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FY 2025 Medicare Inpatient Prospective Payment System Proposed Rule Summary

On April 10, the Centers for Medicare & Medicaid Services (CMS) released the Inpatient Prospective Payment System (IPPS) proposed rule (CMS-1808-P) for FY 2025. This rule updates payment policies and payment rates for acute care inpatient hospital services furnished under Medicare. In addition, this year’s rule addresses drug shortages by proposing to make a separate payment to small, independent hospitals to establish and maintain a buffer stock of essential medicines. Also included in the rule are policies to address health equity by capturing data on homelessness and providing additional funding for graduate medical education (GME) slots with the goal of encouraging new physicians to practice in rural and underserved areas. CMS has also prepared a fact sheet that highlights some of the major policies proposed in the rule. Note that the page numbers refer to the unpublished version of the proposed rule, linked above.


Highlight: The agency continues to promote policy to support and understand the impact of SDOH on healthcare.

Building on last year’s finalized policy to move certain SDOH diagnosis codes from a non-complication or comorbidity (NonCC) to a complication or comorbidity (CC), in this year’s rule, CMS has proposed to move seven inadequate housing and housing instability ICD-10-CM codes from a NonCC classification to a CC classification. Through this change, CMS will recognize housing instability and inadequate housing as an indicator of increased resource utilization in the acute inpatient hospital setting. The ICD-10-CM codes included in this proposal are Z59.10, Z59.11, Z59.12, and Z59.19 to describe inadequate housing, and Z59.811, Z59.812, and Z59.819 to describe housing instability. ICD-10-CM Z codes are used to on claims to describe and collect data on SDOH.


Highlight: CMS proposes to increase the NTAP payment from the traditional 65% to 75% for gene therapy for sickle cell disease.

Recognizing that cell and gene therapies are “among the costliest treatments to date,” CMS has proposed to provide additional payment under the existing new technology add-on payment (NTAP) policy, for cell and gene therapy used in the treatment of sickle cell disease (SCD). In addition to noting the expense of therapies for SCD, the agency has stated that “facilitating access to these gene therapies for Medicare beneficiaries with SCD may have the potential to simultaneously improve the health of impacted Medicare beneficiaries and potentially lead to long-term savings in the Medicare program.”

For certain gene therapies for the treatment of SCD, that are approved for NTAPs, and “if the costs of a discharge involving the use of gene therapy for treatment of SCD exceed the full DRG payment” then CMS is proposing to provide an add-on payment equal to the lesser of a) 75% of the costs of the new medical service or technology; or b) 75% of the amount by which the costs of the case exceed the standard DRG payment. The traditional NTAP add-on payment amount is 65%.

CMS is seeking comment from stakeholders regarding this proposal overall, and specifically seeking comment on whether the add-on payment should only be available to NTAP applicants that also are offering or participating in outcome-based pricing agreements with purchasers or are participating and developing other policies that promote access to cell and gene therapies at a lower cost.


Highlight: CMS seeks comment on new therapies for treatment of SCD.

In this proposed rule, CMS provides information and discussion for two NTAP applications for the treatment of sickle cell disease (SCD). The first is from Vertex Pharmaceuticals, Inc. requesting an NTAP designation for Casgevy™ (exagamglogene autotemcel), a hematopoietic stem cell and progenitor cell therapy to treat sickle cell disease patients twelve years and older with recurrent vaso-occlusive crises (VOC), and the other is from Bluebird bio, Inc. for Lyfgenia™ (lovotibeglogene autotemcel), a stem cell-based gene therapy to treat patients with twelve years and older with SCD, and history of vaso-occlusive events (VOE).

CMS is seeking comments on whether Casgevy™ and Lyfgenia™ meet newness criteria and if the therapies are “substantially similar” to each other. Additionally, CMS seeks comment as to whether the two new technologies should be “evaluated as a single technology for the purposes of new technology add-on payments.”

Vertex submitted an NTAP designation application for Casgevy™ when used to treat transfusion-dependent beta thalassemia (TDT). The indication for the use of Casgevy™ is taken under consideration by CMS as a separate NTAP application since the indications for use are different. CMS is seeking comment as to whether Casgevy when used to treat TDT is “substantially similar” to Zynteglo™ for the same indication.


Highlight: CMS maintains policy for calculating relative weights of MS-DRG for CAR T-cell treatment.

Effective in FY 2021, CMS created a new MS-DRG to capture hospitals cases that includes procedures for CAR T-cell therapies. MS-DRG 018 has a relative weight that is reflective of the typical costs of providing CAR T-cell therapies in the inpatient setting. However, the agency recognized that clinical trial cases, of which there are many, would distort the weight of MS-DRG 018 because of the high cost of the CAR T-cell product. Therefore, the agency must account for cases of CAR T-cell therapy when the product is provided within a clinical trial. For FY2025, CMS will continue to exclude clinical trial cases, which do not include the cost of the CAR T-cell product itself, from the calculation of the relative weight from MS-DRG 018. This ensures that the relative weight of the MS-DRG is not artificially lowered and remains reflective of the true cost of providing CAR T-cell therapy.


Highlight: ASH successfully obtains new ICD-10-CM codes to report the Duffy phenotype.

CMS lists new ICD-10-CM codes in the tables released with the IPPS proposed rule, and Table 6A includes four new codes to capture Duffy phenotype status. The new codes are:

  • Z67.A1: Duffy null
  • Z76.A2: Duffy a positive
  • Z76.A3: Duffy b positive
  • Z76.A4: Duffy a and b positive

ASH requested these new codes through the ICD-10-CM public code request process, and ASH members participated at public meeting to advocate for inclusion of the codes in the ICD-10-CM code listing. The codes will be available for use beginning October 1, 2024.


Highlight: Recent drug shortages have led the agency to craft policy to assist small, independent hospitals in maintaining access to essential medicine.

CMS believes that hospitals’ procurement preferences can be leveraged to help foster a more resilient supply of lifesaving drugs and biologicals. Supply chain resiliency is bolstered when institutions have a sufficient inventory of drugs that can be leveraged during supply disruptions and demand increases; this is particularly true for essential medicines. A resilient supply of essential medicines includes medicines from multiple manufacturers, including domestic pharmaceutical manufacturers, and this additional stock would be maintained either at the hospital or off-site through an arrangement with the distributor or wholesaler.

In the CY 2024 Hospital Outpatient Prospective Payment System proposed rule, the agency requested comments on a policy to provide separate payment to hospitals under the IPPS for establishing and maintaining access to a three-month buffer stock but did not finalize policy. Now the agency is proposing to establish a separate IPPS payment for small (100 beds or fewer), independent hospitals for the additional resource costs of voluntarily establishing and maintaining access to a six-month buffer stock of essential medicines beginning with the October 1, 2024, cost reporting period. CMS believes that this policy will support rural hospitals as many meet the criteria of being small and independent. 493 hospitals potentially would be eligible for the proposed payment based on FY 2021 cost report data and 255 of those hospitals were classified as rural.

CMS proposes to define a small hospital as “one with not more than 100 beds,” since this definition is consistent with the definition of a small hospital used for Medicare-dependent, small rural hospitals (MDH). To be eligible, the hospital could not exceed the 100-bed limit during the cost reporting period. The agency requests comment on using criteria other than the MDH bed size to identify small hospitals under this policy. Under this proposal, an independent hospital would be defined as “one that is not part of a chain organization, as defined for purposes of hospital cost reporting. A chain organization is defined as a group of two or more health care facilities which are owned, leased, or through any other device, controlled by one organization.” The agency requests comment on the proposed definition of small, independent hospital.

Additionally, CMS is seeking comment on whether the agency should support the phase-in of the buffer stock policy by providing separate payment for the establishment and maintenance of a three-month supply of an essential medicine for the first year that the policy is implemented and then a six-month supply in all subsequent years.

This proposed payment for a buffer stock would not be budget neutral. The payment could be provided biweekly or as a lump sum when cost reports are settled. CMS believes that limiting this proposal to smaller, independent hospitals will mitigate large demand driven shocks to the supply chain and focuses on the institutions who lack resources to address drug shortages effectively. The payment amounts would be determined by the Medicare Administrative Contractor based on the information provided in a new supplemental cost reporting form.

Additionally, CMS is proposing to provide this separate payment to establish a new buffer stock for any essential medicine listed as “currently in shortage” on the Food and Drug Administration’s (FDA) Drug Shortage Database. Should a hospital already have established a buffer stock of an essential medicine prior to it going into shortage, the hospital would be eligible for the separate payment even if the buffer stock were to drop to less than six months as that stock is drawn down under this proposal. However, in the event a buffer stock supply was to drop to less than six months for a reason other than an FDA-recognized shortage, the separate payment would be adjusted based on the proportion of the cost reporting period that a six-month buffer stock was maintained.

For the purposes of this proposal, the 86 medicines included in the list prepared by the HHS Office of the Assistant Secretary for Preparedness and Response (ASPR) and the Advanced Regenerative Manufacturing Institute’s (ARMI) Next Foundry for American Biotechnology would be deemed as essential medicine. The agency believes that the medicines on this list are either critical for minimum patient care in acute settings or important for acute care with no comparable alternatives available. Should this list be updated, all medicines on the updated list would be eligible under this buffer stock policy. The only chemotherapies included on this list are tacrolimus and mycophenolate mofetil.

CMS requests comments on the following:

  • Recognizing that drugs can remain in shortage for years, how long should CMS continue to pay hospitals to maintain a buffer stock of less than six months for essential medicines “currently in shortage”? Is there a quantity of dosage minimum floor where CMS should no longer pay to maintain a six-month buffer stock for essential medicines “currently in shortage”?
  • To the extent that other medicines or lists are identified for inclusion in this policy by being added to the FDA shortage list, how should those updates be incorporated? The agency is looking for feedback on potential mechanisms and timing for incorporating those updates.
  • Should a separate payment be made for the IPPS share of the costs of establishing and maintaining access to a six-month buffer stock of oncology drugs or other types of drugs not on the ARMI list?
  • The agency believes the costs will include utilities like cold chain storage and heating, ventilation, and air conditioning, and warehouse space, refrigeration, managing of stock including stock rotation, managing expiration dates, and managing recalls, administrative costs related to contracting and record-keeping, and dedicated staff for maintaining buffer stock. Additionally, CMS is interested in whether staff costs would increase with the number of essential medicines in buffer stock. What are the types of costs intrinsic to directly establishing buffer stocks of essential medicines that should be considered for purposes of separate payment under this policy?
  • Should the policy be phased in by the size of the buffer stock to address concerns about infrastructure investments that may be needed to store and maintain supply?
  • What burden is associated with hospitals’ monitoring of the FDA Drug Shortage Database?


Highlight: CMS proposes to distribute 200 new GME residency slots and seeks input from stakeholders on criteria for new residency programs.

CMS is proposing to distribute 200 new GME slots for FY 2026, as required under section 4122 of the Consolidated Appropriations Act of 2023. By law, at least half of the positions must go to psychiatry or psychiatry subspecialty residency programs, and no hospital may receive more than ten positions. For hospitals to qualify for an increase in residency slots, they must show a “demonstrated likelihood” of filling positions within the first five training years beginning after the proposed increase would take effect. Additionally, the Secretary is required to distribute at least 10 percent of the aggregate number of total residency positions available to each of the following four categories of qualifying hospitals: rural hospitals, hospitals that are over the GME cap, hospitals in states with new medical schools (list of qualified states included on p. 652), and hospitals located in Health Professional Shortage Areas (HPSAs).

CMS has proposed a distribution methodology that would award all qualifying hospitals that submit applications on time to receive an award of up to 1.00 full-time employee (FTE). For any remaining slots, CMS will prioritize the distribution based on the HPSA score associated with the program for which each hospital is applying. Consistent with the statutory deadline, CMS expects to notify hospitals of the first awards of positions under this distribution by January 31, 2026.

Proposed Modifications to the Criteria for New Residency Programs and Requests for Information (RFI) – p. 670

CMS is also proposing to change the criteria that determine whether a residency program qualifies as "new" for hospitals to receive extra slots for said program. To be considered a “new” program for which new cap slots would be created, a previously non-teaching hospital would have to ensure that the program meets three criteria: (1) The residents are new; (2) The program director is new; and (3) The teaching staff are new. CMS proposes that for a program to qualify as "new" and qualify for extra slots, a program must have at least 90 percent of its residents (not FTEs) without prior training in the same specialty. Additionally, any more than 10 percent of residents who transferred from another program would disqualify a program from new slots.

CMS recognizes that small or rural-based programs face challenges in creating new residencies. They acknowledge that achieving a 90 percent threshold of resident trainees with no prior training in the specialty may be particularly difficult for these programs. Therefore, they are seeking feedback on what should define a "small" program and what percentage threshold, or other method should be used for new resident trainees in these programs. CMS suggests defining a small residency program as one with sixteen or fewer resident positions because it includes the minimum number of resident positions required for accredited programs in certain specialties, like primary care.

CMS is also looking for feedback on the newness of a program’s faculty and program director. CMS understands that it would be reasonable for a new program to hire staff that already have experience teaching residents and operating a program. CMS is soliciting feedback regarding the newness of a program’s faculty and program director for the purpose of determining the program’s newness. See specific questions on p. 678.

Commingling of Residents in a New and an Existing Program – RFI – p. 678

CMS seeks input on whether and to what extent commingling is appropriate between residents in an existing program and those in a training program at a hospital eligible for an IME cap increase. Commingling refers to when residents from different programs share some clinical and didactic training experiences. For example, residents from two separate anesthesiology programs might train together in a specific surgical area or collaborate on scholarly activities. CMS’ concern is that while this approach can be beneficial for education, it might lead to the inappropriate creation of new cap slots for a program that seems more like an expansion of an existing one.

One Hospital Sponsoring Two Programs in the Same Specialty – RFI – Page 679

CMS seeks feedback on why hospitals train residents in separately accredited programs within the same specialty, and how common this is in both sparsely and densely populated areas. The agency is also interested in comments on hospitals sponsoring multiple programs in the same specialty, and the extent of resident commingling in these programs.