Medicare Boosts Payments for Hospices, Rehabs and Psychiatric Facilities

The Biden administration recently released three final rules that provide for an aggregate $1.19 billion increase in Medicare payments in fiscal year 2023 for hospices, rehabilitation facilities, and psychiatric facilities.

All three final rules are to be effective on October 1, 2022.


The final rule, “FY 2023 Hospice Wage Index and Payment Rate Update and Hospice Quality Reporting Requirements,” provides for a $825 million increase in Medicare payments to hospice providers in fiscal year 2023. The $825 million increase represents a 3.8% boost in the payment rate, in conflict with the recommendation to keep payment rates the same.

The final rule also provides updates for the hospice wage index whereby the FY 2023 pre-floor, pre-reclassified hospital wage index data will be used as the basis for the FY 2023 wage index. The hospice wage index is used to adjust payment rates for hospices under the Medicare program to reflect local differences in area wage levels, based on the location where services are furnished.

Inpatient Rehabilitation Facilities

The final rule, “Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2023 and Updates to the IRF Quality Reporting Program,” provides for a $275 million increase in Medicare payments to inpatient rehabilitation facilities (“IRFs”) in fiscal 2023, representing a 3.9% boost compared to 2022. Here, the 3.9% increase stands in strong contrast to the Medicare Payment Advisory Commission’s recommendation that lawmakers cut payment rates for IRFs by 5%.

In addition to providing updates to prospective payment rates, the final rule codifies CMS’ existing teaching status adjustment policy through amendments to regulation text and updates and clarifies the IRF teaching status adjustment policy with respect to IRF hospital closures and displaced residents as discussed in the proposed rule.

Psychiatric Facilities

The final rule, “FY 2023 Inpatient Psychiatric Facilities Prospective Payment System Rate Update and Quality Reporting,” provides for a $90 million increase in Medicare payments to psychiatric facilities in fiscal year 2023, representing an increase of 3.8%. Inpatient psychiatric facilities (“IPFs”) include psychiatric hospitals and excluded psychiatric units of an acute care hospital or critical access hospital. The rule also provides for updates to the wage index for Medicare inpatient hospital services provided by IPFs.

Additionally, consistent across all three final rules is the implementation of a 5% cap on all wage index decreases in future years. This 5% cap is applied to limit fluctuation and mitigate significant negative impacts of certain wage index changes, recognizing that changes to the wage index have the potential to create instability and significant negative impacts on certain providers even when labor market areas do not change. The 5% cap will also keep hospice and facility payments more stable.