CMS Releases FY 2025 IPPS Proposed Update - McDermott+Consulting

On April 10, 2024, the Centers for Medicare & Medicaid Services (CMS) posted the Hospital Inpatient Prospective Payment System (IPPS) proposed update for fiscal year (FY) 2025, along with proposed policy and regulation changes. The proposed rule would update Medicare payment policies and quality reporting programs relevant for inpatient hospital services, and build on key agency priorities, including advancing health equity and improving the safety and quality of care.


A CMS factsheet on the proposed rule is available here. A CMS factsheet on the proposed Transforming Episode Accountability Model (TEAM) is available here. The proposed rule is scheduled to be published in the Federal Register on May 2, 2024, and comments are due June 10, 2024. Please reach out to McDermottPlus for assistance or questions on the rule.


We have developed a dashboard that shows total Medicare fee-for-service volume and the average cost per inpatient stay by MS-DRG, as calculated by CMS for the 2025 IPPS proposed rule. This information can be used to understand the resource costs to hospitals for providing care for individual MS-DRGs.


  1. CMS proposes an increase of 2.6% in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users. This increase is based on a projected FY 2025 hospital market basket percentage increase of 3%, reduced by a 0.4 percentage point productivity adjustment.
  2. CMS proposes a mandatory five-year episode-based payment model called Transforming Episode Accountability Model (TEAM) in which hospitals in certain geographic regions would be responsible for the total cost of care during and for 30 days after five different surgical procedures.
  3. CMS proposes to establish a separate payment for small independent hospitals to create and maintain a six-month buffer stock of one or more of 86 essential medicines.
  4. CMS proposes to update labor market configurations using more current census data. This change would reshuffle hospital geographic assignments and affect the wage index for most hospitals. It also could affect hospital eligibility for geography-specific programs, such as the low-volume adjustment.
  5. CMS included a request for information (RFI) to advance patient safety and outcomes across the hospital quality programs and an additional RFI specific to several hospital quality programs, including the Medicare Promoting Interoperability Program. CMS also included two RFIs aimed at improving maternal health.