News & Analysis

What the 2023 IPPS Tells Us About CMS Priorities

Portrait of Dawn Carter

Dawn Carter

A red "priority" stamp illustrates CMS priorities found in the 2023 IPPS

Last week, CMS released its final rule for the Hospital Inpatient Prospective Payment System (IPPS), and a larger-than-expected boost in operating payments got much of the attention from healthcare journalists and membership associations like the AHA.

But beyond the immediate (and somewhat deceiving*) headline that reimbursement will increase by $2.6 billion, we at Ascendient were struck by some "big picture" elements of the 2023 IPPS. As healthcare strategy consultants, we try to anticipate important changes in the 3- to 5-year timeframe, and the following trends caught our eye:

More emphasis on stratified data. We know that healthcare outcomes can differ significantly depending on a patient’s race, sexual orientation, disability status, and other factors. However, much of that difference gets masked by aggregated data, and CMS is working to change that.

Socioeconomic status, as determined by dual eligibility, has long been the first step in disaggregating data, but CMS wants to see much greater stratification. “Financial risk is only one metric of social risk, and stratification of quality measures by additional social risk factors and demographics (such as race, ethnicity, language, religion, sexual orientation, and gender identity) or disability, is important to provide more granular information for healthcare providers to act upon” (p. 1119).

How far might stratification eventually go? While CMS explicitly states that social risk factors go well beyond race and ethnicity, the 2023 IPPS does single out the “more than 900 concepts for race and ethnicity” found in the CDC code system, “which gives patients very specific options for self-identifying their demographic information” (p. 1122).

The upshot: Hospitals will be expected to know and report much more about the patients they admit. Eventually, the stratified data will be mapped to health outcomes for payment purposes.

More urgency around non-clinical measures. Ever since CC severity measures were introduced in 2007, Medicare has tried to fairly compensate hospitals for treating patients with medical complications and comorbidities. Today there are thousands of these CC/MCC codes, but none of them account for social drivers of health (SDOH) – yet.

CMS wants to advance standardized reporting for a patient’s SDOH, using 96 “Z codes” that attempt to capture non-clinical risk factors such as housing, nutrition, education, employment, transportation, and more. Beyond reporting, CMS is signaling its intent to move some of the Z codes (starting with homelessness) to CC or MCC severity status, in order to “reflect what additional resources were expended by the hospital to address these SDOH circumstances” (p. 224).

Notably, Z codes may also be required for the CHNA process.

The upshot: Hospitals could eventually see higher reimbursement for patients whose medical conditions are complicated by social conditions – but the data needed to get to that point will be complicated and costly.

Broader definitions of quality. Beyond mortality, readmissions, and other measures that “focus on outcomes of care,” CMS is signaling that it wants to find new yardsticks for judging the quality of healthcare. “To complement stratification of measures focused on clinical outcomes, quality programs may consider prioritizing measures with a focus on access to or the appropriateness of care” (p. 1117, emphasis added).

While access and appropriateness are currently hard to quantify, “as our ability to measure these facets of healthcare improves, we expect that they will be high priority for measure stratification.”

The upshot: Some 3,000 acute care hospitals participate in the Inpatient Quality Reporting (IQR) program, so expanding the definition of “quality” allows CMS to require entirely new types of data – something we’re already seeing in the 2023 IPPS.

So, what comes next? All of these changes are tied in some way to health equity, a topic that gets unprecedented attention in the 2023 IPPS rule. We believe the trends above will affect all healthcare providers in the mid- to long term, but some changes – including new, mandatory reporting – will begin next year.

For more on this topic, please see our new Higher Thinking report, featuring an in-depth analysis of health equity trends for the 2023 to 2025 timeframe. In our opinion, it’s a topic no healthcare leader can afford to ignore.


*We would argue that the $2.6 billion figure is deceiving because CMS notes on p. 23 of the final rule that payment increases are offset by a combined $1 billion in decreases across multiple areas, including capital payments and new technology add-on payments.