FY 2025 IPPS/LTCH PPS 
correction notice.
     Used the estimated per-discharge uncompensated care 
payment and estimated per-discharge supplemental payment updated in 
this IFC.
     Used the applicable standardized amounts in Tables 1A-1C 
of this IFC.
     Used the FY 2025 wage index values established in this 
IFC.
     Applied the transitional payment exception policy 
described in section II.A. of this IFC, where applicable.
    For FY 2025, we determined a threshold of $46,217 and calculated 
total outlier payments of $4,354,709,696 and total operating Federal 
payments of $80,366,934,481. (We note that, if calculated without 
applying our methodology for incorporating an estimate of outlier 
reconciliation in the determination of the outlier threshold, the 
threshold would be $46,567.) For FY 2025, the outlier fixed-loss cost 
threshold is equal to the prospective payment rate for the MS-DRG, plus 
any IME, empirically justified Medicare DSH payments, estimated 
uncompensated care payment, estimated supplemental payment for eligible 
Indian Health Service (IHS)/Tribal hospitals and Puerto Rico hospitals, 
and any add on payments for new technology, plus $46,217. The outlier 
adjustment factor that is applied to the operating standardized amount 
based on the FY 2025 outlier threshold is 0.949 (as established in the 
FY 2025 IPPS/LTCH PPS final rule (89 FR 69961)).
    As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69961), 
we establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related costs. 
When we modeled the combined operating and capital outlier payments, we 
found that using a common threshold resulted in a higher percentage of 
outlier payments for capital-related costs than for operating costs. We 
project that the threshold for FY 2025 (which reflects our methodology 
to incorporate an estimate of operating outlier reconciliation (see 89 
FR 69948 through 69953) would result in outlier payments that would 
equal 5.1 percent of operating DRG payments and we estimate that 
capital outlier payments would equal 4.23 percent of capital payments 
based on the capital Federal rate established in section II.C. of this 
IFC (and which reflects our methodology to incorporate an estimate of 
capital outlier reconciliation as discussed in the FY 2025 IPPS/LTCH 
PPS final rule (see 89 FR 69953 through 69955)).
    In accordance with section 1886(d)(3)(B) of the Act, we reduce the 
FY 2025 standardized amount by 5.1 percent to account for the projected 
proportion of payments paid as outliers.
    The outlier adjustment factors that would be applied to the 
operating standardized amount and capital Federal rate based on the FY 
2025 outlier threshold are as follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts     federal rate *
------------------------------------------------------------------------
National................................           0.949        0.957704
------------------------------------------------------------------------
* The adjustment factor for the capital Federal rate includes an
  adjustment to the estimated percentage of FY 2025 capital outlier
  payments for capital outlier reconciliation, as discussed in the FY
  2025 IPPS/LTCH final rule.

    We are applying the outlier adjustment factors to the FY 2025 
payment rates after removing the effects of the FY 2024 outlier 
adjustment factors on the standardized amount.
3. FY 2025 Standardized Amounts
    The adjusted standardized amount is divided into labor-related and 
nonlabor-related portions. Tables 1A and 1B listed and published in 
section IV. of this IFC (and available via the internet on the CMS 
website) contain the national standardized amounts that we are applying 
to all hospitals, except hospitals located in Puerto Rico, for FY 2025. 
The standardized amount for hospitals in Puerto Rico is shown in Table 
1C listed and published in section IV. of this IFC (and available via 
the internet on the CMS website).
    The following table illustrates the changes from the FY 2024 
national standardized amounts to the FY 2025 national standardized 
amounts. The second through fifth columns display the changes from the 
FY 2024 standardized amounts for each applicable FY 2025 standardized 
amount. The first row of the table shows the updated (through FY 2024) 
average standardized amount after restoring the FY 2024 offsets for 
outlier payments, geographic reclassification, rural demonstration, 
lowest quartile, and budget neutrality for the wage index cap policy at 
42 CFR 412.64(h)(7). The MS-DRG reclassification and recalibration wage 
index, and stem cell acquisition budget neutrality factors are 
cumulative (that is, we have not restored the offsets). Accordingly, 
those FY 2024 adjustment factors have not been removed from the base 
rate in the following table.

                  Changes From FY 2024 Standardized Amounts to the FY 2025 Standardized Amounts
----------------------------------------------------------------------------------------------------------------
                                                      Hospital submitted   Hospital did not    Hospital did not
                                  Hospital submitted   quality data and     submit quality      submit quality
                                   quality data and        is not a          data and is a     data and is not a
                                    is a meaningful     meaningful EHR      meaningful EHR      meaningful EHR
                                       EHR user              user                user                user
----------------------------------------------------------------------------------------------------------------
FY 2025 Base Rate after           If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
 removing:.                        Greater Than        Greater Than        Greater Than        Greater Than
1. FY 2024 Geographic              1.0000:.            1.0000:.            1.0000:.            1.0000:
 Reclassification Budget          Labor (67.6%):      Labor (67.6%):      Labor (67.6%):      Labor (67.6%):
 Neutrality (0.971295).            $4,782.01.          $4,782.01.          $4,782.01.          $4,782.01.
2. FY 2024 Operating Outlier      Nonlabor (32.4%):   Nonlabor (32.4%):   Nonlabor (32.4%):   Nonlabor (32.4%):
 Offset (0.949).                   $2,291.97.          $2,291.97.          $2,291.97.          $2,291.97.
3. FY 2024 Rural Demonstration    If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
 Budget Neutrality Factor          less Than or        less Than or        less Than or        less Than or
 (0.999463).                       Equal to 1.0000:.   Equal to 1.0000:.   Equal to 1.0000:.   Equal to 1.0000:
4. FY 2024 Lowest Quartile        Labor (62%):        Labor (62%):        Labor (62%):        Labor (62%):
 Budget Neutrality Factor          $4,385.87.          $4,385.87.          $4,385.87.          $4,385.87.
 (0.997402).                      Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):
5. FY 2024 Cap Policy Wage Index   $2,688.11.          $2,688.11.          $2,688.11.          $2,688.11.
 Budget Neutrality Factor
 (0.999645).
* FY 2025 Update Factor.........  1.029.............  1.0035............  1.0205............  0.995.
* FY 2025 MS[dash]DRG             0.997190..........  0.997190..........  0.997190..........  0.997190.
 Reclassification and
 Recalibration Budget Neutrality
 Factor Before Cap.

[[Page 80411]]

 
* FY 2025 Cap Policy MS-DRG       0.999874..........  0.999874..........  0.999874..........  0.999874.
 Weight Budget Neutrality Factor.
* FY 2025 Wage Index Budget       0.999981..........  0.999981..........  0.999981..........  0.999981.
 Neutrality Factor.
* FY 2025 Reclassification        0.962786..........  0.962786..........  0.962786..........  0.962786.
 Budget Neutrality Factor.
FY 2025 Cap Policy Wage Index     0.999166..........  0.999166..........  0.999166..........  0.999166.
 Budget Neutrality Factor.
* FY 2025 RCH Demonstration       0.999811..........  0.999811..........  0.999811..........  0.999811.
 Budget Neutrality Factor.
* FY 2025 Operating Outlier       0.949.............  0.949.............  0.949.............  0.949.
 Factor.
National Standardized Amount for  Labor: $4,478.09..  Labor: $4,367.12..  Labor: $4,441.10..  Labor: $4,330.13
 FY 2025 if Wage Index is         Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Greater Than 1.0000; Labor/Non-   $2,146.30.          $2,093.11.          $2,128.57.          $2,075.38.
 Labor Share Percentage (67.6/
 32.4).
National Standardized Amount for  Labor: $4,107.12..  Labor: $4,005.34..  Labor: $4,073.20..  Labor: $3,971.42
 FY 2025 if Wage Index is Less    Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Than or Equal to 1.0000; Labor/   $2,517.27.          $2,454.89.          $2,496.47.          $2,434.09.
 Non-Labor Share Percentage (62/
 38).
----------------------------------------------------------------------------------------------------------------
* This factor is not changing in this IFC.

C. Payment Rates for Acute Care Hospital Inpatient Capital-Related 
Costs for FY 2025

    In section III. of the Addendum of the FY 2025 IPPS/LTCH PPS final 
rule (89 FR 69966 through 69971) as corrected in the FY 2025 IPPS/LTCH 
PPS final rule correction, we set forth a description of the methods 
and data we used to determine the prospective payment rates for 
Medicare hospital inpatient capital-related costs for FY 2025 for acute 
care hospitals. In that final rule (89 FR 69966 through 69970) the FY 
2025 IPPS/LTCH PPS final rule correction, we discuss the factors we use 
for determining the capital Federal rate for FY 2025. Similar to the 
discussion of the operating IPPS payment rates previously, the removal 
of the low wage index hospital policy and the establishment of a 
transitional exception policy as discussed in section II.B. of this IFC 
impacts the calculation of certain budget neutrality adjustment factors 
used for determining the capital Federal rate for FY 2025. In addition, 
as discussed previously, we also calculated the FY 2025 outlier 
threshold to reflect the provisions of this IFC along with the 
corresponding changes to the IPPS payment rates. Accordingly, in this 
IFC we are establishing the following factors used for determining the 
capital Federal rate for FY 2025:
     The outlier payment adjustment factor.
     The portion of the budget neutrality adjustment factor for 
changes in the geographic adjustment factor (GAF) for the 5-percent cap 
on wage index decreases policy. (Under the provisions of this IFC, this 
factor would no longer reflect the low wage index hospital policy.)
    As we discuss in this section, in general, these factors were 
calculated using the data and calculation methodology described in the 
FY 2025 IPPS/LTCH PPS final rule (89 FR 69968 through 69971) with the 
FY 2025 IPPS/LTCH PPS final rule correction, except for the methodology 
for calculating the GAF budget neutrality factor which we are modifying 
to reflect the provisions of this IFC.
1. Outlier Payment Adjustment Factor
    As discussed previously, a shared threshold is used to identify 
outlier cases for both inpatient operating and inpatient capital-
related payments. Based on the threshold discussed in section II.B. of 
this IFC, we estimate that prior to taking into account projected 
capital outlier reconciliation payments, outlier payments for capital-
related costs will equal 4.26 percent of inpatient capital-related 
payments based on the capital Federal rate in FY 2025. As discussed in 
the FY 2025 IPPS/LTCH PPS final rule (89 FR 69968), we estimate that 
taking into account projected capital outlier reconciliation payments 
will decrease the estimated percentage of FY 2025 capital outlier 
payments by 0.03 percent. Therefore, accounting for estimated capital 
outlier reconciliation, the estimated outlier payments for capital-
related PPS payments will equal 4.23 percent (4.26 percent-0.03 
percent) of inpatient capital-related payments based on the capital 
Federal rate in FY 2025. Accordingly, we applied an outlier adjustment 
factor of 0.9577 in determining the capital Federal rate for FY 2025. 
As we noted in the final rule, the capital Federal rate is calculated 
using unrounded budget neutrality and outlier adjustment factors. The 
unrounded FY 2025 outlier adjustment factor was revised because of the 
removal of the low wage index hospital policy and transitional payment 
exception. However, after rounding this factor to 4 decimal places (as 
displayed in the final rule and this IFC), the rounded factor was 
unchanged from the final rule.
2. Budget Neutrality Adjustment Factor for Changes in the GAF
    The capital Federal rate is adjusted so that aggregate payments for 
the fiscal year based on the capital Federal rate, after any changes 
resulting from the annual DRG reclassification and recalibration and 
changes in the GAF, are projected to equal aggregate payments that 
would have been made on the basis of the capital Federal rate without 
such changes. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 
FR 69969 through 69970), for FY 2025 we use a 2-step methodology for 
computing the budget neutrality factor for changes in the GAFs in light 
of the effect of wage index changes on the GAFs. In the first step, we 
first calculate a factor to ensure budget neutrality for changes to the 
GAFs due to the update to the wage data, wage index

[[Page 80412]]

reclassifications and redesignations, and application of the rural 
floor policy, consistent with our historical GAF budget neutrality 
factor methodology. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 
69969) with the FY 2025 IPPS/LTCH PPS final rule correction, we 
calculated an incremental adjustment factor for changes in the GAFs for 
FY 2025 due to the update to the wage data, wage index 
reclassifications and redesignations, and application of the rural 
floor policy of 0.9884. The provisions of this IFC do not impact this 
budget neutrality factor. Also in the FY 2025 IPPS/LTCH PPS final rule 
(89 FR 69969 through 69970), as corrected with the FY 2025 IPPS/LTCH 
PPS final rule correction, we calculated an incremental adjustment 
factor for the FY 2025 MS-DRG reclassification and recalibration and 
for changes in the FY 2025 GAFs due to the update to the wage data, 
wage index reclassifications and redesignations, and application of the 
rural floor policy of 0.9854 (0.9969 x 0.9884). This incremental 
adjustment factor is not impacted by the provisions of this IFC.
    Due to the removal of the low wage index hospital policy (discussed 
previously in section II.B. of this IFC and also referred as the lowest 
quartile hospital wage index adjustment in the discussion of the 2-step 
methodology in the FY 2025 IPPS/LTCH PPS final rule), we are modifying 
the second step of our 2-step methodology for computing the budget 
neutrality factor for changes in the GAFs in light of the effect of 
wage index changes on the GAFs. In the FY 2025 IPPS/LTCH PPS final rule 
(89 FR 69968 through 69970) we calculated a factor in the second step 
of our methodology that ensured budget neutrality for changes to the 
GAFs due to the lowest quartile hospital wage index adjustment and the 
5-percent cap on wage index decreases policy (our policy to place a 5 
percent cap on any decrease in a hospital's wage index from the 
hospital's final wage index in the prior fiscal year under 42 CFR 
412.64(h)(7)). In this IFC, we are modifying this budget neutrality 
factor to now ensure budget neutrality for changes to the GAFs due only 
to the 5-percent cap on wage index decreases policy. As discussed 
previously in section II.B. of this IFC, we are establishing a non-
budget neutral transitional exception policy for hospitals that 
benefitted from the low wage index hospital policy during FY 2024. 
Hospitals that are eligible for the transitional exception policy are 
excepted from the wage index cap policy for FY 2025 under this IFC. 
Therefore, under the provisions of this IFC, the second step of our 
calculation of the budget neutrality factor for changes in the GAFs in 
light of the effect of wage index changes on the GAFs only accounts for 
the application of the 5-percent cap on wage index decreases for 
hospitals that did not receive the low wage index hospital policy 
adjustment in FY 2024. For this IFC, we compared estimated aggregate 
capital Federal rate payments based on the FY 2025 GAFs with and 
without the 5-percent cap on wage index decreases policy (which was 
applied only to hospitals that are not eligible for the transitional 
exception policy). For this calculation, estimated aggregate capital 
Federal rate payments were calculated using the FY 2025 MS-DRG 
classifications and relative weights (after application of the 10-
percent cap) and the GAFs included the imputed floor, out-migration, 
and Frontier state adjustments. To achieve budget neutrality for the 
effects of the 5-percent cap on wage index decreases policy we 
calculated an incremental GAF budget neutrality adjustment factor of 
0.9992.
3. Capital Federal Rate for FY 2025
    As a result of factors established in the FY 2025 IPPS/LTCH PPS 
final rule (89 FR 69971) with the FY 2025 IPPS/LTCH PPS final rule 
correction and the outlier adjustment factor and the budget neutrality 
factor for the effects of the 5-percent cap on wage index decreases 
established in this IFC (as discussed previously), we are establishing 
a national capital Federal rate of $512.14 for FY 2025. The national 
capital Federal rate for FY 2025 was calculated as shown in the 
following table. The combined effect of all the changes will increase 
the national capital Federal rate by approximately 1.65 percent, 
compared to the FY 2024 national capital Federal rate.

    Comparison of Factors and Adjustments: FY 2024 Capital Federal Rate and the FY 2025 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                      FY 2024         FY 2025         Change      Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...............................          1.0380          1.0310          1.0310            3.10
GAF/DRG Adjustment Factor \1\...................          0.9885          0.9854          0.9854           -1.46
Cap Adjustment Factor \2\.......................          0.9964          0.9992          1.0028            0.28
Outlier Adjustment Factor \3\...................          0.9598          0.9577          0.9978           -0.22
Capital Federal Rate............................         $503.83         $512.14          1.0165        \4\ 1.65
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the
  capital Federal rate. Thus, for example, the incremental change from FY 2024 to FY 2025 resulting from the
  application of the 0.9854 GAF/DRG budget neutrality adjustment factor for FY 2025 is a net change of 0.9854
  (or -1.46 percent).
\2\ The cap budget neutrality adjustment factor is not built permanently into the capital Federal rate; that is,
  the factor is not applied cumulatively in determining the capital Federal rate. Thus, for example, the net
  change resulting from the application of the FY 2025 cap budget neutrality adjustment factor is 0.9992/0.9964
  or 1.0028 (or 0.28 percent).
\3\ The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is
  not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting
  from the application of the FY 2025 outlier adjustment factor is 0.9577/0.9598 or 0.9978 (or -0.22 percent).
\4\ Percent change may not sum due to rounding.

D. High-Cost Outlier (HCO) Threshold for Site Neutral Payment Rate 
Cases Under the LTCH PPS for FY 2025

    In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69987), we 
established that the applicable HCO threshold for site neutral payment 
rate cases for FY 2025 is the sum of the site neutral payment rate for 
the case and the IPPS fixed-loss amount. As discussed previously in 
section II.B.2. of this IFC, the provisions of this IFC result in the 
recalculation of the IPPS fixed-loss amount for FY 2025. Therefore, in 
this IFC, for FY 2025 we are establishing a fixed-loss amount for site 
neutral payment rate cases of $46,217, which is the same as the FY 2025 
IPPS fixed-loss amount discussed in section II.B.2. of this IFC. 
Accordingly, under this policy, for FY 2025, we will calculate an HCO

[[Page 80413]]

payment for site neutral payment rate cases with costs that exceed the 
HCO threshold amount that is equal to 80 percent of the difference 
between the estimated cost of the case and the outlier threshold (the 
sum of the site neutral payment rate payment and the fixed-loss amount 
for site neutral payment rate cases of $46,217).

III. Waiver of Proposed Rulemaking and Delay in Effective Date

    Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), 
the agency is required to publish a notice of the proposed rulemaking 
in the Federal Register before the provisions of a rule take effect. 
Similarly, section 1871(b)(1) of the Act requires the Secretary to 
provide for notice of the proposed rulemaking in the Federal Register 
and provide a period of not less than 60 days for public comment. In 
addition, section 553(d) of the APA, and section 1871(e)(1)(B)(i) of 
the Act mandate a 30-day delay in effective date after issuance or 
publication of a rule. Sections 553(b)(B) and 553(d)(3) of the APA 
provide for exceptions from the notice and comment and delay in 
effective date APA requirements; in cases in which these exceptions 
apply, sections 1871(b)(2)(C) and 1871(e)(1)(B)(ii) of the Act provide 
exceptions from the notice and 60-day comment period and delay in 
effective date requirements of the Act as well. Section 553(b)(B) of 
the APA and section 1871(b)(2)(C) of the Act authorize an agency to 
dispense with normal rulemaking requirements for good cause if the 
agency makes a finding that the notice and comment process are 
impracticable, unnecessary, or contrary to the public interest. In 
addition, both section 553(d)(3) of the APA and section 
1871(e)(1)(B)(ii) of the Act allow the agency to avoid the 30-day delay 
in effective date where such delay is contrary to the public interest 
and an agency includes a statement of support.
    As discussed earlier, in the FY 2025 IPPS/LTCH PPS final rule (89 
FR 69302), we noted that the FY 2020 low wage index hospital policy and 
the related budget neutrality adjustment were the subject of pending 
litigation in multiple courts, and that on July 23, 2024, the Court of 
Appeals for the D.C. Circuit held that the Secretary lacked authority 
under section 1886(d)(3)(E) of the Act or under the ``adjustments'' 
language of section 1886(d)(5)(I)(i) of the Act to adopt the low wage 
index hospital policy for FY 2020, and that the policy and related 
budget neutrality adjustment must be vacated. Bridgeport Hosp. v. 
Becerra, 108 F.4th 882, 887-91 & n.6 (D.C. Cir. 2024). We also stated 
that as of the date of that final rule's publication, the time to seek 
further review of the D.C. Circuit's decision in Bridgeport Hospital 
had not expired (see Fed. R. App. P. 40(a)(1)) and the government was 
evaluating the decision and considering options for next steps. There 
was a limited amount of time between July 23, 2024, and the beginning 
of FY 2025 on October 1, 2024, to consider options for the low wage 
index hospital policy for FY 2025 in the context of the D.C. Circuit's 
reasoning in Bridgeport Hospital. If the FY 2025 IPPS (and certain LTCH 
PPS) payment rates including the FY 2025 low wage index hospital policy 
were to go into effect on October 1, 2024, it is possible given the 
D.C. Circuit's decision regarding the FY 2020 low wage index hospital 
policy and potential further litigation developments that those FY 2025 
payments would need to be revised, creating the potential need to 
reprocess significant numbers of FY 2025 claims and unnecessarily 
change FY 2025 payments retroactively for all IPPS and LTCH PPS 
hospitals. This would constitute an inefficient use of limited agency 
resources. It would also create legal uncertainty for the public and 
ongoing confusion for hospitals extending into FY 2025 about the amount 
of their IPPS and LTCH PPS payments, which runs counter to the 
prospective nature of these payment systems. Removing the FY 2025 low 
wage index hospital policy and associated budget neutrality adjustment 
through an IFC rather than through the notice and comment rulemaking 
cycle and waiving the delay of the effective date will allow these 
changes to be applied to FY 2025 IPPS payment rates (and certain LTCH 
PPS rates) at the beginning of the fiscal year on October 1, 2025, 
avoiding these issues. Therefore, we find good cause to waive the 
notice of proposed rulemaking requirements as well as the delay of the 
effective date and to issue this final rule on an interim basis. Even 
though we are waiving notice of proposed rulemaking requirements and 
are issuing these provisions on an interim final basis, we are 
providing a 60-day public comment period.

IV. Tables Referenced in This Interim Final Rule With Comment Period

    This section lists the tables referred to throughout this IFC. As 
stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69989), for the 
FY 2025 rulemaking cycle, the IPPS and LTCH PPS tables will not be 
published in the Federal Register in the annual IPPS/LTCH PPS proposed 
and final rules and will be on the CMS website. Specifically, all IPPS 
tables listed in this IFC, with the exception of IPPS Tables 1A, 1B, 
1C, and 1D, will generally be available on the CMS website. IPPS Tables 
1A, 1B, 1C, and 1D are displayed at the end of this section.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS websites identified in this IFC should 
contact Michael Treitel at (410) 786-4552.
    The following IPPS tables for this IFC are generally available on 
the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/. Click on the link on the 
left side of the screen titled ``FY 2025 IPPS Final Rule Home Page'' or 
``Acute Inpatient-Files-for Download.''
Table 2.--Final Case-Mix Index and Wage Index Table by CCN--FY 2025 
Interim Final Rule With Comment Period
Table 3.--Final Wage Index Table by CBSA--FY 2025 Interim Final Rule 
With Comment Period
    Table 18.--FY 2025 Interim Final Rule with Comment Period Medicare 
DSH Uncompensated Care Payment Factor 3. We note that we made updates 
to the calculation of Factor 3 of the uncompensated care payment 
methodology for all DSH-eligible hospitals to reflect the updated 
information for the hospitals that are no longer projected to receive 
interim uncompensated care payments for FY 2025. More specifically, 
because the Factor 3 calculated for each hospital reflects that 
hospital's uncompensated care amount relative to the uncompensated care 
amount for all subsection (d) hospitals that receive a DSH payment for 
the fiscal year, we recalculated Factor 3 for all DSH-eligible 
hospitals. The hospital-specific Factor 3 determines the total amount 
of the uncompensated care payment a hospital is eligible to receive for 
the fiscal year. Accordingly, we also recalculated the total 
uncompensated care amount for all DSH-eligible hospitals to reflect 
these updates. Each hospital's total uncompensated care payment amount 
is then used to calculate the amount of the interim uncompensated care 
payments a hospital receives per discharge. Given the very narrowly 
targeted update to the information used in the calculation of Factor 3, 
the change to the previously calculated Factor 3 is of limited 
magnitude for the majority of hospitals.

[[Page 80414]]

    For the FY 2025 IPPS/LTCH PPS final rule, as corrected, we 
published a list of hospitals that we identified to be subsection (d) 
hospitals and subsection (d) Puerto Rico hospitals projected to be 
eligible to receive interim uncompensated care payments for FY 2025. We 
are updating this list and the calculations of Factor 3 of the 
uncompensated care payment methodology to reflect our updated interim 
uncompensated care eligibility projections. As noted earlier in this 
section, we are revising Factor 3 for all DSH-eligible hospitals to 
reflect these updates, and we are revising the amount of the total 
uncompensated care payment calculated for each DSH-eligible hospital.

    Table 1A--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (67.6 Percent Labor Share/32.4 Percent Nonlabor Share if Wage Index Is
                                                                Greater Than 1)--FY 2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is   Hospital submitted quality data and  Hospital did not submit quality data  Hospital did not submit quality data
  a meaningful EHR user (update = 2.9   is not a meaningful EHR user (update  and is a meaningful EHR user (update    and is not a meaningful EHR user
               percent)                            = 0.35 percent)                       = 2.05 percent)                   (update = -0.5 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $4,478.09           $2,146.30          $4,367.12          $2,093.11          $4,441.10          $2,128.57          $4,330.13          $2,075.38
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table 1B--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share if Wage Index Is Less Than
                                                                 or Equal to 1)--FY 2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is   Hospital submitted quality data and  Hospital did not submit quality data  Hospital did not submit quality data
  a meaningful EHR user (update = 2.9   is not a meaningful EHR user (update  and is a meaningful EHR user (update    and is not a meaningful EHR user
               percent)                            = 0.35 percent)                       = 2.05 percent)                   (update = -0.5 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $4,107.12           $2,517.27          $4,005.34          $2,454.89          $4,073.20          $2,496.47          $3,971.42          $2,434.09
--------------------------------------------------------------------------------------------------------------------------------------------------------


  Table 1C--Adjusted Operating Standardized Amounts for Hospitals in Puerto Rico, Labor/Nonlabor (National: 62 Percent Labor Share/38 Percent Nonlabor
                                              Share Because Wage Index Is Less Than or Equal to 1)--FY 2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Rates if wage index greater than 1           Hospital is a meaningful EHR    Hospital is not a meaningful EHR
                                   -------------------------------------------------- user and wage index less than or  user and wage index less than or
                                                                                          equal to 1 (update = 2.9)        equal to 1 (update = 0.35)
                                             Labor                   Nonlabor        -------------------------------------------------------------------
                                                                                           Labor           Nonlabor          Labor           Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
National \1\......................  Not Applicable.........  Not Applicable.........       $4,107.12        $2,517.27        $4,005.34        $2,454.89
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For FY 2025, there are no CBSAs in Puerto Rico with a national wage index greater than 1.


        Table 1D--Capital Standard Federal Payment Rate--FY 2025
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National...............................................         $512.14
------------------------------------------------------------------------

V. Collection of Information Requirements

    This document does not impose information collection requirements, 
that is, reporting, recordkeeping or third-party disclosure 
requirements. Consequently, there is no need for review by the Office 
of Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

VI. Regulatory Impact Analysis

    We have examined the impacts of this IFC as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), Executive Order 14094 on Modernizing Regulatory 
Review (April 6, 2023), the Regulatory Flexibility Act (RFA) (September 
19, 1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of 
the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (CRA) (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 14094 amends section 3(f) of Executive Order 12866 to define a 
``significant regulatory action'' as any regulatory action that is 
likely to result in a rule that may: (1) have an annual effect on the 
economy of $200 million or more in any 1 year, or adversely affect in a 
material way the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local, territorial, or 
tribal governments or communities; (2) create a serious inconsistency 
or otherwise interfere with an action taken or planned by another 
agency; (3) materially alter the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raise legal or policy issues for which 
centralized review would meaningfully further the President's 
priorities or the principles set forth in this Executive Order.
    A regulatory impact analysis (RIA) is prepared for a regulatory 
action to document the economic impact and determine if a regulatory 
action is significant under section 3(f)(1). Based on our estimates, 
OMB'S Office of Information and Regulatory Affairs (OIRA) has 
determined this rulemaking is not significant under section 3(f)(1) of 
E.O. 12866. Accordingly, we have prepared a regulatory impact analysis 
that to the best of our ability presents the costs and benefits of the 
rulemaking. Pursuant to Subtitle E of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (also known as the Congressional 
Review Act), OIRA has also determined that this rule meets the

[[Page 80415]]

criteria set forth in 5 U.S.C. OMB has reviewed this IFC, and the 
Departments have provided the following assessment of their impact. The 
analysis in this section, in conjunction with the remainder of this 
document, demonstrates that this IFC is consistent with the regulatory 
philosophy and principles identified in Executive Orders 12866 and 
13563, the RFA, and section 1102(b) of the Act. This IFC would affect 
payments to a substantial number of small rural hospitals, as well as 
other classes of hospitals, and the effects on some hospitals may be 
significant. Finally, in accordance with the provisions of Executive 
Order 12866, the Office of Management and Budget has reviewed this IFC.
    The following quantitative analysis presents the projected effects 
of the policy changes established in this IFC, as well as changes 
effective for FY 2025 established in the FY 2025 IPPS/LTCH PPS final 
rule and correction notice, on various hospital groups.
    To illustrate the effects of the provisions of this IFC on 
hospitals' FY 2025 payments, this impact analysis was developed by 
comparing the total estimated change in payments under this FY 2025 
IPPS/LTCH PPS IFC and the total estimated change in payments from the 
FY 2025 IPPS/LTCH PPS final rule (89 FR 69991) as corrected in the FY 
2025 IPPS/LTCH PPS final rule correction. Specifically, our analysis 
shows the effects of the removal of the low wage index hospital policy 
and the application of the transition policy (discussed in sections 
II.A. and B. of this IFC) by comparing the following:
     The total estimated change in payments based on FY 2025 
policies relative to payments based on FY 2024 policies as calculated 
in our impact analysis in the FY 2025 IPPS/LTCH PPS final rule (89 FR 
69991) as corrected in FY 2025 IPPS/LTCH PPS final rule correction, 
which included the low wage index hospital policy.
     The total estimated change in payments based on FY 2025 
policies after removing the low wage index hospital policy and applying 
the transitional exception policy (discussed in sections II.A. and 
II.B. of this IFC) relative to payments based on FY 2024 policies.
    A comparison of these two isolates the estimated impact of removing 
the low wage index hospital policy and the application of the 
transition policy on FY 2025 payments as discussed later in this 
section.
    Other than removing the low wage index hospital policy and applying 
the transitional exception policy, this impact analysis was developed 
using the same data and methodology described in the FY 2025 IPPS/LTCH 
PPS final rule and correction notice in conjunction with the rates and 
factors (for example, outlier threshold, interim uncompensated care per 
discharge payments amounts) established in this IFC, as discussed in 
sections II.A. and II.B. of this IFC. For ease of discussion, 
references to the removal of the low wage index hospital policy and the 
application of the transitional exception policy also include the 
conforming changes to the rates and factors established in this IFC 
(for example, outlier threshold, interim uncompensated care per 
discharge payments amounts).

A. Analysis of Table I

    Table I displays the results of our analysis of the changes for FY 
2025 before and after the removal of the low wage index hospital policy 
and the application of the transitional exception policy, and then uses 
this information to isolate the impact of the provisions of this IFC. 
The table categorizes hospitals by various geographic and special 
payment consideration groups to illustrate the varying impacts on 
different types of hospitals, which are described in the FY 2025 IPPS/
LTCH PPS final rule (89 FR 69996).

                 Table 1--Impact Analysis of Changes to the IPPS for Operating Costs for FY 2025
----------------------------------------------------------------------------------------------------------------
                                                                                              Overall impact of
                                                                                              removing low wage
                                                            All FY 2025                         index hospital
                                            Number of     changes--final      All FY 2025      policy with the
                                            hospitals         rule as      changes--IFC \1\      transitional
                                                           corrected \1\          (B)          exception policy
                                                                (A)                          applied for FY 2025
                                                                                                   \2\ (C)
----------------------------------------------------------------------------------------------------------------
All Hospitals..........................           3,083               2.8               2.8                  0.0
By Geographic Location:
    Urban hospitals....................           2,392               2.8               2.9                  0.1
    Rural hospitals....................             691               2.6               2.2                 -0.4
Bed Size (Urban):
    Q10-99 beds........................             645               1.1               1.1                  0.0
    100-199 beds.......................             682               2.6               2.6                  0.0
    200-299 beds.......................             421               2.8               2.8                  0.0
    300-499 beds.......................             394               2.7               2.8                  0.1
    500 or more beds...................             248               3.2               3.2                  0.0
Bed Size (Rural):
    0-49 beds..........................             341               1.6               1.2                 -0.4
    50-99 beds.........................             183               1.4               1.3                 -0.1
    100-149 beds.......................              91               2.8               2.6                 -0.2
    150-199 beds.......................              44               3.5               2.7                 -0.8
    200 or more beds...................              32               3.8               3.7                 -0.1
Urban by Region:
    New England........................             106               4.2               4.4                  0.2
    Middle Atlantic....................             280               1.1               1.3                  0.2
    East North Central.................             367               4.6               4.8                  0.2
    West North Central.................             156               2.7               2.6                 -0.1
    South Atlantic.....................             396               4.4               4.4                  0.0
    East South Central.................             142               4.7               3.3                 -1.4
    West South Central.................             358               3.7               3.6                 -0.1
    Mountain...........................             179               2.4               2.6                  0.2

[[Page 80416]]

 
    Pacific............................             356               0.1               0.3                  0.2
Rural by Region:
    New England........................              21               2.2               2.4                  0.2
    Middle Atlantic....................              52               4.4               4.6                  0.2
    East North Central.................             110               2.1               2.1                  0.0
    West North Central.................              78               2.0               1.9                 -0.1
    South Atlantic.....................             112               1.6               1.3                 -0.3
    East South Central.................             132               3.6               1.8                 -1.8
    West South Central.................             120               3.1               2.5                 -0.6
    Mountain...........................              42               2.5               2.5                  0.0
    Pacific............................              24               1.5               1.6                  0.1
Puerto Rico:
    Puerto Rico Hospitals..............              52               2.3              -0.5                 -2.8
By Payment Classification:
    Urban hospitals....................           1,714               2.4               2.4                  0.0
    Rural areas........................           1,369               3.1               3.1                  0.0
Teaching Status:
    Nonteaching........................           1,833               2.3               2.3                  0.0
    Fewer than 100 residents...........             958               2.9               2.9                  0.0
    100 or more residents..............             292               3.0               3.1                  0.1
Urban DSH:.............................  ..............               0.0  ................  ...................
    Non-DSH............................             331               2.6               2.6                  0.0
    100 or more beds...................           1,015               2.4               2.4                  0.0
    Less than 100 beds.................             368               2.4               2.4                  0.0
Rural DSH:
    Non-DSH............................              83               2.0               2.1                  0.1
    SCH................................             243               2.9               2.8                 -0.1
    RRC................................             791               3.2               3.2                  0.0
    100 or more beds...................              39               4.0               4.1                  0.1
    Less than 100 beds.................             213              -1.8              -2.6                 -0.8
Urban teaching and DSH:
    Both teaching and DSH..............             581               2.4               2.4                  0.0
    Teaching and no DSH................              52               2.1               2.2                  0.1
    No teaching and DSH................             802               2.4               2.4                  0.0
    No teaching and no DSH.............             279               2.9               2.9                  0.0
Special Hospital Types:
    RRC................................             155               3.0               2.8                 -0.2
    RRC with Section 401                            579               3.3               3.3                  0.0
     Reclassification..................
    SCH................................             245               2.6               2.5                 -0.1
    SCH with Section 401                             34               3.1               3.1                  0.0
     Reclassification..................
    SCH and RRC........................             119               2.8               2.6                 -0.2
    SCH and RRC with Section 401                     46               2.7               2.7                  0.0
     Reclassification..................
Type of Ownership:
    Voluntary..........................           1,907               2.7               2.8                  0.1
    Proprietary........................             755               3.2               3.3                  0.1
    Government.........................             420               2.6               2.4                 -0.2
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25...............................           1,362               2.9               3.0                  0.1
    25-50..............................           1,616               2.7               2.7                  0.0
    50-65..............................              65               1.1               1.2                  0.1
    Over 65............................              16               0.0              -1.0                 -1.0
Medicaid Utilization as a Percent of
 Inpatient Days:
    0-25...............................           1,911               2.8               2.9                  0.1
    25-50..............................           1,044               2.8               2.9                  0.1
    50-65..............................              99               1.1               1.3                  0.2
    Over 65............................              29               0.8               0.9                  0.1
FY 2025 Reclassifications:
    All Reclassified Hospitals.........           1,061               3.1               3.1                  0.0
    Non-Reclassified Hospitals.........           2,022               2.5               2.5                  0.0
    Urban Hospitals Reclassified.......             902               3.1               3.1                  0.0
    Urban Nonreclassified Hospitals....           1,501               2.4               2.5                  0.1
    Rural Hospitals Reclassified Full               281               2.9               2.6                 -0.3
     Year..............................
    Rural Nonreclassified Hospitals                 399               2.1               1.8                 -0.3
     Full Year.........................
    All Section 401 Reclassified                    729               3.2               3.2                  0.0
     Hospitals:........................

[[Page 80417]]

 
    Other Reclassified Hospitals                     51               1.9               1.8                 -0.1
     (Section 1886(d)(8)(B))...........
----------------------------------------------------------------------------------------------------------------
\1\ Percent change in estimated payments from FY 2024 to FY 2025.
\2\ Calculated as (1 plus (the Column B value/100)) divided by (1 plus the (Column A value/100)), minus 1,
  multiplied by 100.

 Effects of All FY 2025 Changes--Final Rule, as Corrected 
(Column A)

    Column A shows our estimate of the change in payments per discharge 
from FY 2024 to FY 2025 resulting from all changes reflected in the FY 
2025 IPPS/LTCH PPS final rule, as corrected, including the estimated 
effects of the continuation of the low wage index hospital policy in FY 
2025. For complete details refer to the FY 2025 IPPS/LTCH PPS final 
rule (89 FR 69994 through 70002) and FY 2025 IPPS/LTCH PPS final rule 
correction.

 Effects of All FY 2025 IFC Changes (Column B)

    As in Column A, Column B also shows our estimate of the change in 
payments per discharge from FY 2024 to FY 2025 resulting from all 
changes reflected in the FY 2025 IPPS/LTCH PPS final rule, as 
corrected, except instead of including the estimated effects of the 
continuation of the low wage index hospital policy in FY 2025, it 
includes the estimated effects in FY 2025 of removing the low wage 
index hospital policy and applying the transitional exception policy.

 Overall Impact of Removing the Low Wage Index Hospital Policy 
with the Transitional Exception Policy Applied for FY 2025 (Column C)

    This column compares Column B, reflecting the removal of the low 
wage index hospital policy and the application of the transition policy 
in FY 2025, to Column A, reflecting the continuation of the low wage 
index hospital policy in FY 2025, to isolate the impact of removing the 
low wage index hospital policy and applying the transition policy. 
Specifically, it shows the changes in FY 2025 payments from the FY 2025 
final rule, as corrected, to the FY 2025 payments under this IFC. These 
changes are entirely attributable to the effects of (1) the removal of 
the low wage index hospital policy and (2) the application of the 
transitional exception policy (as described in section II.B. of this 
IFC), because those are the only policy differences between the FY 2025 
IPPS/LTCH PPS final rule as corrected, and this IFC. As noted earlier, 
other than those policy changes, this impact analysis was developed 
using the same data and methodology described in the FY 2025 IPPS/LTCH 
PPS final rule and the FY 2025 IPPS/LTCH PPS final rule correction.
    The average change in FY 2025 payments under the IPPS for all 
hospitals due to the provisions of this IFC is approximately 0.0 
percent to the nearest tenth of a percent. Although the non-budget 
neutral transition policy is estimated to increase IPPS operating 
payments by approximately $37 million, this amount represents less than 
a tenth of a percent of IPPS payments.
    As a result of the provisions of this IFC, overall 768 hospitals 
will receive a lower wage index in FY 2025 than their FY 2025 wage 
index in the FY 2025 IPPS/LTCH PPS final rule, as corrected, and 2,315 
hospitals will experience no change in their FY 2025 wage index. 
Hospitals in urban areas will experience a 0.1 percent increase in 
their FY 2025 estimated payments relative to the FY 2025 estimated 
payments in the FY 2025 IPPS/LTCH PPS final rule, as corrected. We 
estimate that 445 urban hospitals will receive a lower FY 2025 wage 
index than their FY 2025 wage index in the FY 2025 IPPS/LTCH PPS final 
rule, as corrected, while 1,947 urban hospitals will experience no 
change to their FY 2025 wage index. Hospitals in rural areas will 
experience a -0.4 percent decrease in their FY 2025 estimated payments 
relative to the FY 2025 estimated payments in the FY 2025 IPPS/LTCH PPS 
final rule, as corrected. We estimate that 323 rural hospitals will 
receive a lower FY 2025 wage index than their FY 2025 wage index in the 
FY 2025 IPPS/LTCH PPS final rule, as corrected, while 368 rural 
hospitals will experience no change to their FY 2025 wage index. We 
estimate that 113 hospitals (85 urban and 28 rural) will receive the 
transitional exception policy.
    The comparisons by region show that the change in payments for 
urban areas range from a 1.4 percent decrease for the East South 
Central urban region to a 0.2 percent increase for New England, Middle 
Atlantic, East North Central, Mountain, and Pacific urban regions. 
Meanwhile, the change in payments for rural areas range from a 1.8 
percent decrease for the East South Central rural region to increases 
of 0.2 percent for the New England and Middle Atlantic rural regions. 
IPPS payments to hospitals located in Puerto Rico are projected to 
decrease by 2.8 percent. These changes reflect the fact that different 
regions have different proportions of low wage hospitals, with the 
highest relative concentrations of low wage hospitals in Puerto Rico 
and the East South Central region. Regions that have relatively few low 
wage hospitals compared to non-low wage hospitals are projected to 
experience payment increases due to the removal of the low wage index 
hospital budget neutrality adjustment.

B. Effects of Changes on the Capital IPPS

    The approach for estimating the effect of the provisions of this 
IFC on capital IPPS payments parallels the approach taken for IPPS 
operating payments. Table II displays the results of our analysis of 
the changes for FY 2025 before and after the removal of the low wage 
index hospital policy and the application of the transition policy, and 
then uses this information to isolate the impact of the provisions of 
this IFC.
    The average change in FY 2025 capital IPPS payments per case for 
all hospitals due to the provisions of this IFC is approximately 0.1 
percent to the nearest tenth of a percent. The non-budget neutral 
transitional exception policy is estimated to increase capital IPPS 
payments by approximately $3 million. (We note that the difference in 
the average change for all hospitals between operating and capital is 
primarily due to rounding.) Capital IPPS payments per case will 
increase by an

[[Page 80418]]

estimated 0.1 percent for hospitals in urban areas compared to the FY 
2025 IPPS/LTCH PPS final rule as corrected while payments to hospitals 
in rural areas will decrease by 0.5 percent.
    The comparisons by region show that the change in capital payments 
per case for urban areas range from a 1.7 percent decrease for the East 
South Central urban region to a 0.3 percent increase for the New 
England, Middle Atlantic, and Pacific urban regions. Meanwhile, the 
change in capital payments per case for rural areas range from a 2.6 
percent decrease for the East South Central rural region to a 0.4 
percent increase for the New England, Middle Atlantic, and Pacific 
rural regions. Capital payments per case for hospitals located in 
Puerto Rico are projected to decrease by an estimated 3.6 percent. As 
with operating payments, these regional changes reflect the fact that 
different regions have different proportions of low wage hospitals, 
with the highest relative concentrations of low wage hospitals in 
Puerto Rico and the East South Central region. Regions that have 
relatively few low wage hospitals compared to non-low wage hospitals 
are projected to experience payment increases due to the removal of the 
low wage index hospital budget neutrality adjustment.

                             Table II--Comparison of Total Capital Payments per Case
----------------------------------------------------------------------------------------------------------------
                                                                                              Overall impact of
                                                                                              removing low wage
                                                            All FY 2025                         index hospital
                                            Number of     changes--final      All FY 2025      policy with the
                                            hospitals         rule as      changes--IFC (B)      transitional
                                                          corrected (A) *          *           exception policy
                                                                                             applied for FY 2025
                                                                                                    (C) **
----------------------------------------------------------------------------------------------------------------
All Hospitals..........................           3,083               2.8               2.9                  0.1
By Geographic Location:
    Urban hospitals....................           2,392               2.7               2.8                  0.1
    Rural hospitals....................             691               3.8               3.3                 -0.5
Bed Size (Urban):
    0-99 beds..........................             645               2.3               2.3                  0.0
    100-199 beds.......................             682               2.6               2.7                  0.1
    200-299 beds.......................             421               2.6               2.6                  0.1
    300-499 beds.......................             394               2.5               2.6                  0.1
    500 or more beds...................             248               2.8               2.9                  0.1
Bed Size (Rural):
    0-49 beds..........................             341               3.6               2.7                 -0.9
    50-99 beds.........................             183               3.6               3.3                 -0.3
    100-149 beds.......................              91               3.5               3.0                 -0.5
    150-199 beds.......................              44               4.2               3.1                 -1.0
    200 or more beds...................              32               4.0               3.7                 -0.3
Urban by Region:
    New England........................             106               3.9               4.2                  0.3
    Middle Atlantic....................             280               0.8               1.1                  0.3
    East North Central.................             367               5.0               5.1                  0.1
    West North Central.................             156               2.1               2.1                  0.0
    South Atlantic.....................             396               4.4               4.4                  0.0
    East South Central.................             142               5.0               3.2                 -1.7
    West South Central.................             358               3.6               3.6                  0.0
    Mountain...........................             179               2.2               2.4                  0.2
    Pacific............................             356              -0.1               0.2                  0.3
Rural by Region:
    New England........................              21               3.5               3.9                  0.4
    Middle Atlantic....................              52               5.0               5.5                  0.4
    East North Central.................             110               6.0               6.0                  0.0
    West North Central.................              78               2.4               1.9                 -0.5
    South Atlantic.....................             112               2.4               1.9                 -0.5
    East South Central.................             132               5.0               2.2                 -2.6
    West South Central.................             120               4.1               3.4                 -0.7
    Mountain...........................              42               1.7               2.1                  0.3
    Pacific............................              24              -0.4               0.0                  0.4
Puerto Rico:
    Puerto Rico Hospitals..............              52               2.1              -1.6                 -3.6
By Payment Classification:
    Urban hospitals....................           1,714               2.3               2.4                  0.1
    Rural areas........................           1,369               3.2               3.2                  0.0
Teaching Status:
    Nonteaching........................           1,833               2.6               2.6                  0.0
    Fewer than 100 residents...........             958               2.9               2.9                  0.0
    100 or more residents..............             292               2.6               2.7                  0.1
Urban DSH:
    Non-DSH............................             331               2.5               2.5                  0.0
    100 or more beds...................           1,015               2.3               2.4                  0.1
    Less than 100 beds.................             368               2.3               2.3                  0.0
Rural DSH:
    Non-DSH............................              83               3.5               3.8                  0.3
    SCH................................             243               2.9               2.7                 -0.2

[[Page 80419]]

 
    RRC................................             791               3.1               3.1                  0.0
    100 or more beds...................              39               4.3               4.3                  0.1
    Less than 100 beds.................             213               4.2               3.2                 -1.0
Urban teaching and DSH:
    Both teaching and DSH..............             581               2.2               2.3                  0.1
    Teaching and no DSH................              52               2.1               2.2                  0.1
    No teaching and DSH................             802               2.3               2.3                  0.0
    No teaching and no DSH.............             279               2.7               2.7                  0.0
Special Hospital Types:
    RRC................................             155               4.9               4.6                 -0.3
    RRC with Section 401 Rural                      579               3.0               3.1                  0.1
     Reclassification..................
    SCH................................             245               3.4               3.0                 -0.4
    SCH with Section 401 Rural                       34               2.6               2.9                  0.3
     Reclassification..................
    SCH and RRC........................             119               4.2               3.7                 -0.4
    SCH and RRC with Section 401 Rural               46               2.5               2.6                  0.1
     Reclassification..................
Type of Ownership:
    Voluntary..........................           1,907               2.7               2.8                  0.2
    Proprietary........................             755               3.2               3.2                  0.0
    Government.........................             420               2.3               2.1                 -0.2
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25...............................           1,362               2.7               2.7                  0.0
    25-50..............................           1,616               2.8               2.9                  0.1
    50-65..............................              65               1.2               1.3                  0.1
    Over 65............................              16               0.8              -0.7                 -1.5
Medicaid Utilization as a Percent of
 Inpatient Days:
    0-25...............................           1,911               2.9               3.0                  0.1
    25-50..............................           1,044               2.6               2.6                  0.0
    50-65..............................              99               0.9               1.1                  0.3
    Over 65............................              29               0.4               0.5                  0.1
FY 2025 Reclassifications:
    All Reclassified Hospitals.........           1,061               3.1               3.1                  0.0
    Non-Reclassified Hospitals.........           2,022               2.4               2.5                  0.1
    Urban Hospitals Reclassified.......             902               3.0               3.1                  0.1
    Urban Non-Reclassified Hospitals...           1,501               2.3               2.3                  0.1
    Rural Hospitals Reclassified Full               281               4.1               3.6                 -0.5
     Year..............................
    Rural Non-Reclassified Hospitals                399               3.3               2.6                 -0.6
     Full Year.........................
    All Section 401 Rural Reclassified              729               3.0               3.1                  0.1
     Hospitals.........................
    Other Reclassified Hospitals                     51               4.2               4.2                  0.0
     (Section 1886(d)(8)(B))...........
----------------------------------------------------------------------------------------------------------------
* Percent change in estimated payments from FY 2024 to FY 2025.
** Calculated as (1 plus (the Column B value/100)) divided by (1 plus the (Column A value/100)), minus 1,
  multiplied by 100.

C. Overall Conclusion

    Acute care hospitals are estimated to experience an increase of 
approximately $41 million in FY 2025 due to the provisions of this IFC. 
This change is primarily due to the application of the non-budget 
neutral transitional payment exception policy. The estimated change in 
operating payments is approximately $37 million (discussed in section 
VI.A. of this IFC). The estimated change in capital payments is 
approximately $3 million (discussed in section VI.B. of this IFC). The 
total differs from the sum of the components due to rounding.
    Table I of section VI.A. of this IFC and Table II of section VI.B. 
of this IFC demonstrate the estimated redistributional impacts of the 
provisions of this IFC. Discussions presented in the previous pages, in 
combination with the remainder of this IFC, constitute the regulatory 
impact analysis.

D. Accounting Statement and Table

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), in Table V. of this IFC, we have prepared an 
accounting statement showing the classification of the expenditures 
associated with the provisions of this IFC as they relate to acute care 
hospitals. This table provides our best estimate of the change in 
Medicare payments to providers as a result of the changes to the IPPS 
presented in this IFC relative to the FY 2025 IPPS/LTCH PPS final rule 
as corrected in the FY 2025 IPPS/LTCH PPS final rule correction. All 
expenditures are classified as transfers to Medicare providers.
    As shown in Table V., the net costs to the Federal Government 
associated with the policies in this IFC are estimated at $41 million.

[[Page 80420]]



 Table V--Accounting Statement: Classification of Estimated Expenditures
                             Under the IPPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $41 million.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
------------------------------------------------------------------------

E. Regulatory Flexibility Act (RFA) Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small government 
jurisdictions. We estimate that most hospitals and most other providers 
and suppliers are small entities as that term is used in the RFA. The 
great majority of hospitals and most other health care providers and 
suppliers are small entities, either by being nonprofit organizations 
or by meeting the SBA definition of a small business (having revenues 
of less than $8.0 million to $41.5 million in any 1 year). (For details 
on the latest standards for health care providers, we refer readers to 
page 38 of the Table of Small Business Size Standards for NAIC 622 
found on the SBA website at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.)
    For purposes of the RFA, all hospitals and other providers and 
suppliers are considered to be small entities. Because all hospitals 
are considered to be small entities for purposes of the RFA, the 
hospital impacts described in this IFC are impacts on small entities. 
Individuals and States are not included in the definition of a small 
entity. MACs are not considered to be small entities because they do 
not meet the SBA definition of a small business. HHS's practice in 
interpreting the RFA is to consider effects economically 
``significant'' if greater than 5 percent of providers reach a 
threshold of 3 to 5 percent or more of total revenue or total costs. 
Although less than 5 percent of providers are estimated to reach a 
threshold of 3 to 5 percent of total revenue or total costs, the 
provisions of this IFC relating to IPPS hospitals would have an 
economically significant impact on many small entities as explained in 
this IFC. For example, as discussed in section VI.A. of this IFC, we 
estimate 113 hospitals will receive the transitional exception policy 
due to being significantly impacted by the removal of the low wage 
index hospital policy.
    This IFC provides descriptions of the provisions that are 
addressed, identifies the finalized policies, and presents rationales 
for our decisions. The analyses discussed in this IFC constitutes our 
regulatory flexibility analysis. We solicit public comments on our 
estimates and analysis of the impact of our policies on small entities.

F. Impact on Small Rural Hospitals

    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis for any proposed or final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 603 of the RFA. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we define a small rural hospital as a hospital that is located 
outside of an urban area and has fewer than 100 beds. Section 601(g) of 
the Social Security Amendments of 1983 (Pub. L. 98-21) designated 
hospitals in certain New England counties as belonging to the adjacent 
urban area. Thus, for purposes of the IPPS, we continue to classify 
these hospitals as urban hospitals.
    As shown in Table I. in section VI.A. of this IFC, rural IPPS 
hospitals with 0-49 beds (341 hospitals) are expected to experience a 
decrease in payments of -0.4 percent, and rural IPPS hospitals with 50-
99 beds (182 hospitals) are expected to experience a decrease in 
payments of -0.1 percent relative to the FY 2025 IPPS/LTCH PPS final 
rule as corrected by the FY 2025 IPPS/LTCH PPS final rule correction. 
These changes are due to the removal of the low wage index hospital 
policy in conjunction with the application of the transition policy. We 
refer readers to Table I. in section VI.A. of this IFC for additional 
information on the quantitative effects of the policy changes under the 
IPPS for operating costs.

G. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in any 
1 year of $100 million in 1995 dollars, updated annually for inflation. 
In 2024, that threshold level is approximately $183 million. This IFC 
would not mandate any requirements that meet the threshold for State, 
local, or tribal governments, nor would it affect private sector costs.

H. Executive Order 13132

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a rule that imposes substantial 
direct requirement costs on state and local governments, preempts state 
law, or otherwise has federalism implications. This IFC would not have 
a substantial direct effect on state or local governments, preempt 
states, or otherwise have a federalism implication.

I. Executive Order 13175

    Executive Order 13175 directs agencies to consult with Tribal 
officials prior to the formal promulgation of regulations having tribal 
implications. Section 1880(a) of the Act states that a hospital of the 
Indian Health Service, whether operated by such Service or by an Indian 
tribe or tribal organization, is eligible for Medicare payments so long 
as it meets all of the conditions and requirements for such payments 
which are applicable generally to hospitals. Consistent with section 
1880(a) of the Act, this IFC contains general provisions also 
applicable to hospitals and facilities operated by the Indian Health 
Service or Tribes or Tribal organizations under the Indian Self-
Determination and Education Assistance Act. We continue to engage in 
consultations with Tribal officials on IPPS issues of interest. We use 
input received from these consultations, as well as the comments on 
this IFC, to inform our rulemaking.

J. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, this 
IFC was reviewed by the Office of Management and Budget.

[[Page 80421]]

VII. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.
    Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on September 26, 2024

Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2024-22765 Filed 9-30-24; 4:15 pm]
BILLING CODE 4120-01-P