In April, the Centers for Medicare & Medicaid Services (“CMS”) released the FY 2027 Inpatient Prospective Payment System (“IPPS”) Proposed Rule (“Proposed Rule”) to update IPPS payment rates and uncompensated care payments, refine CMS’s definition of new GME residency programs, request input on new quality measures, expand the joint replacement payment model, CJR-X, on a nationwide basis and introduce quality measures into the Transforming Episode Accountability Model (“TEAM”) program.
Increase to Payment Rates Under the IPPS
Following a rebasing of the market basket using 2023-based operating and capital market baskets, CMS proposes to increase annual operating payment rates for IPPS hospitals by 3.2%, reduced by a productivity adjustment of 0.8 % for FY 2027, resulting in a proposed increase of 2.4%. This, along with other adjustments, will increase hospital payments by $1.4 billion. CMS proposes an annual update of a 3.2% increase in the standard payment rate for long-term care hospitals (“LTCHs”), reduced by a 0.8% adjustment for a total increase of 2.3% or $55 million.
Payments for Medicare Dependent Hospitals (“MDHs”) and low-volume hospitals will end on December 31, 2026, unless new legislation is passed. If Congress extends the payments, these hospitals would receive approximately $0.4 billion in FY 2027.
Payment for New Medical Technologies
CMS estimates payments for new inpatient medical technologies will increase by $464 million for FY 2027. The Proposed Rule refines the “newness” standard applied in evaluating a new technology or medical service, explaining that CMS will no longer consider a new medical service or technology to be “new” once CMS has recalibrated the Medicare Severity Diagnosis Related Groups (“MS-DRGs”) to reflect the cost of the technology or if it is substantially similar to one or more existing technologies that the U.S. Food and Drug Administration has approved or given clearance and the product has been on the market for more than 2–3 years. The Proposed Rule also states that certain transformative new devices and certain antimicrobial products may qualify under an alternative inpatient new technology add-on payment pathway by demonstrating that, absent an add-on payment, they would be inadequately paid under the regular DRG payment.
Low Volume Hospital Payment Adjustment
CMS notes that authorization for the current low-volume hospital payment adjustment ends on December 31, 2026; however, the Proposed Rule states that if Congress reauthorizes this program, CMS will implement new criteria for qualification as a low-volume hospital for January 1, 2027, and thereafter. This new criteria defines a low-volume hospital as one that is more than 25 road miles from another subsection (d) hospital and has less than 200 discharges total in one year (Medicare and non-Medicare). Recognizing that the current statute, Section 1886(d)(12(B)(i), specifies that a low-volume hospital must have less than 800 discharges per year, CMS proposes to make an empirically justifiable payment adjustment that pays the incremental costs (if any) that are associated with the discharges above 200 but less than 800.
DSH and Uncompensated Care Payment Adjustments
CMS anticipates uncompensated care payments for FY 2027 to be $7.5 billion, a reduction of approximately $258 million or 3.3% from FY 2026 uncompensated care payments. Given an anticipated increase in uninsured patients due to the elimination of premium subsidies for Affordable Care Act insurance plans and changes in Medicaid eligibility and work requirements enacted by H.R. 1 in 2025, it is unclear whether CMS’s uncompensated care calculation will correctly anticipate hospitals’ uncompensated care costs in 2027.
Graduate Medical Education New Residency Programs
In the Proposed Rule, CMS modifies the definition of a “new” residency program by eliminating the restriction on experienced faculty and staff teaching in a new residency program and requiring that 90% of all residents (during the 5-year cap building period) not have previous training in the same specialty as the new program. This requirement excludes residents who are admitted through the Resident Match or residents displaced from a closed program, as well as small programs with 16 or fewer residents.
Nursing and Allied Health Training
CMS proposes to finalize a proposal first introduced in the 2026 IPPS proposed rule, which subtracts administrative and general costs from tuition and other revenue to establish “net costs” allowed for the calculation of pass-through reimbursement of Nursing and Allied Health Training (“NAHE”) programs. This change will reverse a federal district court decision in Mercy Health-St Vincent Medical Center v. Becerra and will reduce the amount of NAHE costs available for pass-through reimbursement.
CMS also proposes to require providers to “componentize” their administrative and general costs to reflect only the proportionate amount of overhead costs that directly relate to the operation of the NAHE programs. The proposed regulation states that a hospital must identify any general service cost center that comprises multiple overhead functions and subscript the costs that represent only those costs that benefit its NAHE program.
Hospital Readmissions Reduction Program
CMS proposes to adopt the Hospital 30-day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure beginning with the FY 2029 program year. CMS intends to implement this measure beginning in FY 2028 with an “early look” at the readmission data; however, it does not intend to make any payment adjustments until FY 2029.
Inpatient Quality Reporting Program
CMS is requesting comment on several new measures, including:
- Adoption of the Advance Care Planning Electronic Clinical Quality measure, which measures the percentage of discharged patients that have an advance planning document in an electronic health record or documentation that a discussion about advance care planning occurred. This measure would be included in the IPPS Quality Reporting Program, PPS-Exempt Cancer Hospital Quality Reporting Program and the Medicare Promoting Interoperability Program;
- Modifications to five mortality measures in the IPPS Quality Reporting Program and Value-Based Purchasing Program;
- Adoption of a new measure of Emergency Care Access and Timeliness in the IPPS Quality Reporting Program and the Value-Based Purchasing program; and
- Potential future adoption of a new quality measure called the Adult Community-Onset Sepsis Standardized Mortality Ratio of adult inpatients who died during hospitalization or hospice admission.
TEAM
In 2026, CMS enrolled select acute care hospitals in a new episode-based alternate payment model known as TEAM that combines payment for episodes of care provided during coronary artery bypass graft procedures, lower extremity joint replacement procedures, major bowel procedures, surgical hip femur fracture treatment and spinal fusion to encourage hospitals to improve quality of care and coordinate services that may be needed during these episodes. Participation in TEAM is mandatory for hospitals in some core-based statistical areas (“CBSAs”) and voluntary for other hospitals, regardless of the CBSA location.
In the FY 2027 IPPS proposed rule, CMS states that it will establish quality measurement by using quality reporting data from hospitals’ participation in their existing Inpatient Quality Reporting Program, Outpatient Quality Reporting Program and HAC Reduction programs, combined with TEAM participants’ reconciliation amount to establish a Composite Quality Score (“CQS”), which is then used to establish a baseline for TEAM participation across all quality measures. The CQS baseline period would be adjusted based on a rolling window of performance data and updated to reflect ongoing improvements in care delivery. The proposed regulation also allows additional MS-DRGs for spinal fusion procedures to be added to the list of procedures paid for under the TEAM program.
Comprehensive Care for Joint Replacement Expanded (“CJR-X”) Model
CMS proposes to expand the Comprehensive Care for Joint Replacement alternative payment model to all acute care hospitals nationwide beginning on October 1, 2027. For more information regarding the CJR-X model, see Hall Render’s recent alert here.
Wage Index
For more information regarding the 2027 Proposed IPPS rule and the wage index, see Hall Render’s recent alert here.
Comments on the proposed rule are due on June 9, 2026.
If you have any questions on this topic or would like assistance with submitting comments, please contact:
- Sue Andersen at sandersen@hallrender.com or (301) 785-3996;
- Heather Mogden at hmogden@hallrender.com or (414) 721-0457;
- Liz Elias at eelias@hallrender.com or (317) 977-1468;
- Sarah Crosby at scrosby@hallrender.com or (317) 429-3663; or
- Your primary Hall Render contact.
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