CMS to Revise Medicare Hospital Payment Weights Using Market-Based Data for FY2029

Clinical Documentation Integrity (CDI) professionals and inpatient coders are familiar with the Inpatient Prospective Payment System (IPPS) and its connection to hospital reimbursement. However, the annual adjustments to Medicare Severity Diagnosis Related Groups (MS-DRGs) relative weights, which impact hospital remuneration, are less understood. These MS-DRG weights reflect the average resources utilized for cases within each group compared to all other cases, and they are updated annually under the Social Security Act to consider evolving treatment patterns and technologies. One significant factor influencing these adjustments is the length of stay (LOS) for patients. The geometric mean length of stay (GMLOS) is a critical metric accompanying each MS-DRG, indicating the typical duration of inpatient care. Medicare guidelines count inpatient days strictly from midnight to midnight, which affects reimbursement through room-and-board costs that make up a large portion of hospital charges and vary by care unit. CMS plans to shift the MS-DRG relative weight calculation to a market-based methodology incorporating Medicare Advantage (MA) payment data starting in fiscal year 2029. This will replace chargemaster data with median payor-specific negotiated charges reported by hospitals, reflecting more accurate resource use. Medicare cost-report data from FY 2026 will begin capturing this data to enable the transition. This change aims to address discrepancies between fee-for-service (FFS) Medicare and MA inpatient payments. MA plans, controlling costs and often paying lower rates, typically negotiate hospital payments, contrasting with hospitals’ chargemaster markups seen in FFS. CMS expects the new methodology to better represent true market costs and maintain hospital profitability. The relevance of this shift is underscored by insurance company strategies such as Aetna’s plan to adjust MS-DRG payments in MA plans based on severity criteria for short inpatient stays, which differs from existing MS-DRG severity adjustments governed by complication categorization. CMS has indicated it will not intervene on these payment adjustments. CDI professionals need to proactively understand these upcoming relative weight changes, as shifts in Case Mix Index (CMI) may occur, potentially reducing apparent hospital performance measures despite CDI efforts. Additional recent developments include the release of new ICD-10 codes and ongoing education for coding accuracy, denials prevention, and regulatory compliance, which remain critical for revenue protection in an increasingly scrutinized environment. Federal audits focus on inpatient rehabilitation and hospital rehab units due to documentation and administrative errors. Clarification of inpatient coding rules, including management of high-risk services, continues to be vital. Overall, the transition to market-based MS-DRG relative weights represents a significant regulatory and operational shift for hospitals, payers, and coding professionals. Anticipating and adapting to these changes will be essential for maintaining compliance, accurate reimbursement, and financial stability amid evolving Medicare payment policies.