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Policy Primer

FY 2022 IPPS Final Rule

On August 2, 2021, the Centers for Medicare and Medicaid Services (CMS) published the fiscal year 2022 Inpatient Prospective Payment System (IPPS) final rule that includes annual updates to operating rates and payments for acute care hospitals, including uncompensated care and wage index updates. The 2022 IPPS rule also updates requirements for the Inpatient Quality Reporting program, inpatient pay-for-performance programs, and Medicare hospital Promoting Interoperability (PI) program.

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What is the Inpatient Prospective Payment System? 

CMS uses the inpatient prospective payment system (IPPS) to pay acute care hospitals for inpatient stays under Medicare Part A. The payment system categorizes each case into a Medicare severity-diagnosis related group (MS-DRG) to determine payment rates. Hospitals may receive additional payments based on certain factors, such as the proportion of low-income patients, outlier cases, or whether the hospital is a teaching hospital.

Payments under IPPS also are impacted by a hospital’s participation in the Hospital Inpatient Quality Reporting, Promoting Interoperability, Hospital Readmissions Reduction, Hospital-Acquired Condition Reduction, and the Hospital Value-based Purchasing programs.


Key changes at a glance

The fiscal year (FY) 2022 IPPS final rule includes key changes that impact hospital reimbursement under Medicare Part A. The three biggest changes will increase hospital payments, extend add-on payments for new technologies and Covid-19 treatments, and give hospitals a neutral payment adjustment under the value-based purchasing program.

The table below shows where the key changes fall within three tenets of the rule.

Five highlights in the IPPS final rule
  • Payment rate rises by 2.5%, with a $2.3 billion net increase in Medicare payment for FY 2022
  • Rural hospitals disproportionately impacted by $1.4 billion cut to uncompensated care payments
  • MS-DRG relative weight methodology change repealed
  • New technology and new Covid-19 treatment add-on payments extended
  • Key updates to hospital inpatient quality and value-based purchasing programs

Inpatient quality incentive program updates



What this means for you

The annual IPPS Final Rule is packed with policies that impact hospital finances. Hospitals should take note of four key changes and prepare for these trends to continue.

  • CMS finalized a solid payment rate update in line with recent trends, but hospitals should expect to see fewer uncompensated care dollars.
  • Hospitals should be prepared for bigger shifts in payments and volume in future payment rules as CMS continues to re-evaluate logic for MS-DRG assignments.
  • Hospitals should be prepared for CMS to continue to push for equity measures in quality payment and reporting programs.
  • CMS is continuing push toward interoperability and electronic health data, and hospitals should be sure they can meet new PI requirements.

What this means for the industry

Hospitals have faced significant challenges in responding to the Covid-19 pandemic, and the emergence of the delta variant casts new uncertainty around how long the public health emergency will last. It’s possible that some hospitals will continue to face hardships in FY 2022.

So far in their Covid-19 pandemic response, CMS has favored temporary adjustments and expanded exceptions to hold providers harmless, rather than changing program performance requirements to make compliance and data reporting easier.

That’s because CMS is serious about:

  • Controlling costs and shifting payments from surgical cases to medical cases
  • Interoperability and making data accessible to improve quality of care, especially as hospitals grapple with a public health emergency
  • Patient access to quality data—despite the pandemic’s impact on quality data, CMS continues to push to equip patients with the information they need to make decisions about their care

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