Hospitals to receive a proposed 3.2% payment increase in 2023

By Susan Morse for Healthcare Finance

General acute care hospitals are projected to get a 3.2% increase in operating payment rates under the Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System proposed rule released Monday by the Centers for Medicare and Medicaid Services.

CMS estimates that payments to hospitals will increase in 2023 by $1.6 billion. The proposed increase applies to acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting Program and are meaningful electronic health record users.

The 3.2% increase reflects a market basket update of 3.1% reduced by a projected 0.4 percentage point productivity adjustment and an increase of 0.5% required by statute. In addition, CMS projects Medicare disproportionate share hospital payments and Medicare uncompensated care payments combined will decrease by approximately $0.8 billion.

Under current law, additional payments for Medicare Dependent Hospitals and the temporary change in payments for low‑volume hospitals are set to expire in 2023. In the past, these payments have been extended by legislation, but if they do expire CMS estimates that payments to these hospitals would decrease by $0.6 billion.

Long-term care hospitals’ payments are projected to increase by about $25 million. Payments are expected to increase by approximately 0.7% due primarily to the annual standard federal rate update for 2023 of 2.7% and a projected decrease in high cost outlier payments.


CMS pays acute care hospitals and long-term care hospitals under two payment systems, setting rates based on the patient’s diagnoses and any services performed. Subject to certain adjustments, a hospital receives a single payment for the case based on the payment classification assigned at discharge.

The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services, as well as for other factors, in what is known as the hospital “market basket.”

But hospitals may be subject to other payment adjustments under the IPPS, including:

  • Payment reductions for excess readmissions under the Hospital Readmissions Reduction Program.
  • A payment reduction of 1% for the worst-performing quartile under the Hospital-Acquired Condition Reduction Program.
  • Upward and downward adjustments under the Hospital Value-Based Purchasing Program.

In addition, CMS is providing estimated and newly-established performance standards for the Hospital Value-Based Purchasing Program and proposing updated policies for the Hospital Readmissions Reduction Program, Hospital Inpatient Quality Reporting Program and the Hospital-Acquired Condition Reduction Program, among others.

The Hospital VBP Program is a budget-neutral program funded by reducing participating hospitals’ base operating diagnosis-related group payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments.

Due to the impact of the COVID-19 public health emergency on measure data, CMS is proposing to suppress several measures in the Hospital Value-Based Purchasing Program and Hospital-Acquired Condition Reduction Programs and to implement a special scoring methodology for the Hospital VBP Program that results in each hospital receiving a value-based incentive payment amount that matches their 2% reduction to the base operating diagnosis-related group payment amount.

In addition, in this proposed rule, CMS is proposing to suppress the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) and five Hospital Acquired Infection measures for the 2023 program year. Similarly, CMS is proposing to suppress all six measures in the Hospital-Acquired Condition Reduction Program for the 2023 program year. If finalized, hospitals would not be given a measure score, a Total HAC score, or receive a payment penalty.

CMS distributes a prospectively determined amount of uncompensated care payments to Medicare disproportionate share hospitals based on their relative share of uncompensated care nationally. As required under law, this amount is equal to an estimate of 75% of what otherwise would have been paid as Medicare DSH payments, adjusted for the change in the rate of uninsured individuals.

In this proposed rule, CMS is proposing to distribute roughly $6.5 billion in uncompensated care payments for FY 2023, a decrease of approximately $654 million from FY 2022. This total uncompensated care payment amount reflects CMS Office of the Actuary’s projections that incorporate the estimated impact of the COVID-19 pandemic.

In response to concerns that the use of only one year of data would lead to significant variations in year-to-year uncompensated care payments, for 2023, CMS is proposing to use the two most recent years of audited data on uncompensated care costs from 2018 and 2019.

For more on proposed changes in the IPPS rule, see the CMS fact sheet.


In 2011, CMS established the Medicare and Medicaid EHR Incentive Programs – now known as the Promoting Interoperability Programs – to encourage the adoption, implementation, any upgrades and demonstrated meaningful use of certified EHR technology. In the proposed rule, CMS wants to establish new requirements and revise existing requirements in the Medicare Promoting Interoperability Program.

CMS specifically proposes to make mandatory and expand the Electronic Prescribing Objective’s Query of Prescription Drug Monitoring Program measure, to add a new Enabling Exchange under the Trusted Exchange Framework and Common Agreement measure under the Health Information Exchange Objective as a yes/no attestation measure as an optional alternative to the three existing measures, and to add a new Antimicrobial Use and Resistance Surveillance measure and require its reporting under the Public Health and Clinical Data Exchange Objective, among other measures.

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