The Centers for Medicare & Medicaid Services has proposed a 2.4% payment rate bump for inpatient services for fiscal year 2027, as well as the first mandatory nationwide test of an episode-based payment model.
The plans were outlined Friday in the annual release of CMS’ Inpatient Prospective Payment Systems (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System proposed rule.
Other planned changes, according to a fact sheet from the agency and the proposed rule’s summary, include various measure additions or modifications to measures in the Hospital Inpatient Quality Reporting Program; adjustments to the Transforming Episode Accountability Model (TEAM) alternative payment model controversially finalized in last year’s rule; and changes to graduate medical education payments to implement discrimination requirements aligned with the administration’s view of diversity, equity and inclusion practices.
Hospitals’ proposed payment bump of 2.4% reflects a 3.2% market basket increase and a 0.8 percentage point productivity adjustment. It represents a roughly $1.4 billion increase to hospital payments in the coming fiscal year, with CMS adding that it expects additional payments for inpatient cases involving new technologies will rise by $464 million during the same period.
The proposed 2.4% increase is right in line with the agency’s suggestion for fiscal year 2026, though it ultimately landed on a 2.6% increase that industry groups said was insufficient in light of rising costs and the sweeping Medicaid cuts legislators were then discussing and later passed.
CMS’ proposed identical rate increases for the LTCH standard payment rate, but for the outlier threshold to remain at its existing value.
Charlene MacDonald, president and CEO of the Federation of American Hospitals, which represents for-profit hospitals, said in a statement the proposed pay bump “is a step in the right direction, but it does not negate the compounding effects of rising inflation, record levels of uncompensated care and a growing uninsured population.”
Headlining the agency’s press release on the proposed rules is an expansion of the Comprehensive Care for Joint Replacement (CJR) Model. The payment model holds hospitals responsible for government spending on Medicare patients’ joint replacement surgeries, hospital stays and the first 90 days of recovery including follow-up care. The model has been tested from April 2016 through 2024, during which it “generated significant Medicare savings while maintaining quality of care for beneficiaries,” CMS said.
That performance is leading the agency to adopt the approach nationwide with “certain refinements based on experience and stakeholder feedback, including updates to payment policies,” it said. The CJR Expanded model will be required for most hospitals on Oct. 1.
“Every year, Medicare funds thousands of knee, hip, and ankle replacements that help seniors keep up with their speedy little grandkids,” CMS Administrator Mehmet Oz, M.D., said in a release. “This proposed expansion of our successful joint replacement pilot program would better align financial incentives with improved health outcomes—protecting taxpayer dollars while ensuring patients get the care they need before, during, and after surgery.”
MacDonald was less optimistic: “The continued use of mandatory models further destabilizes the system by interfering with clinical decision-making, failing to reflect how care is delivered across providers, and limiting providers’ ability to determine the best course of care for each patient,” she said.
CMS’ nearly 1,600-page proposed rule outlines a slew of likely program modifications and policy changes. For instance, it proposes that the Hospital Inpatient Quality Reporting Program adopt three new measures and have others modified to include Medicare Advantage patients and a shorter, two-year performance period. The Medicare Promoting Interoperability Program, which focuses on electronic health record use, would also see several updates around, among other things, existing reporting requirements and definition updates.
The TEAM Model, a mandatory alternative payment model finalized in last year’s rulemaking (to the consternation of hospital groups,) will also see updates “that would modify policies affecting episode category triggers, quality measure assessment and the construction of target prices,” according to the proposed rule’s executive summary. CMS also said it is seeking public input on ambulatory surgical center episodes and voluntary participation of physician-owned hospitals for potential future rulemaking.
Meanwhile, the administration will also be doubling down on requirements outlined in last year’s Outpatient Prospective Payment System (OPPS) Final Rule that required medical education accrediting bodies to “not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability or religion.” It pointed to a U.S. Office of the Attorney General memo from last summer that interprets diversity, equity and inclusion policies and related practices as violations of federal statutes prohibiting discrimination based on protected characteristics.
CMS, in Friday’s update, proposed to extend those requirements to approved medical residency training programs that receive Graduate Medical Education payments, with similar requirements for approved nursing and allied health education programs and accreditors.
The proposed rule is scheduled to be published in the Federal Register on April 14, with the agency accepting public feedback ahead of its finalization later this year. Its release on Friday was accompanied by another proposed rule that significantly overhauls insurers’ prior authorizations for pharmaceuticals.
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