Understanding Medicare Payment Systems: A Critical Care Management Tool for Home Health

This educational resource explains the intricacies of Medicare payment systems, highlighting their role as critical care management tools, particularly within the home health sector. It details how each service type’s payment system operates under Medicare guidelines, providing essential information for healthcare providers and administrators.

Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Updates to IPPS

Significant changes to the Inpatient Prospective Payment System include:

• The hospital market basket increase for Fiscal Year 2025 has been updated, reflecting current economic factors impacting hospital costs.
• The number of Medicare Severity Diagnosis-Related Groups (MS-DRGs) has been revised for FY 2025 to better categorize and reflect the complexity of inpatient cases.
• New provisions for low-volume hospitals have been added, acknowledging the unique financial challenges faced by these institutions.

Substantive content changes are indicated in dark red for emphasis.

Hospitals that contract with Medicare for acute inpatient care agree to accept predetermined IPPS rates as complete payment for services. This system covers 90 days of care per illness episode, including a 60-day lifetime reserve. An episode begins upon hospital admission and concludes after a 60-day period outside of a hospital or skilled nursing facility (SNF).

The Centers for Medicare & Medicaid Services (CMS) regularly updates IPPS payment rates, adjusting base rates, wage indexes, MS-DRG classifications, and outlier thresholds. Annual updates to base rates are based on market basket indexes and productivity changes.

For FY 2025, operating payment rates for acute care hospitals under IPPS will increase by 2.9% for those participating in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users. This accounts for a 3.4% projected hospital market basket update, reduced by a 0.5 percentage point productivity adjustment.

Congress determines the operating rate update based on the projected hospital market basket index, which tracks price changes for goods and services hospitals use for patient care.

Medicare reimburses acute care hospitals per inpatient case or discharge under IPPS. Hospitals, or entities they wholly own, must include all outpatient diagnostic services and admission-related outpatient non-diagnostic services within three days prior to inpatient admission on the inpatient claim. Separate billing for these services under Medicare Part B is not permitted.

Section 1886(d)(1)(B) of the Social Security Act lists hospital types excluded from IPPS, including:

• Cancer hospitals
• Children’s hospitals
• Extended neoplastic disease care hospitals
• Hospitals outside the U.S., District of Columbia, and Puerto Rico (e.g., U.S. Virgin Islands, Guam)
• Inpatient psychiatric facilities (IPFs)
• Inpatient rehabilitation facilities (IRFs)
• Long-term care hospitals (LTCHs)
• Religious nonmedical health care institutions (RNHCIs)

Medicare Severity Diagnosis-Related Groups (MS-DRGs)

Patient discharges are categorized into MS-DRGs to reflect illness severity, service complexity, and resource use. MS-DRGs are groups of clinically similar conditions requiring similar resource intensity.

MS-DRG assignment depends on the principal diagnosis, secondary diagnoses, procedures, patient demographics, and discharge status. Up to 25 diagnosis and 25 procedure codes are considered for MS-DRG assignment. MS-DRG definitions are reviewed annually for clinical similarity and resource use consistency.

Cases within an MS-DRG that show significant resource use variations may be reassigned or new MS-DRGs created.

Severity levels within MS-DRGs, based on secondary diagnosis codes, are:

1. Major Complication or Comorbidity (MCC) — highest severity, greatest resource impact.
2. Complication or Comorbidity (CC) — moderate severity, significant resource impact.
3. Non-Complication or Comorbidity (Non-CC) — lowest severity, minimal resource impact.

MS-DRGs can be split into severity levels based on CC subgroups. Base MS-DRGs are not subdivided. For FY 2025, there are 773 MS-DRGs.

Base Payment Amounts

Standardized payment amounts are set for operating and capital IPPS base rates. Operating costs cover labor and supplies, while capital costs include depreciation and property expenses.

These rates are adjusted annually for:

• Clinical condition and treatment costs compared to average Medicare cases (MS-DRG relative weight).
• Market conditions in the hospital’s location compared to national averages (wage index).

Additional IPPS Hospital Payments

• Outlier Payments: Extremely high-cost cases may qualify for outlier payments.
• Graduate Medical Education (GME): Separate payments for direct GME costs and adjustments to IPPS rates for indirect medical education (IME) costs in teaching hospitals.
• Disproportionate Share Hospital (DSH): Increased rates and uncompensated care payments for hospitals serving a high proportion of low-income patients.
• New Technology Add-on Payments: Additional payments for costly, newly approved technologies offering clinical improvements or breakthrough designations.
• Rural Hospital and Critical Access Hospital (CAH) Payments: Pass-through payments for certain CRNA services in qualifying rural hospitals and CAHs.
• Nursing and Allied Health Education: Reasonable cost basis payments for nursing and allied health education activities 42 CFR 413.85(d).
• Organ Acquisition Costs: Payment adjustments for organ acquisition costs.
• Hemophilia Clotting Factors: Add-on payments for blood clotting factors for inpatients with hemophilia.
• Islet Cell Transplantation: Add-on payments for hospitals in NIH-sponsored islet cell transplant trials for Type I diabetes.
• Payment Reductions: Reduced payments for short stays and transfers to other acute care or post-acute settings.
• Value-Based Purchasing (VBP) & Readmissions Reduction Programs: IPPS payments are adjusted under the Hospital VBP and HRRP.
• Hospital-Acquired Condition (HAC) Reduction Program: Payment reductions for preventable HACs.
• Surgical N95 Respirators: IPPS payment adjustments for domestically made NIOSH-approved surgical N95 respirator costs since January 1, 2023.
• Essential Medicines Buffer Stock: Payment adjustments for small, independent hospitals maintaining essential medicines buffer stock since October 1, 2024.

IPPS Payment Determination Process

1. Hospitals submit claims to Medicare Administrative Contractors (MACs).
2. MACs assign cases to MS-DRGs based on claim data.
3. Base payment rates include labor-related and non-labor-related shares. Labor share is adjusted by a wage index; non-labor share by a Cost-of-Living Adjustment (COLA) for Alaska and Hawaii.
4. Wage-adjusted standardized amount is multiplied by the MS-DRG weighting factor.

Figure 1. Acute Care Hospital IPPS: Operating Base Payment Rate Adjusted for Geographic Factors

Figure 2. Acute Care Hospital IPPS: Capital Base Payment Rate

MS-DRG Relative Weights

Each MS-DRG has a weight reflecting its average case cost relative to the average Medicare case cost. These weights are used for both operating and capital payment rates.

Annual adjustments to MS-DRG weights, capped at a 10% decrease from the prior FY, are budget neutral and based on standardized charges and IPPS case costs. Standardization includes adjustments for wage rates, resident training, and low-income patients.

Note: Charges are reduced to costs using national average hospital cost ratios for 19 departments.

Market Condition Adjustments

Operating and capital rates are adjusted by area wage indexes to reflect local labor market prices, measured by comparing average hourly wages (AHW) in each area to the national average.

Labor market areas are defined by OMB’s Core-Based Statistical Area delineations, with annual revisions to wage indexes.

Hospitals can request geographic reclassification through the Medicare Geographic Classification Review Board (MGCRB) if they believe they compete in a different labor market.

Wage index policies include:

• A permanent 5% cap on annual wage index decreases.
• Wage index application to the capital base rate, raised to a fractional power to narrow geographic variation.
• COLA applied to base IPPS operating and capital rates for hospitals in Hawaii and Alaska, reflecting higher non-labor costs.

Bad Debts

Medicare may cover 65% of allowable bad debts from unpaid patient coinsurance and deductible amounts under 42 CFR 413.89.

Providers can pursue unpaid cost-sharing unless patients are Medicaid-eligible or deemed indigent.

Acceptable cost reports with detailed bad debt listings are required for claimed bad debt amounts.

Direct Graduate Medical Education (DGME)

DGME payments are made to teaching hospitals for resident training programs, separate from IPPS payments. They are based on historical per-resident costs, inflation updates, resident numbers, and Medicare patient load.

Indirect Medical Education (IME)

Teaching hospitals also receive IME adjustments to reflect higher indirect patient care costs, calculated using the intern- and resident-to-bed ratio.

Medicare Disproportionate Share Hospitals (DSH)

Additional payments are made to hospitals serving a disproportionate share of low-income patients.

Hospitals receive 25% of traditional Medicare DSH payments, with the remaining 75% allocated to uncompensated care payments.

Uncompensated care payments are based on each hospital’s share of uncompensated care costs, updated annually using Worksheet S-10 data. A 3-year average is used for FY 2024 and subsequent years.

Note: Indian Health Service, tribal hospitals, and Puerto Rico hospitals have supplemental payments under 42 CFR 412.106(h).

Sole Community Hospitals (SCH)

SCH classification is for IPPS hospitals meeting criteria in 42 CFR 412.92.

Hospitals are classified as SCHs if nearby hospital acute care service days are ≤8% of the applicant hospital’s similar days.

SCH operating payments are based on the higher of hospital-specific or federal rates; capital payments are based on capital base rates.

SCHs may qualify for payment adjustments for significant volume decreases.

Formerly designated essential access community hospitals are treated as SCHs for IPPS.

Medicare Dependent Hospitals (MDH)

MDH classification applies to IPPS hospitals meeting criteria in 42 CFR 412.108.

MDH operating payments are based on the higher of the federal rate or the federal rate plus 75% of the difference between the federal rate and the hospital-specific rate.

The MDH program is extended through FY 2025 for discharges before January 1, 2025.

Rural Referral Centers (RRC)

The RRC program supports high-volume rural hospitals. RRC classification requires rural location and meeting criteria in 42 CFR 412.96.

RRC status advantages include:

• MGCRB Reclassification Proximity: No proximity demonstration needed for hospitals with current or past RRC status.
• AHW Data Comparison for MGCRB Reclassification: Exemption from AHW percentage threshold for hospitals with current or past RRC status.
• Medicare DSH Cap: Exemption from the 12% Medicare DSH cap for rural hospitals.

Low-Volume Hospitals

Temporary changes to low-volume hospital criteria and payment adjustments are extended through December 31, 2024.

Starting January 1, 2025, pre-FY 2011 statutory requirements for low-volume hospitals will resume.

Through FY 2024, and for part of FY 2025 before January 1, 2025, qualifying low-volume hospitals more than 15 road miles from the nearest subsection (d) hospital with fewer than 3,800 annual discharges receive add-on payments:

• 0.25 adjustment for ≤500 discharges.
• Calculated adjustment for 501–3,799 discharges: 0.25 – [0.25/3300] × (total discharges – 500).

From January 1, 2025, qualifying criteria revert to >25 road miles and <200 annual discharges.

Qualifying low-volume hospitals get an additional 25% adjustment per Medicare discharge.

Outlier Payments

Outlier payments for extremely costly cases aim to ensure access to high-quality inpatient care for seriously ill patients. Cases are identified by comparing costs to a fixed-loss threshold, adjusted for local labor costs and set annually.

Outlier payments are funded by offsetting reductions in base rates. The national fixed-loss threshold is set at 5.1% of total FY payments.

Change Request 13566 expands cost report criteria for outlier reconciliation approvals starting October 1, 2024.

Transfer Policy

Reduced MS-DRG payments apply when patient LOS is at least one day less than the geometric mean MS-DRG LOS and transfer occurs to:

• Another IPPS-covered acute care hospital.
• Certain post-acute care settings for specific MS-DRGs.
• Non-participating Medicare hospital.
• CAH.

Post-acute care settings include:

• Cancer hospitals
• Children’s hospitals
• Home health care (clinically related care within 3 days post-hospital).
• Hospice care
• LTCHs
• Psychiatric and rehabilitation distinct part units in acute care hospitals or CAHs.
• Psychiatric and rehabilitation facilities.
• SNFs.

New Technology Add-On Payments

Additional payments for new medical services and technologies meeting criteria in 42 CFR 412.87(b).

Alternative pathway for transformative devices and antimicrobial products under 42 CFR 412.87(c) and (d).

Medicare Electronic Application Request Information System™ (MEARIS™) is used for new technology add-on payment applications and MS-DRG change requests, exclusively for MS-DRG changes since FY 2024.

Hospital Readmissions Reduction Program (HRRP)

The HRRP reduces payments to hospitals with high readmission rates for specific conditions, encouraging improved care coordination and patient engagement.

Hospital Value-Based Purchasing (VBP) Program

The Hospital VBP Program adjusts base operating MS-DRG payments based on quality measure performance. A 2% reduction to base operating payments funds incentive payments.

Hospital-Acquired Condition (HAC) Reduction Program

The HAC Reduction Program reduces overall IPPS payments by 1% for hospitals in the worst-performing quartile for HACs.

Hospital Inpatient Quality Reporting (IQR) Program

The Hospital IQR Program publicly reports quality-of-care data and encourages hospitals to improve inpatient care quality.

Non-reporting hospitals face a market basket index reduction. Non-meaningful EHR users face further reductions.

Resources

Ambulatory Surgical Center (ASC) Payment System & Coverage

ASC Payment System Updates

The CY 2025 payment rates for Ambulatory Surgical Centers have been updated.

Substantive content changes are indicated in dark red.

ASCs provide outpatient surgical services for patients not requiring hospitalization, typically discharging within 24 hours and not needing active medical monitoring past midnight on procedure day.

Medicare-certified ASCs must have a legal agreement with Medicare to receive payments. ASCs can be independent or hospital-operated under specific conditions of operational and financial independence from the hospital.

Hospital-operated ASCs are distinct from provider-based outpatient surgery departments, which are integral to the hospital and subject to hospital conditions of participation, not separate Medicare enrollment or ASC conditions.

ASCs must comply with CfC quality and safety regulations, covering governance, medical staffing, safe procedures, infection control, pharmaceutical services, patient admission and discharge, medical records, emergency preparedness, quality assessment, patient rights, lab and radiology, nursing, and safe environment.

The ASC Payment System sets rates for eligible procedures, excluding those with significant safety risks or requiring overnight monitoring.

ASCs receive a single payment per covered procedure, including facility services like nursing, technical personnel, surgical procedures, drugs, supplies, equipment, administrative services, blood, anesthesia, implantable devices, and OPPS-packaged radiology.

Separate payments are made for ancillary services integral to covered procedures, such as OPPS drugs and radiology, brachytherapy sources, certain implantable items, corneal tissue, and non-opioid pain management drugs.

42 CFR 416.164(c) lists non-covered ASC items and services.

Covered surgical procedures must meet requirements in 42 CFR 416.166(a)–(d).

Certified providers can bill other ASC services not considered ASC services using the CMS-1500 form.

Patients pay 20% coinsurance after meeting the Medicare Part B deductible. Certain preventive services have waived coinsurance and deductibles.

ASC payments are prospectively determined for services related to covered surgical procedures, identified by HCPCS codes.

Annual updates to the ASC Payment System use OPPS Ambulatory Payment Classification relative payment weights, scaled for budget neutrality. ASC payment rates are calculated by multiplying the ASC conversion factor (CF) by the ASC relative payment weight.

Weight scalar maintains budget neutrality by adjusting for payment weight changes between current and upcoming years.

The CF is annually adjusted for budget neutrality, productivity, and CPI-U updates.

–For CY 2025, a 2.9% update factor applies to ASC payment rates for ASCs meeting quality reporting requirements, based on a 3.4% hospital market basket update reduced by 0.5 percentage point productivity adjustment.

–ASCs not meeting quality reporting requirements receive a 0.9% productivity-adjusted hospital market basket update to the CY 2024 ASC conversion factor.

ASCs receive the lesser of actual charges or the ASC payment rate. Geographic payment adjustments use pre-floor and pre-reclassified hospital wage index values, with a 50% labor-related factor. Adjustments also apply for multiple procedures or stopped procedures.

Table 1. Alternate Payment Rate Methods

Surgical Procedure or Ancillary Service	Payment Method
Office-based procedures (≥50% in physician’s office)	Lower of ASC rate or non-facility PE RVU amount of PFS
Device-intensive procedures (device offset percentage >30%)	Device-related portion (same as OPPS) and non-device-related portion (standard rate-setting)
Separately payable radiology services	Lower of ASC rate or technical component/non-facility PE RVU of PFS
Separately payable OPPS drugs/biologicals (except non-opioid pain management supplies)	Same as OPPS
Non-opioid pain management drugs/biologicals	Separately payable, generally ASP+6%, subject to payment limit
Non-opioid pain management devices	Separately payable at provider charges, adjusted to cost, subject to payment limit
Brachytherapy sources	Same as OPPS if available, otherwise contractor-priced, no geographic adjustment
Low-volume device-intensive procedures	ASC rate (device-intensive adjustments) not exceeding OPPS rate
Primary surgical procedure and packaged add-on codes (complexity adjustments)	ASC rate through C codes based on OPPS complexity-adjusted rate

ASC Payment provides details on ASC payment policies, procedures list, rates, and quarterly addenda updates. The ASC CPL is reviewed annually for additions and removals.

The ASC Quality Reporting (ASCQR) Program is a pay-for-reporting program, with public reporting via the ASC Compare tool. Non-reporting ASCs face a 2% reduction in their annual fee schedule update.

More information on ASCQR Program is available on QualityNet and in 42 CFR 416 Subpart H.

Resources

DMEPOS Fee Schedule

DMEPOS Fee Schedule Updates

The 2025 total factor productivity adjustment for DMEPOS has been updated.

Substantive content changes are indicated in dark red.

Medicare Part B covers medically necessary DMEPOS prescribed by qualified providers for home use, including institutions used as a home (excluding hospitals and nursing homes).

DMEPOS items and services are paid through:

• Fee schedules
• Competitive bidding program (CBP)

Fee schedule payments are based on Sections 1834(a), (h), and (i) of the Social Security Act and 42 CFR 414.102 for PEN, splints, casts, and intraocular lenses.

Fee schedule files include HCPCS codes subject to adjustments using CBP data, reflecting cost differences between competitive and non-competitive bidding areas 42 CFR 414.210(g).

The DMEPOS Fee Schedule: CY 2025 Update provides detailed information on amounts and adjustments.

The Master List of DMEPOS Items Potentially Subject to Conditions of Payment simplifies DMEPOS payment requirements and reduces burden by flagging potential vulnerabilities. Action is needed only if an item on the Master List is also on the Required Prior Authorization List.

Prior authorization ensures compliance with coverage, coding, and clinical documentation requirements before claim submission.

Prior Authorization and Pre-Claim Review Initiatives offers more information.

Fee schedules are updated annually in January and sometimes in April, July, or October for new items, corrections, or regulatory changes, as outlined in Medicare Claims Processing Manual, Chapter 23, section 60.

Section 1834(a)(14)(L) of the Social Security Act updates DMEPOS fee schedule amounts by the CPI-U percentage increase, adjusted by economy-wide productivity change.

–For 2025, the TFP adjustment is 0.6%, and the CPI-U percentage increase is 3%, resulting in a net 2.4% increase update factor.

Refill documentation is required within 30 days before supply end, with delivery no sooner than 10 days before.

Resources

Home Health Prospective Payment System (PPS) & Coverage: A Critical Care Management Tool

Home Health PPS Updates

Updates to the Home Health Prospective Payment System include:

• The CY 2025 case-mix budget neutrality factor has been updated to ensure accurate payment adjustments.
• The CY 2025 fixed dollar loss ratio for outlier payments has been revised.

Substantive content changes are indicated in dark red.

Medicare uses a standardized 30-day period payment rate for home health agencies (HHAs) if a care period meets visit thresholds. This payment rate is adjusted for case-mix and geographic wage differences. For periods not meeting the visit threshold, per-visit payment rates apply. The Patient-Driven Groupings Model (PDGM) categorizes 30-day periods based on patient clinical characteristics for payment. This PDGM framework acts as a Critical Care Management Tool For Home Health, ensuring resources are allocated based on patient needs and complexities.

Home health services are covered if:

• Patient meets specific criteria.
• HHA has a valid Medicare agreement.
• HHA submits a covered-services claim.
• Services are not otherwise excluded.

Patient Eligibility for Home Health

Patients are eligible for Medicare home health if they:

• Are enrolled in Medicare Parts A and B.
• Need intermittent skilled nursing (SN), physical therapy (PT), or speech-language pathology (SLP) services, or continuing occupational therapy (OT).
• Are under a physician’s or allowed practitioner’s care.
• Receive services under a physician-established home health plan of care (POC).
• Are confined to home (homebound).
• Had a face-to-face encounter related to the primary reason for home health needs.

Homebound status is defined by:

Criterion 1

Meeting one of these requirements:

• Need for supportive devices, special transportation, or another person’s assistance to leave home due to illness or injury.
• Medical contraindication to leaving home.

Criterion 2

Meeting both of these requirements if Criterion 1 is met:

• Inability to leave home normally.
• Leaving home requires considerable and taxing effort.

Homebound individuals may leave home infrequently or briefly for healthcare, religious services, adult day care, or infrequent events.

Homebound Examples:

• Blindness or dementia requiring assistance to leave home.
• Post-surgery patients with physician-restricted activity.
• Mental health disorders preventing safe, unattended leaving of home.

Occupational therapists can perform initial assessments when therapy is ordered with another rehabilitation service.

Skilled Therapy Services

Covered skilled therapy services (PT, SLP, OT) aim to maintain, prevent, or slow deterioration of patient condition. Services must be:

• Safely and effectively performed by skilled therapists or under supervision.
• Consistent with illness severity and patient needs, including reasonable frequency and duration.
• Specific, safe, and effective treatment.
• Reassessed every 30 days by each therapy discipline.
• Documented in clinical records.

Skilled Nursing (SN) Care

Covered SN care (excluding venipuncture alone) is for patients needing:

• Registered nurse or licensed vocational nurse (where allowed) specialized judgment and skills.
• SN services to maintain or prevent deterioration of their condition.

Intermittent Skilled Nursing Care

Intermittent SN care is defined as care needed less than 7 days a week or less than 8 hours a day for periods up to 21 days, with extensions possible in exceptional cases.

It requires a medically predictable recurring SN service, typically needed at least once every 60 days. Daily SN for diabetic patients unable to self-administer insulin (without a caregiver) is an exception.

Home Health Aide Services

Covered if the patient qualifies for home health benefits. Services include:

• Personal care.
• Support for SN services.
• Simple dressing changes.
• Medication assistance (ordinarily self-administered).
• Prosthetic/orthotic device personal care.

Home health aides must be certified, provide hands-on care, and perform tasks allowed under state law. Supervision by a registered nurse or skilled professional is required on-site every 14 days if the patient receives SN, PT, OT, or SLP services, with limited virtual supervisory visits allowed in rare instances.

Medical Social Services

Covered if the patient is home health benefit-eligible, and services address social or emotional problems complicating medical condition or recovery.

POC must explain why a qualified medical social worker is necessary.

Telecommunication technology can be used, including remote patient monitoring, TTY, and real-time audio-video interaction, but are not separately billable or countable as visits for payment or eligibility.

Telehealth in Home Health

Physicians can include home health services via telehealth in the POC. Conditions include:

• Remote patient monitoring or other services in the POC.
• Telehealth cannot substitute for home visits for POC, eligibility, or payment.
• Telehealth must meet patient-specific needs identified in the assessment.

PDGM & Home Health Resource Groups

PDGM bases 30-day period payments on patient clinical characteristics, categorizing periods into 432 home health resource groups.

Case-mix payment is based on these groups, with weights reflecting predicted mean group cost.

CY 2025 case-mix weights are adjusted budget-neutrally using a factor of 1.0039.

The standardized 30-day payment is based on patient condition, needs, and wage differences.

Adjustments to the 30-Day Period Payment Rate

Case-Mix Adjustments

30-day payment rates are adjusted based on patient characteristics, categorized by:

• Admission Source: Community or Institutional (acute hospital, IRF, SNF, LTCH, IPF).
• 30-Day Period Timing: Early (first period) or Late (subsequent periods).
• Clinical Grouping: Musculoskeletal, Neuro/Stroke, Wounds, Behavioral Health, Complex Nursing, Medication Management, Teaching, and Assessment (MMTA) with subcategories.
• Comorbidity Adjustment: None, Low, or High based on secondary diagnoses.

Case-Mix Variable Information from OASIS Assessment

• Functional Impairment Level: Low, Medium, or High.

Labor Adjustments

Payment adjustments are based on geographic wage levels, with a 5% cap on negative wage index changes, applied budget-neutrally.

Continuous 60-Day Recertifications

Home Health PPS allows continuous 60-day patient recertification when eligibility continues. Recertification assessment is required in the last 5 days of the certification period.

Notice of Admission (NOA)

HHAs must submit a one-time NOA to establish a home health POC for all 30-day periods. Late NOA submissions may result in payment liability for services provided before filing, with exceptions for exceptional circumstances.

Plan of Care (POC)

The POC must be periodically reviewed and include:

• Services meeting patient-specific needs.
• Disciplines, frequency, and duration of visits.
• Telehealth services, tied to patient needs, not substituting for home visits for eligibility or payment.

POC requirements include physician signatures, verbal orders documentation, and reviews every 60 days or more frequently for patient transfers, condition changes, or discharges.

Low Utilization Payment Adjustment (LUPA)

LUPA payments apply for 30-day periods with low visit numbers below case-mix group thresholds, using per-visit rates. 2025 LUPA thresholds are updated using CY 2023 data.

Partial Period Payments

Adjustments apply for patient transfers between HHAs or discharge and readmission within 30 days, prorating payments based on the length of stay. Partial period payment adjustments do not apply to transfers among HHAs with common ownership.

Outlier Payments

Outlier payments are added for unusually costly 30-day periods, exceeding a threshold for each home health resource group. The 2025 fixed dollar loss ratio is 0.35, ensuring outlier payments do not exceed 2.5% of total payments.

Consolidated Billing Requirements

Home Health PPS 30-day period payments include all HHA patient services and supplies, except certain injectable osteoporosis drugs, DME, and NPWT disposable devices. All other covered home health services must be provided directly or under arrangement.

Home Health Services & Medical Supplies Subject to Consolidated Billing Requirements

Home health services subject to consolidated billing must be billed with the 30-day period payment.

Physicians, including NPs, PAs, and CNSs, can certify eligibility, order services, and review POCs.

Home Health Quality Reporting Program (HH QRP)

The Home Health Quality Reporting Program (HH QRP) promotes quality care through public reporting and quality improvement. HHAs must submit OASIS assessments and HHCAHPS data.

For CY 2025, HHAs submitting required quality data receive a 4.0% payment update; non-reporters receive a 2.0% reduction.

HHAs can seek reconsideration and extension or exemption from HH QRP requirements.

The iQIES system consolidates QIES, CASPER, and ASPEN legacy systems.

Resources

Hospice Payment System & Coverage

Hospice Payment System Updates

Updates to the Hospice Payment System include:

• Clarification on the Election Statement and Notice of Election processes.
• Updated FY 2025 payment rates and cap amount.

Substantive content changes are indicated in dark red.

Medicare hospice eligibility requires patients to:

• Be Medicare Part A eligible.
• Be certified as terminally ill with a prognosis of 6 months or less.
• Use a Medicare-approved hospice program.
• Sign a hospice election statement.
• Waive coverage for terminal illness and related conditions (unless hospice-arranged).

The Medicare hospice benefit covers pain and symptom relief, including physician, nursing, medical equipment, supplies, drugs, aide and homemaker services, therapies, social services, counseling, inpatient care, and other necessary palliative services.

In exceptional cases, Medicare may cover benefits unrelated to the terminal illness. Hospice should provide nearly all care.

Medicare does not pay for:

• Care from another hospice (unless arranged by the designated hospice).
• Room and board (unless short-term inpatient care arranged).
• Emergency room, hospital, outpatient services, or ambulance (unless hospice-arranged or unrelated to terminal illness).

Billing Hospice Attending Physician Services at Certain Facilities

Rural Health Clinics (RHCs) or Federally Qualified Health Centers (FQHCs) can bill under their respective payment systems for attending physician services provided by their employees or contracted physicians during hospice election, using the GV modifier.

Dually eligible veterans may elect Medicare hospice benefits.

42 CFR 418.52 requires verbal and written notice of patient rights and responsibilities during initial assessment.

42 CFR 418.54 mandates a comprehensive assessment of patient needs, including physical, emotional, psychosocial, and spiritual care.

42 CFR 418.56(c) outlines POC requirements, including palliation, symptom management, service scope, outcomes, and treatment needs.

Communication and integration systems are required among providers to minimize fragmented care 42 CFR 418.56(e).

Hospice Aide Training & Evaluation

Hospice aides must be trained, with competency evaluations required for new aides, potentially using pseudo-patient simulations. Competency evaluations are required if deficiencies are noted during on-site visits.

Hospice Certification

Terminal illness certification by the medical director or interdisciplinary group physician and attending physician (if any) is required within 2 days of hospice care initiation for the initial 90-day period.

Patients may designate an attending physician including MD, DO, NP, or PA. Only MDs or DOs can certify terminal illness.

An interdisciplinary group must manage patient care, including an MD or DO, RN, social worker, and counselor.

Certifications are required for each election period (90 days initial, 90 days second, unlimited 60-day periods), documented in clinical records with specific criteria.

Face-to-face visits are required by a physician or NP within 30 days before the third and subsequent recertifications.

Hospice Certifying Enrollment

Starting June 3, 2024, certifying physicians must be enrolled in Medicare or opted out to receive payment under Section 6405 of the Affordable Care Act. This applies to hospice medical directors and patient-designated attending physicians.

For subsequent periods, only hospice physicians can certify. Detailed information is in the Hospice Certifying Enrollment Questions and Answers (Q&A).

Hospice Election Statement

Patients must file an election statement including hospice and attending physician identification, palliative care understanding, Medicare service waiver, election date, cost-sharing, election statement addendum rights, BFCC-QIO information, and patient signature. A complete election statement is required for payment.

Notice of Election (NOE)

Hospices must file an NOE with their MAC within 5 days of election. Late NOE filing results in liability for services between election and filing dates. Exceptions are allowed for uncontrollable delays.

Eligibility checks are recommended before admission. Patients must be informed in writing about QIO review and potential results.

Revoking Hospice Election

Patients can revoke hospice at any time by filing a written revocation statement, regaining waived Medicare coverage. MA enrollees revoking hospice continue services through their MA plan or FFS Medicare.

A Notice of Termination/Revocation must be filed with the MAC within 5 days of revocation or discharge.

Hospice Patient Discharge

Discharge is allowed if the patient moves, is no longer terminally ill, or in extraordinary circumstances. Discharging to avoid cap limits is prohibited.

Change of Designated Hospice

Patients can change hospice designation once per election period by filing a signed statement with both hospices, including provider names and effective date.

Notice of Medicare Non-Coverage (NOMNC) is required for patients ending Medicare-covered services, informing them of QIO review rights.

Hospice Level of Care Payment

Hospice care is paid daily at four levels:

1. Routine home care (higher rate days 1-60, lower rate days 61+).
2. Continuous home care (for symptom crisis, ≥8 hours/day, mostly nursing).
3. Inpatient respite care (facility care, ≤5 days for caregiver relief).
4. General inpatient care (facility-based, short-term symptom management).

A service intensity add-on applies to routine home care in the last 7 days of life if an RN or social worker provides direct care each day.

Annual hospice payment rate updates are based on the hospital market basket, reduced by a productivity adjustment. For FY 2025, the update is 2.9%, and the cap is $34,465.34.

Table 2. Hospice Labor Share

Level of Care	Revised Labor Share	Non-Labor Share
Routine Home Care	66%	34%
Continuous Home Care	75.2%	24.8%
Inpatient Respite Care	61%	39%
General Inpatient Care	63.5%	36.5%

Wage Index & Cap

Hospice payments are wage-adjusted. A permanent 5% cap limits wage index decreases.

Two caps limit hospice payments:

• Inpatient care days cap (20% of total patient care days).
• Aggregate cap, based on annual per-beneficiary cap and patient numbers.

Aggregate cap updates for accounting years after September 30, 2016, use the hospice payment update percentage.

Prescription Drugs or Biologicals

Coinsurance is billed for palliative drugs/biologicals for non-inpatient routine/continuous home care, about 5% of cost, capped at $5 per prescription. No coinsurance for inpatient or respite care drugs.

Inpatient Respite Care

Respite care coinsurance is 5% of the daily payment, not exceeding the inpatient hospital deductible.

Medicare Advantage (MA) & Hospice

MA plans cover all FFS Medicare services except hospice. MA enrollees get FFS hospice benefits, and may choose unrelated treatment outside the MA plan, subject to 20% coinsurance.

MA plans must inform enrollees about hospice options and provide hospice information at enrollment and annually.

Value-Based Insurance Design Model Hospice Benefit

Participating MA organizations retain responsibility for all FFS Medicare services, including hospice, under the VBID Model.

Hospice Quality Reporting Program (HQRP)

The Hospice Quality Reporting Program (HQRP) promotes quality through public reporting. Non-participating hospices face a 4.0% market basket update reduction (up from 2.0% before FY 2025).

Hospices can seek extension or exemption from HQRP requirements.

Hospice Outcomes & Patient Evaluation (HOPE)

The Hospice Outcomes & Patient Evaluation (HOPE) tool aids in understanding patient care needs during the dying process.

Resources

Hospital Outpatient Prospective Payment System (OPPS)

OPPS Updates

Updates to the Hospital Outpatient Prospective Payment System include:

• Three services added to the inpatient only (IPO) list for CY 2025.
• Non-physician practitioners (NPPs) can supervise cardiac, pulmonary rehabilitation, and diagnostic services through December 31, 2025.
• CY 2025 payment rates updated.
• Standard prior authorization review timeframe reduced from 10 business days to 7 calendar days.

Substantive content changes are indicated in dark red.

The Hospital Outpatient Prospective Payment System (OPPS) was established under Section 1833(t) of the Social Security Act for Medicare Part B hospital outpatient services and certain Part B inpatient services, CMHC partial hospitalization, home health hepatitis B shots, preventive services, and more.

The Balanced Budget Refinement Act of 1999 mandates budget-neutral payments, outlier adjustments, annual updates, pass-through payments, implantable device payments, and transitional corridor payments.

The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 includes patient copayment reductions and permanent transitional payments for children’s hospitals.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 outlines OPPS drug payment policies, including pass-through payments and APC weight adjustments for drugs.

The Bipartisan Budget Act of 2015 excludes certain off-campus PBD services from OPPS, paying them under the Physician Fee Schedule (PFS), except for dedicated emergency departments and on-campus PBDs.

OPPS applies to most hospital outpatient services, excluding certain hospital types like CAHs and IHS hospitals. Certain services like outpatient therapy and screening mammography are also excluded from OPPS payment.

The inpatient only (IPO) list was created with OPPS; 3 services are added for CY 2025. General supervision is the standard for hospital outpatient therapeutic services. NPPs can supervise cardiac and pulmonary rehabilitation and diagnostic services through December 31, 2025, including via audio-video real-time communications technology.

340B-Acquired Drugs

Section 340B allows discounted drug purchases for participating hospitals.

In CY 2024, 340B-acquired drugs were paid at ASP+6%. Future non-drug payments will be reduced by a –0.5% OPPS conversion factor adjustment starting in CY 2026.

SCHs, children’s hospitals, and PPS-exempt cancer hospitals are exempt from this policy and continue to report modifier TB and receive ASP+6% payment.

Effective January 1, 2025, all 340B-covered entity hospitals must report the TB modifier for 340B-acquired drugs; modifier JG will no longer be valid.

Ambulatory Payment Classifications (APCs)

OPPS uses APCs as the payment unit. Services are grouped into APC groups based on clinical and cost similarity.

Payment status indicators identify OPPS services and payment methods. APC payment rates and copayments apply per APC service. Multiple APC payments are possible per day, with discounts for multiple surgical procedures.

New Technology APCs are used for new services lacking cost data, with payment rates set at the midpoint of cost ranges. 42 CFR 419.31 describes the APC system and weights.

Separately payable services include surgeries, diagnostics, clinic and ED visits, certain drugs, brachytherapy, corneal tissue, and preventive services. Partial hospitalization is paid per diem.

Packaged Costs

Packaging groups ancillary services into primary procedure payments, encouraging resource efficiency. 42 CFR 419.2(b) and 42 CFR 419.2(c) list packaged and non-OPPS costs. Comprehensive APC payments exclude non-outpatient services and statutorily separate services.

Payment Rates

Separately payable service rates are calculated by multiplying the clinical APC’s scaled relative weight by a conversion factor (CF). The CF translates weights into dollar amounts. Wage adjustments are applied to the labor portion (60%) of the national unadjusted rate, using the IPPS post-reclassified wage index.

Additional payments include pass-through payments, outlier payments, transitional outpatient payments, rural adjustments, and annual APC reviews.

–For CY 2025, OPPS payment rates increased by 2.9%, based on a 3.4% inpatient market basket reduced by 0.5 percentage point productivity adjustment.

Alternative payment methods are used for drugs, 340B drugs, brachytherapy, radiopharmaceuticals, and New Technology APCs.

Payment files are updated quarterly for mid-year changes. Medicare Claims Processing Manual, Chapter 4 provides more information on APC adjustments.

Rural SCHs are exempt from site-specific PFS-equivalent payment for clinic visits in off-campus PBDs.

Figure 3. Calculating OPPS Payments

Penalties for non-compliance with the CY 2020 Hospital Price Transparency rule have increased, with minimum daily penalties set at $300 for small hospitals and up to $5,500 for larger hospitals.

Hospital Outpatient Quality Reporting (OQR) Program

The Hospital OQR Program is a pay-for-reporting program. Non-reporting hospitals face a 2.0% annual payment update reduction.

Hospitals qualify for full OPPS updates by submitting required quality data.

An alternate pathway exists for transformative devices with FDA Breakthrough Device designation to qualify for device pass-through payment.

HCPCS code G0330 is for dental rehabilitation services requiring monitored anesthesia and an operating room. Unlisted CPT code 41899 is for other covered dental services.

Prior authorization is required for outpatient department services like blepharoplasty, botulinum toxin injections, cervical fusion, facet joint interventions, panniculectomy, rhinoplasty, vein ablation, and spinal neurostimulators. The standard review timeframe is reduced to 7 calendar days.

Resources

Inpatient Psychiatric Facility (IPF) Prospective Payment System (PPS)

IPF PPS Updates

Updates to the Inpatient Psychiatric Facility Prospective Payment System include:

• Updated IPF emergency department (ED) payment adjustment and variable per diem.
• Updated IPF patient-level adjustment factors.
• Updated FY 2025 factor increase and labor-related share of the federal per diem base rate.
• Updated FY 2025 labor-related share.

Substantive content changes are indicated in dark red.

Medicare pays for covered psychiatric services in IPFs under a PPS, including inpatient psychiatric hospitals and distinct part (DP) units in acute care hospitals and CAHs.

Coverage is for 90 benefit days per period, with a 60-day lifetime reserve and a 190-day lifetime limit for psychiatric hospitals (not for services in general hospitals or DP units).

Patients are charged only the appropriate deductible and coinsurance amounts.

Medicare Part A payment requires physician certification and recertification of need, starting with an inpatient admission order, ensuring payment for appropriate services. Physician certification must document need for inpatient psychiatric services and active treatment [https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c02.pdf#page=10].

Recertification is required by the 12th day and every 30 days thereafter, including documented treatment, improvement expectations, continued need for daily active treatment, and intensive treatment services in hospital records.

IPFs receive a predetermined federal per diem base rate for inpatient services, covering operating and capital costs but not pass-through costs. The per diem payment is adjusted for facility and patient characteristics.

IPFs must provide all necessary Medicare-covered services directly or under arrangement; the PPS payment is payment in full [https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-N/section-412.422#p-412.422(b)], excluding approved medical education program costs.

Inpatient hospital services do not include physician services or services by NPPs, paid separately under Part B.

Facility Characteristics Adjustments

• Geographic wage differences are adjusted using the IPF wage index.
• Rural IPFs receive a 17% payment adjustment, with a 3-year phase-out for rural-to-urban delineations.
• IPFs with qualifying EDs get a 54% payment adjustment for day 1, those without get 28% [https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf#page=327].
• Adjustments for teaching IPFs.
• COLA factor for IPFs in Alaska and Hawaii.

Patient Characteristics Adjustments

• Principal psychiatric diagnosis (MS-DRG).
• Age.
• Comorbidities.
• Variable per diem adjustment.

Additional IPF Payments

• Additional payment for each electroconvulsive therapy (ECT) treatment.
• Outlier payments for high-cost cases [https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf#page=331].
• Interrupted stays are treated as continuous for payment adjustments [https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf#page=330].

Note: FY 2025 Final IPF PPS Rates and Adjustment Factors Addendum A provides rate and payment updates.

Calculating IPF Prospective Payment

Step 1. Adjust federal per diem base rate for wage and COLA.

Step 2. Calculate total facility- and patient-level adjustment factors, excluding variable per diem and ED adjustments.

Note: No FY 2025 changes to teaching or rural adjustments.

Step 3. Multiply Adjustment Factor by Wage- and COLA-adjusted base rate.

Step 4. Multiply partially adjusted rate by variable per diem adjustment factor (1.54 with ED, 1.28 without ED for day 1).

Step 5. Sum daily IPF PPS payments for total payment amount.

Calculating ECT Treatment Payment

Multiply ECT units by wage- and COLA-adjusted ECT per treatment amount.

Accurate claim reporting is essential for outlier payments and IPF PPS refinement. The FY 2025 IPF factor increase is 2.8%.

IPF PPS Regulations and Notices provides further information.

Cost Report Data & Market Basket Updates

Cost report data informs market basket stand-alone IPF cost weights. FY 2025 LRS is 78.8%.

Wage index is based on IPPS hospital wage index, with a permanent 5% cap on wage index decreases. National median cost-to-charge ratios (CCRs) apply in certain situations.

Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

The IPFQR Program promotes quality care through public reporting. Non-participating IPFs face a 2.0% annual market basket update reduction.

Resources

Inpatient Rehabilitation Facility (IRF) Prospective Payment System (PPS)

IRF PPS Updates

Updates to the Inpatient Rehabilitation Facility Prospective Payment System include:

• Updated FY 2025 market basket increase factor.
• Added information for hospitals opening new IRF units during the cost reporting year.

Substantive content changes are indicated in dark red.

Medicare pays IRFs via a per-discharge prospective payment system (PPS).

The IRF-Patient Assessment Instrument (IRF-PAI) classifies patients into payment groups and monitors care quality. IRFs must complete IRF-PAI sections for all Medicare FFS and MA patients.

IRFs receive a predetermined payment per discharge, covering all patient care costs except educational activities, bad debts, and hemophilia blood products. Payment determination involves grouping patients by rehabilitation impairment category and case-mix groups (CMGs) based on functional status and age, with comorbidity tiers. Adjustments are made for interrupted stays, short stays, transfers, deaths, and outlier cases. A 5% cap limits wage index decreases.

Facility Characteristics Adjustments

• Wage index adjustments for geographic wage differences.
• Low-income patient proportion adjustments.
• Teaching IRF adjustments based on resident numbers.
• Annual rate updates for inflation and wage changes. FY 2025 market basket increase is 3.0%.

Compliance Threshold & Medicare Administrative Contractor (MAC) Compliance Percentage

IRFs must meet classification requirements to receive IRF PPS payments, with at least 60% of inpatients needing intensive IRF treatment for 1 of 13 conditions [https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-B/section-412.29#p-412.29(b)(2)].

MACs calculate the compliance percentage using:

• Presumptive Methodology: CMS software analyzes IRF-PAI data. Manual review of Arthritis Verification Reports may be needed. Manual medical record review may replace presumptive methodology.
• Medical Records Review: Random sample review if presumptive percentage is <60% or Medicare population is <50%.

CMS Survey & Operations Group determines IRF classification based on MAC results. Non-classified providers are paid under IPPS, not IRF PPS.

New IRF Units

Hospitals can open new IRF units within a cost reporting year by notifying CMS and their MAC 30 days prior.

Documentation Requirements & Reasonable and Necessary Criteria

MACs consider medical records to determine if IRF admissions are reasonable and necessary 42 CFR 412.622(a)(3)(4)(5) and Section 110 of the Medicare Benefit Policy Manual, Chapter 1.

Preadmission screening within 48 hours and rehabilitation physician review are required. Interdisciplinary team meetings weekly [42 CFR 412.622(a)(5)(i)] [https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-P/section-412.622#p-412.622(a)(5)(ii)].

Patients must need active therapy from multiple disciplines, generally 3 hours/day, 5 days/week, and show measurable functional improvement. Rehabilitation physician must document an individualized POC by day 4 and conduct face-to-face meetings weekly, potentially with NPP involvement after the first week.

Inpatient Rehabilitation Facility Quality Reporting Program (IRF QRP)

The IRF QRP promotes quality care through public reporting. Non-participating IRFs face a 2.0% annual increase factor reduction.

Starting FY 2026, IRF QRP data collection expands to all IRF patients, regardless of payer, starting October 1, 2024.

Resources

Long-Term Care Hospital (LTCH) Prospective Payment System (PPS)

LTCH PPS Updates

The FY 2025 market basket increase factor for Long-Term Care Hospitals has been updated.

Substantive content changes are indicated in dark red.

LTCHs treat medically complex patients needing longer stays than acute care hospitals, averaging >25-day LOS. Annual LTCH payment rate updates are based on market basket index, reduced by a productivity adjustment. FY 2025 LTCH PPS market basket increase is 3.0%. Non-reporting LTCHs face a further 2.0 percentage point reduction.

Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs)

LTCHs are paid under LTCH PPS, using MS-LTC-DRGs for patient classifications, similar to IPPS MS-DRGs. Patient stays are grouped based on diagnoses, procedures, demographics, and discharge status. MS-LTC-DRGs are updated annually with ALOS. Payments are based on MS-LTC-DRGs meeting site neutral payment rate exclusions.

Site neutral payment rates apply when patients don’t meet specific criteria, generally lower than standard federal rates. Exclusions from site neutral rates include direct admissions from IPPS hospitals meeting ICU, coronary care, or ventilation service criteria.

SSO, HCO, fixed-loss amounts, and interrupted stay policies apply to both site neutral and standard federal rate discharges, except where noted.

Short-Stay Outlier (SSO) Policy

The SSO policy prevents inappropriate payments for short-stay cases, applying to standard federal rate discharges when LOS is ≤5/6 of MS-LTC-DRG ALOS (capped at 25 days). SSO adjustments do not apply to site neutral discharges. Payments are blended with IPPS-comparable amounts.

SSO Payments When Patient Benefits Exhaust During an LTCH Stay

LTCH payments are based on covered benefit days until full MS-LTC-DRG payment is triggered. Benefit exhaustion and LOS affect payments, potentially resulting in SSO adjustments.

Table 3. Benefits Exhaust & LOS is Below MS-LTC-DRG Threshold

If	Then	Example
Patient uses regular episode benefit days during LOS below SSO MS-LTC-DRG threshold	– Patient pays for non-covered days – LTCH gets SSO payment for covered stay	– MS-LTC-DRG SSO threshold 25 days, LOS 20 days, LTCH gets SSO payment – Benefit days end day 15, 15 covered days under SSO policy – Patient pays days 16-20

Table 4. Benefits Exhaust & LOS Exceeds MS-LTC-DRG Threshold

If	Then	Example
Patient uses all episode benefit days during LOS exceeding SSO MS-LTC-DRG threshold	– Patient doesn’t pay for non-covered days (until HCO threshold) – LTCH gets full MS-LTC-DRG payment	– MS-LTC-DRG SSO threshold 25 days, benefit days end day 30, LOS 35 days – Patient doesn’t pay days 31-35 (SSO policy doesn’t apply) – LTCH gets full MS-LTC-DRG payment, patient pays first day, LOS qualifies as HCO

Note: 90 covered episode benefit days are allowed, plus 60 lifetime reserve days.

High-Cost Outlier (HCO) Policy

The HCO policy adjusts payments for stays with costs exceeding typical cases. HCO payments are 80% of the difference between estimated cost and the outlier threshold (LTCH PPS payment plus fixed-loss amount). Fixed-loss amounts vary for site neutral and standard federal rate cases. HCO adjustments improve payment accuracy and limit LTCH losses on high-cost cases.

HCO Payments When Patient Benefits Exhaust During an LTCH Stay

HCO payments are made for covered days beyond the HCO threshold.

Table 5. Patient Benefits Exhaust Before Qualifying for Full LTCH PPS Standard Federal Rate Payment

If	Then	Example
– Patient benefits exhaust before full MS-LTC-DRG payment – Covered care costs exceed standard federal rate HCO threshold for SSO-adjusted payment	LTCH gets HCO payment with SSO-adjusted payment for covered days	– Standard federal rate patient, 5 benefit days, MS-LTC-DRG 30-day ALOS – Not enough benefit days for full payment – Covered services cost > standard federal rate HCO threshold – HCO payment for days 1-5, patient pays days 6-discharge

Table 6. Patient Benefits Exhaust After Qualifying for Full Applicable LTCH PPS Payment

If	Then	Example
– Patient benefits exhaust after full LTCH PPS payment – Covered care costs exceed applicable HCO threshold	LTCH gets HCO payment with full LTCH PPS payment for covered days	– Standard federal rate patient, 36 benefit days, MS-LTC-DRG 30-day ALOS – Day 33 care cost > standard federal rate HCO threshold – HCO payment for covered costs above threshold – Patient pays days 37-discharge

Table 7. Patient Benefits Exhaust Before Exceeding Applicable HCO Threshold

If	Then	Example
– Patient qualifies for full LTCH PPS payment – Patient uses all regular benefit days before HCO threshold	– LTCH gets full LTCH PPS payment (no HCO) – Patient pays costs after HCO threshold exceeded	– Standard federal rate patient, 36 benefit days, MS-LTC-DRG 30-day ALOS – Day 45 care cost > standard federal HCO threshold – Benefits exhausted before HCO threshold – No HCO payment, patient pays days 46-discharge

Cost estimation uses provider-specific CCRs, or statewide averages if unavailable. HCO payments are reconciled at cost report settlement.

Interrupted Stay Policy

An interrupted stay occurs when a patient discharges to certain facilities and readmits within a period. Interruption windows are ≤3 days or >3 days, with different fixed periods based on discharge facility type. Interrupted stays are treated as one discharge for payment, eligible for HCO payments.

Discharge Payment Percentage Adjustment

LTCHs with <50% discharge payment percentage (standard federal rate discharges to total Medicare discharges) face payment adjustments, based on IPPS payments and HCO cases. Adjustments end when the percentage reaches ≥50%.

Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

The LTCH QRP promotes quality through public reporting. Non-participating LTCHs face a 2.0% annual increase factor reduction.

Resources

Skilled Nursing Facility (SNF) Prospective Payment System (PPS)

SNF PPS Updates

The FY 2025 market basket increase for Skilled Nursing Facilities has been updated.

Substantive content changes are indicated in dark red.

Medicare pays SNF services per diem under PPS, covering Part A SNF services except educational activities and excluded services under consolidated billing.

SNF payments are adjusted for geographic labor costs, case-mix, and include an add-on for Part B services during Part A stays. Base rates are separate for urban and rural areas, with adjustments for wage index caps and patient case mix using the Patient Driven Payment Model (PDPM).

Annual federal rate updates reflect market basket index, forecast error adjustments, wage index changes, and SNF Value-Based Purchasing (VBP) Program performance. FY 2025 SNF market basket update is 4.2%.

Patient Driven Payment Model (PDPM)

PDPM classifies patients into 5 case-mix index (CMI)-adjusted components:

1. Physical therapy (PT)
2. Occupational therapy (OT)
3. Speech-language pathology (SLP)
4. Non-therapy ancillary (NTA)
5. Nursing

Only PT, OT, and NTA payments have variable per diem (VPD) adjustments.

Each component uses different classification measures:

• PT/OT: Clinical Category, Functional Score.
• SLP: Neurologic Condition, SLP Comorbidity/Cognitive Impairment, Diet, Swallowing Disorder.
• NTA: NTA Comorbidity Score.
• Nursing: Functional Score.

Payment components are calculated by multiplying CMI by wage-adjusted base rate and VPD schedule, adding each component payment to the non-case-mix component rate.

Figure 4. Calculating PDPM Classification

Clinical Category & Functional Status

PT and OT components use clinical category and functional status classifications. Clinical categories are based on primary SNF diagnosis codes, potentially adjusted by prior inpatient surgery. Categories include Major Joint Replacement, Acute Neurologic, Medical Management, and more.

PDPM PT and OT Clinical Categories are grouped into Major Joint Replacement or Spinal Surgery, Non-Orthopedic Surgery and Acute Neurologic, Other Orthopedic, and Medical Management.

Functional status is calculated using MDS 3.0 Section GG items (Table 9), and cognitive status is assessed using BIMS or Staff Assessment for Mental Status, scored by Cognitive Performance Scale (CPS). Cognitive measure classifications are shown in Table 11.

NTA Comorbidity Score

NTA costs are predicted by 50 conditions and extensive services, reported on MDS 3.0. NTA comorbidity scores are calculated by summing points assigned to each comorbidity.

Streamlined Assessment Schedule

PDPM PPS assessments include 5-day, optional Interim Payment Assessment (IPA), and discharge assessments. Late assessments use default HIPPS codes.

PDPM HIPPS Coding & IPA Item Set

PDPM HIPPS codes reflect PT/OT, SLP, Nursing, NTA payment groups, and assessment indicators. IPA item sets allow for PDPM classification changes without VPD schedule changes.

State Assessments & MDS Items

States may use PDPM for Medicaid payments, potentially requiring additional Omnibus Budget Reconciliation Act assessments. MDS items relevant to PDPM include Section I (SNF Primary Diagnosis), Section J (Patient Surgical History), Section O (Discharge Therapy Items), and Section GG (Interim Performance). Swing Bed PPS PDPM Assessments use additional MDS items like K0100, I1300, I4300, and O0100D2.

Concurrent & Group Therapy Limit

Concurrent and group therapy is limited to 25% of total therapy minutes per discipline.

Interrupted SNF Stay Policy

Interrupted SNF stays occur when patients leave Part A-covered SNF care and readmit to the same SNF within a 3-day interruption window. VPD and assessment schedules continue upon readmission within this window.

Administrative Level of Care Presumption Under PDPM

Administrative presumption automatically classifies patients with certain intensive case-mix classifiers on the 5-day PPS assessment as meeting SNF level of care.

PDPM Payment for AIDS Patients

PDPM prioritizes AIDS patient costs by assigning the highest NTA point value and adding 18% to the nursing component.

Consolidated Billing (CB)

Consolidated billing requires SNFs to bill for all Medicare-covered services during Part A stays, except a small list of excluded services billed separately under Part B. CB excludes practitioner’s personally performed professional services, but includes “incident to” services. Marriage and family therapists and mental health counselors are excluded from CB since January 1, 2024.

Place of Service (POS) Codes

Correct POS codes are essential for proper payment, including POS codes 21 (Inpatient Hospital), 31 (SNF with Part A), and 32 (Nursing Facility/SNF without Part A).

SNF Quality Reporting Program (QRP)

The SNF QRP promotes quality care through public reporting. Non-compliant SNFs face a 2% annual payment update reduction.

SNF Value-Based Purchasing (VBP) Program

The SNF VBP Program rewards SNFs for quality improvements, based on the Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM). A 2% payment reduction funds incentive payments. New measures and scoring methodologies will be adopted in 2025.

Resources

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