Fact Sheets

Fiscal Year 2025 Medicare Inpatient Psychiatric Facilities Prospective Payment System (IPF PPS) and Quality Reporting (IPFQR) Updates Proposed Rule (CMS-1806-P)

On March 28, 2024, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to update Medicare payment policies and rates for the Inpatient Psychiatric Facilities Prospective Payment System (IPF PPS) for fiscal year (FY) 2025. CMS is publishing this proposed rule consistent with the legal requirements to update Medicare payment policies for IPFs on an annual basis. 

Changes included in this proposed rule would support the provision of high-quality behavioral health treatment in inpatient psychiatric facilities, consistent with the Biden Administration’s Unity Agenda and focus on addressing the mental health crisis. This fact sheet discusses the major provisions of the proposed rule, including proposed annual updates to the prospective payment rates, the outlier threshold, the wage index, and associated impact analysis. In addition, the rule includes a proposal to revise patient-level adjustment factors, as well as a proposal to increase the per-treatment amount for Electroconvulsive Therapy (ECT). Additionally, the rule proposes to update the wage index using the Core‑Based Statistical Area (CBSA) Labor Market Areas defined in the Office of Management and Budget (OMB) Bulletin 23-01. CMS believes these policies will improve or maintain individual access to high-quality care by ensuring that payment rates reflect the best available data on the resources involved in inpatient psychiatric care and the costs of these resources. CMS is proposing a three-year budget-neutral phase-out of the rural adjustment for IPFs located in the 54 rural counties that will become urban under the new OMB delineations. We will also provide a 5% cap on any decrease to the provider’s wage index from its wage index in the prior year, as finalized in previous rulemaking. 

In addition, this rule includes a clarification of the eligibility criteria for the option to elect to file an all-inclusive cost report. CMS will issue revised cost reporting guidance and make operational changes to improve the quality of ancillary charge data on IPF claims by enforcing these eligibility criteria, resulting in the appropriate collection of more cost data from IPFs that have been erroneously filing an “all-inclusive” rate cost report. For cost reporting periods beginning on or after October 1, 2024, only government-owned and tribally owned IPFs will be permitted to file an “all-inclusive” rate cost report.  CMS believes these operational changes will support its ongoing efforts to analyze variation in costs between patients with different characteristics and will increase the accuracy of future payment refinements to the IPF PPS while also aligning with the President’s Executive Order on Promoting Competition in the American Economy.[1]

This proposed rule also includes two requests for information on future revisions to the IPF PPS facility-level adjustment factors and development of the new standardized IPF Patient Assessment Instrument (IPF-PAI), required by the Consolidated Appropriations Act, 2023 (CAA, 2023), which IPFs participating in the IPF Quality Reporting (IPFQR) Program will be required to report for Rate Year 2028.

For the IPFQR Program, CMS proposes adopting the 30-Day Risk-Standardized All-Cause Emergency Department Visit Following an Inpatient Psychiatric Facility Discharge measure and to require IPFs to submit data on a quarterly basis for patient-level measures.

This fact sheet discusses the provisions of the proposed rule. The FY 2025 Inpatient Psychiatric Facilities Prospective Payment System proposed rule (CMS-1806-P) can be downloaded from the Federal Register at https://www.federalregister.gov/public-inspection/2024-06764/medicare-program-fy-2025-inpatient-psychiatric-facilities-prospective-payment-system---rate-update

Proposed Changes to Payments Under the IPF PPS 

Proposed Updates to IPF Payment Rates

For FY 2025, CMS is proposing to update the IPF PPS payment rates by 2.7%, based on the proposed 2021-based IPF market basket increase of 3.1% less a proposed 0.4 percentage point productivity adjustment. CMS is proposing that if more recent data becomes available (for example, a more recent estimate of the market basket update or productivity adjustment), CMS would use this data, if appropriate, to determine the FY 2025 market basket update percentage increase and the productivity adjustment in the final rule. Additionally, CMS proposes to update the outlier threshold so that estimated outlier payments remain at 2.0% of total payments. CMS estimates that this would result in a 0.1% decrease in aggregate payments due to updating the outlier threshold. Total estimated payments to IPFs are estimated to increase by 2.6%, or $70 million, in FY 2025 relative to IPF payments in FY 2024.

Proposed Revisions to IPF PPS Patient-Level Adjustment Factors

CMS is proposing revisions to the methodology for determining the payment rates under the IPF PPS for psychiatric hospitals and psychiatric units based on a review of the data and information collected in prior years in accordance with section 1886(s)(5)(A) of the Social Security Act, as added by the Consolidated Appropriations Act, 2023. CMS is proposing revisions to the IPF patient-level adjustment factors. The patient-level adjustments include Medicare Severity Diagnosis Related Groups (MS–DRGs) assignment of the patient’s principal diagnosis, selected comorbidities, patient age, and the variable per diem adjustments.

The IPF PPS uses the patient and facility-level adjustment factors derived from the regression model implemented in 2005. In this proposed rule, we have updated the regression model used to determine IPF PPS payment adjustments to reflect costs and claims data for 2019, 2020, and 2021. Based on our analysis of the more recent claims and costs data, as well as public comments received in the FY 2022 and FY 2023 IPF PPS rules, we are proposing to change the patient-level adjustments for which we adjust payment. We are proposing to implement these revisions in a budget-neutral manner (that is, estimated payments to IPFs for FY 2025 would be the same with or without the proposed revisions). 

Proposed Increase to the Electroconvulsive Therapy Payment per Treatment

In addition, analysis of the latest IPF PPS claims and cost data found that ancillary costs for stays that include electroconvulsive therapy (ECT) treatments have increased since 2005 by a greater amount than the current ECT per treatment payment under the IPF PPS. Therefore, we are proposing to increase the IPF PPS ECT per treatment amount. The current (FY 2024) ECT payment per treatment is $385.58, and the proposed FY 2025 ECT payment per treatment is $660.30. We believe this increase would help ensure that the patients who need ECT are more able to access it. 

FY 2025 Wage Index Update for Revised Census Data 

IPF regulations require CMS to use the best Medicare data available to estimate the average inpatient operating and capital-related costs per day, including an appropriate wage index to adjust for wage differences. We update the wage index annually based on the most recent available acute care hospital wage index, without any floors or reclassifications applicable under the Medicare Inpatient Prospective Payment System. Historically, we have also updated the Core‑Based Statistical Area (CBSA) delineations in accordance with the latest available Office of Management and Budget (OMB) Bulletin. For FY 2025, we are proposing to adopt the CBSA Labor Market Areas for the IPF PPS wage index as defined in the OMB Bulletin 23-01. We are also proposing that providers transitioning from rural to urban based on these CBSA revisions would receive two-thirds of the rural adjustment in FY 2025, one-third of the rural adjustment in FY 2026, and no rural adjustment in FY 2027. This proposed approach is consistent with how we implemented this policy in previous years.   

Clarification of Requirements for Reporting Ancillary Charges and All-Inclusive Status Eligibility Under the IPF PPS

The Consolidated Appropriations Act, 2023 (CAA, 2023) requires the collection of data and information, such as charges related to ancillary services, to revise the IPF PPS. Currently, CMS expects IPFs with a charge structure to report ancillary costs and charges on cost reports, while IPFs without this cost structure have the option to use an alternative method of cost reporting by filing all-inclusive cost reports. All-inclusive cost reporting accommodates these hospitals’ inability to allocate costs to charges and allows them to use an alternative cost allocation method. Historically, there have been a small number of hospitals that file all-inclusive cost reports, which consistently do not include or have very minimal ancillary cost data. These have mostly included Indian Health Service (IHS) hospitals and government-owned psychiatric and acute care hospitals. However, CMS has observed a notable increase in the number of IPFs erroneously filing all-inclusive cost reports.  

CMS is clarifying the eligibility criteria for the option to elect to file an all-inclusive cost report and will make operational changes to ensure that only government-owned or tribally owned IPF hospitals are permitted to file an all-inclusive cost report for cost reporting periods beginning on or after October 1, 2024. By improving the reporting of ancillary costs and charges, CMS would be able to increase accuracy of future payment refinements to the IPF PPS, which would further advance behavioral health treatment and support IPFs that provide care to beneficiaries with more complex and costlier conditions. 

Request for Information (RFI) about IPF PPS Patient Assessment Instrument Required by the Consolidated Appropriations Act, 2023 (CAA, 2023) 

The CAA, 2023, requires IPFs to collect and submit standardized patient assessment data on specified categories. This data will enable CMS to propose future revisions to the IPF PPS that would more accurately pay for care, monitor quality, and assess for disparities in behavioral health care. Therefore, CMS is including an RFI to solicit comments with the goal of engaging the public to identify meaningful data elements for collection that are appropriate for the acute inpatient psychiatric care setting and potential criteria for the development and implementation of the instrument. In addition, we are seeking to understand the burden on IPFs that this additional data collection would impose and soliciting comment on ways we might minimize this burden by evaluating whether any data that is currently collected through one or more existing assessment instruments in other settings, or collected as part of IPFs’ existing processes, could be collected as standardized patient assessment data elements for the IPF-PAI.

Request for Information (RFI) about IPF PPS Facility-Level Adjustment Factors

The CAA, 2023, requires CMS to revise the IPF PPS methodology for determining payment rates for FY 2025 and subsequent years. CMS is seeking input on potential revisions to the IPF PPS facility-level adjustments in the future based on the results of more recent IPF cost and claim analysis. An analysis of 2019 through 2021 IPF claims and costs data identified potential changes in the regression factors for IPFs with a rural location and teaching status and suggested there may be value in including a new facility-level variable for safety net patient population. We also analyzed a potential adjustment based on the Medicare Safety Net Index (MSNI), developed by MedPAC as a recommended alternative to the current statutorily required methodology for disproportionate share payments to IPPS hospitals. In this proposed rule, we discuss considerations related to applicability and modeling that demonstrate the effect of revising the rural and teaching status adjustment factors, as well as the inclusion of a new facility-level variable for safety net patient populations. In future rulemaking, updating these facility-level adjustment factors could more accurately pay for care, support psychiatry residency training, and support IPFs in rural and underserved areas. We welcome feedback on this RFI. 

Proposed Updates to the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

The IPFQR Program requires that all IPFs paid under the IPF PPS submit certain specified quality data to CMS in a form and manner and within the timeframes that CMS prescribes. IPFs that do not submit the specified data on quality measures as required by the IPFQR Program receive a 2.0 percentage point reduction to their annual payment update. The IPFQR Program aims to assess and foster improvement in the quality of care provided to patients in IPFs. By requiring IPFs to submit quality data to CMS and by CMS publicly reporting these data under the IPFQR Program, CMS ensures that patients are able to make more informed decisions about their healthcare options.

In this proposed rule, CMS is proposing to adopt one new measure, the 30-Day Risk-Standardized All-Cause Emergency Department Visit Following an Inpatient Psychiatric Facility Discharge measure (also referred to as the IPF ED Visit measure). This claims-based measure would assess the proportion of patients 18 and older with an emergency department visit, including observation stays, within 30 days of discharge from an IPF without subsequent admission. Patients who are subsequently admitted to an acute care hospital or IPF are represented under the Thirty-Day All-Cause Unplanned Readmission Following Psychiatric Hospitalization in an Inpatient Psychiatric Facility measure, which is already in the IPFQR Program. By adopting the IPF ED Visit measure, the IPFQR Program would provide a more complete assessment of post-discharge acute care and encourage improvements in discharge planning and care coordination. 

Additionally, CMS is proposing to require IPFs to submit patient-level quality data on a quarterly basis (as opposed to the current annual basis). This would align the IPFQR Program with other quality reporting programs that require patient-level data submission on a quarterly basis and would reduce data strains on IPF systems.

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