Medicare Payment Shifts: How New CMS Rules Will Affect Hospitals in 2025

The Centers for Medicare and Medicaid Services (CMS) recently updated its geographic delineations, which may create major changes for hospitals and other health-care providers. Payments for health-care services are often impacted by a provider’s geographic location. For hospitals, Medicare payments are adjusted by a wage index, which is intended to account for differences in regional labor markets.

Every 10 years, following a decennial census, the U.S. Office of Management and Budget (OMB) uses updated population and commuting pattern data to update core-based statistical areas, which CMS typically adopts for its regulations. Earlier this month, in the Fiscal Year 2025 Hospital Inpatient Prospective Payment System (IPPS) final rule, CMS announced that it would adopt the latest data and corresponding metropolitan statistical area. Based on the updated configurations, CMS believes that 53 counties and 33 hospitals that were once considered part of a Medical Savings Account (MSA) will be reconsidered as a rural area beginning in fiscal year 2025. CMS projects that 54 counties and 24 hospitals that were considered rural areas will be reconsidered as urban areas under the revised OMB delineations.