New Mandatory Model to Improve Health Outcomes Post-Surgery and Advance Climate Resiliency

Today, the U.S. Department of Health and Human Services, the Centers for Medicare & Medicaid Services (CMS) issued a final rule updating Medicare payments and policies for inpatient hospitals and long-term care hospitals. The rule improves the health of people with Medicare by addressing key social determinants of health and strengthening emergency preparedness. The fiscal year (FY) 2025 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) rule builds on the Biden-Harris Administration’s work to support the health of historically underserved and under-resourced communities and promote value-based care.

Rate Increases

The increase in operating payment rates for certain acute care hospitals in FY 2025 is projected to be 2.9%. This applies to acute care hospitals that 1) receive CMS payments under the IPPS, 2) successfully participate in the Hospital Inpatient Quality Reporting program, and 3) are “meaningful” users of electronic health records. This reflects the FY 2025 projected Hospital Market Basket percentage increase of 3.4%, reduced by a projected 0.5 percentage point Productivity Adjustment for FY 2025. CMS expects this increase in operating and capital IPPS payment rates, in addition to other changes, will increase hospital payments by an estimated $2.9 billion.

For LTCHs, CMS will increase the LTCH PPS standard Federal payment rate by 3.0%. CMS expects LTCH payments to increase by 2.0%, or $45 million, primarily due to the update to the rate partially offset by a projected decrease in high-cost outlier payments in FY 2025 compared to FY 2024.

“HHS continues to make health care more accessible and equitable. Every American should be able to get the care they need, regardless of whether they are struggling to afford their rent, the color of their skin, or what else is going on in the world,” said HHS Secretary Xavier Becerra. “The Biden-Harris Administration is acting to ensure hospitals have the prescription drugs and supplies they need. In addition, we are taking further steps to help people get innovative care that meets their needs and uses taxpayer dollars wisely.”

“CMS is taking action to create a health care system that is more equitable and resilient and to ensure that all individuals have access to the highest and safest quality of care,” said CMS Administrator Chiquita Brooks-LaSure. “The fiscal year 2025 inpatient hospital payment rule will ensure that hospitals in historically underserved areas will be able to provide high-quality care to people with Medicare and their communities while being rewarded for better outcomes.”

Resources for Underserved Patients and Communities

In the FY 2024 IPPS final rule, CMS finalized a policy change to recognize the higher costs that hospitals incur when they provide hospital services for individuals experiencing homelessness. Building on this policy and the Biden-Harris Administration’s initiative to address unsheltered homelessness, CMS is taking an additional step to better account for the resources involved in furnishing care to individuals experiencing housing insecurity, meaning that hospitals will generally receive higher payments when a patient is experiencing housing insecurity. CMS is also adding new social determinants of health data elements into LTCH quality reporting, requiring LTCHs to report elements on housing, food and utility stability, and access to transportation, which are factors that influence the resources required for their care.

CMS is also promoting access to treatments that could help support rural and underserved communities. The increased new technology add-on payments finalized in this rule will help improve access to new gene therapy for sickle cell disease. In addition, CMS is finalizing a separate payment to small independent hospitals, including many rural hospitals, for establishing and maintaining access to a buffer stock of essential medicines, which will help to mitigate drug shortages and improve the care hospitals can provide to their patients.

“Hospitals are a critical part of the diverse communities they serve,” said Meena Seshamani, MD, PhD, CMS Deputy Administrator and Director of the Center for Medicare. “CMS recognizes the cost of unmet social needs hospitals face, as well as the need to advance access to innovative and essential treatments and expand the behavioral health workforce. Our payments to hospitals further recognize this and ultimately help provide hospitals the vital tools they need to better serve all communities.”

Finally, CMS’ graduate medical education program enhances the health care workforce and funds additional positions in hospitals nationwide, many serving underserved communities. To further improve access to behavioral health services and consistent with CMS’ overarching behavioral health strategy, the rule implements section 4122 of the Consolidated Appropriations Act, 2023, which provides Medicare funding for 200 new graduate medical education slots starting in 2026, of which at least half must be distributed for a psychiatry or psychiatry subspecialty residencies.

Focusing on Patient Safety

CMS is finalizing several new hospital quality initiatives, including digital measures for patient harm events, expansion of healthcare-associated infection measures to oncology wards, and structural measures to support safety and age-friendly care. The new attestation-based structural measures assess whether hospitals demonstrate a structure, culture, and leadership commitment that prioritizes and implements best practices for patient safety and age-friendly care.

Strengthening Emergency Preparedness

Building on lessons learned from the COVID-19 pandemic, CMS is finalizing a permanent streamlined data reporting structure for COVID-19, influenza, and respiratory syncytial virus (RSV), with additional reporting requirements that could be activated in the event of a declared public health emergency. This reporting will help ensure that hospitals and the health care system have the appropriate insights related to evolving infection control needs.

Testing Innovative Methods to Deliver Better Care at a Lower Cost

As part of this rule, CMS is finalizing a 5-year mandatory CMS Innovation Center model, beginning in January 2026, to test whether episode-based payments for five common, costly procedures performed at participating acute care hospitals would reduce Medicare expenditures while preserving or enhancing the quality of care. Building on lessons learned from previous models such as the Comprehensive Care for Joint Replacement Model, the mandatory Transforming Episode Accountability Model (TEAM) aims to incentivize improved coordination between health care providers during surgery, as well as the services provided during the 30 days that follow. This model will complement other CMS value-based care initiatives by promoting collaboration with accountable care organizations and will require referrals to primary care services to support continuity of care and drive positive long-term health outcomes.

“Before and after surgery, people on Medicare often experience fragmented care, especially following hospital discharge. This can lead to complications, prolonged recovery, unnecessary care, and even readmissions,” said Liz Fowler, CMS Deputy Administrator and Director of the CMS Innovation Center. “By bundling all the costs of care for an episode, this model is designed to incentivize care coordination, improve patient care transitions and outcomes, and decrease the risk of an avoidable readmission.”

TEAM will also support CMS and HHS efforts to improve quality of care by aiming to bolster the health system’s climate resilience and sustainability. Participants may choose to collect and voluntarily share greenhouse gas emissions data with CMS, and CMS will provide technical assistance to them to enhance climate sustainability for their organizations. Through TEAM, CMS will provide information to assist participating hospitals in addressing threats to the health of individuals and the health care system presented by climate change.

The FY 2025 IPPS and LTCH PPS final rule can be downloaded from the Federal Register at: https://www.federalregister.gov/public-inspection/current

For a fact sheet on the IPPS/LTCH PPS final payment rule, visit: https://www.cms.gov/newsroom/fact-sheets/fy-2025-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-hospital-prospective-0.

For a fact sheet on TEAM, visit: https://www.cms.gov/files/document/team-model-fs.pdf.

For frequently asked questions on TEAM, visit: https://www.cms.gov/team-model-frequently-asked-questions.