Fiscal Year 2027 Medicare Inpatient Psychiatric Facility Prospective Payment System Final Rule (CMS-1847-F)
On July 29, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a final rule to update Medicare payment policies and rates for Inpatient Psychiatric Facilities (IPFs) under the IPF Prospective Payment System (PPS) (CMS-1847-F) for fiscal year (FY) 2027. CMS is publishing this final rule consistent with its statutory authority to update Medicare payment policies for IPFs annually.
This fact sheet discusses the provisions of the final rule, including annual updates to the prospective payment rates, the outlier threshold, the wage index, and associated impact analysis. In addition, the rule finalizes a policy effective for FY 2028 (October 1, 2027) to limit outlier payments at the facility level to no more than 20% of an IPF’s total IPF PPS payments in a year, for IPFs with at least 50 stays per year. For the IPF Quality Reporting Program, CMS is removing two measures from the program, as well as implementing a standardized IPF patient assessment instrument.
Changes to Payments Under the IPF PPS
Updates to IPF Payment Rates
For FY 2027, CMS is updating the IPF PPS payment rates by 2.3%, based on the 2021-based IPF market basket increase of 3.2% less a 0.9 percentage point productivity adjustment. Additionally, CMS is updating the outlier threshold so that estimated outlier payments remain at 2% of total IPF PPS payments. Total estimated payments to IPFs would increase by 2.3%, or $60 million, in FY 2027, relative to IPF payments in FY 2026.
Reform of IPF PPS Outlier Payment Policy
The IPF PPS includes an outlier adjustment to promote access to IPF care for those patients who require expensive care and to limit the financial risk of IPFs treating unusually costly patients. Providing additional payments to IPFs for extremely costly cases strongly improves the accuracy of the IPF PPS in determining resource costs at the patient and facility level. Outlier payments are determined by comparing the estimated cost of an IPF stay to a threshold value. The outlier fixed dollar loss threshold is set each year so that estimated outlier payments equal 2% of total IPF PPS payments. In recent years, the outlier threshold has increased significantly, and commenters have expressed concerns that it is increasingly difficult to receive outlier payments for costly IPF stays.
Our analysis of IPF PPS outlier payments has shown that certain IPFs have exceptionally high reported costs and receive outlier payments on many of their claims. We note that these providers’ high overall costs are primarily driven by high routine costs (for example, labor, real estate, or overhead), which are fixed at the provider level and do not vary from one patient to another. We are finalizing the proposal to cap outlier payments at the provider level to minimize the impact of these high-cost facilities on the outlier pool. However, we are deferring the effective date of this policy until FY 2028 to provide additional time to evaluate the cost drivers identified by commenters. In addition, we are finalizing an exception to this cap policy for facilities with fewer than 50 stays per year.
Updates to the IPF Quality Reporting Program
The IPF Quality Reporting Program requires that all IPFs paid under the IPF PPS submit certain specified quality data to CMS, in a form and manner and within the timeframes that CMS prescribes. IPFs that do not submit the specified data on quality measures as required by the IPF Quality Reporting Program receive a 2-percentage-point reduction to their annual payment update. The IPF Quality Reporting Program aims to assess and improve the quality of care provided to IPF patients. By requiring IPFs to submit quality data to CMS and by CMS publicly reporting such data under the IPF Quality Reporting Program, CMS ensures that patients can make more informed decisions about their healthcare options.
In this final rule, CMS is making changes to quality measures in the IPF Quality Reporting Program. CMS is removing two measures beginning with the CY 2026 reporting period/FY 2028 payment determination: the Alcohol Use Brief Intervention Provided or Offered (SUB-2) and subset Alcohol Use Brief Intervention (SUB-2a) measure and the Tobacco Use Treatment Provided or Offered at Discharge (TOB-3) and subset Tobacco Use Treatment at Discharge (TOB-3a) measure.
CMS is also implementing a standardized IPF patient assessment instrument (IPF-PAI), as mandated by section 4125(b)(1) of the Consolidated Appropriations Act of 2023 (CAA, 2023). IPFs will have two methods to submit IPF-PAI data to CMS. IPFs can use a free CMS-developed web application called the Patient Assessment Reporting Interoperability Tool (PARIT) or can submit IPF-PAI data using Application Programming Interfaces (APIs) CMS has built from the Health Level Seven (HL7®) Fast Healthcare Interoperability Resources (FHIR®) specification. This will be the first CMS statutory quality reporting program to use the FHIR standard to support patient assessment data submission.
The final rule can be viewed at the Federal Register at: https://www.federalregister.gov/public-inspection/current.
Information on the Inpatient Psychiatric Facility PPS is available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility.
Information on the Inpatient Psychiatric Facility Quality Reporting Program is available at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/inpatient-psychiatric-facility-quality-reporting-ipfqr-program.
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