FY 2026 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule — CMS-1833-F
On July 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates Medicare payment policies and rates for inpatient and long-term care hospitals under the Medicare hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) final rule for fiscal year (FY) 2026. CMS is publishing this final rule in accordance with existing statutory and regulatory requirements.
This fact sheet outlines major provisions of the final rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/d/2025-14681.
Background on the IPPS and LTCH PPS
CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays, generally based on the patient’s diagnosis, the services or treatment provided, and the severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are, for IPPS, Medicare Severity Diagnosis-Related Groups (MS-DRGs) and for LTCH PPS, Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).
The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services these hospitals use when treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for several factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. CMS updates LTCHs’ payment rates annually according to a separate market basket based on LTCH-specific goods and services.
Changes to IPPS Payment Rates
The increase in IPPS operating payment rates for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful electronic health record (EHR) users under the Medicare Promoting Interoperability Program is 2.6%. This reflects a projected FY 2026 hospital market basket percentage increase of 3.3%, reduced by a 0.7 percentage point productivity adjustment. CMS has rebased and revised both the IPPS operating and capital market baskets to reflect a 2023 base year. Based on the 2023-based IPPS market basket, we are also establishing a national labor‑related share of 66%.
Overall, for FY 2026, CMS expects the changes in operating and capital IPPS payment rates — in addition to other changes — will generally increase hospital payments by $5.0 billion. This includes a projected increase in Medicare uncompensated care payments to disproportionate share hospitals in FY 2026 of approximately $2.0 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $192 million in FY 2026, primarily driven by the continuation of new technology add-on payments for several technologies. Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals will expire on September 30, 2025. In the past, legislation has extended these payments, and if they were to be extended, CMS estimates these hospitals would receive payments of approximately $0.5 billion in FY 2026.
Changes to LTCH PPS Payment Rates
For FY 2026, CMS is making an annual update of 2.7% to the LTCH standard payment rate, which reflects a projected LTCH PPS market basket percentage increase of 3.4%, reduced by a 0.7 percentage point productivity adjustment. CMS expects LTCH PPS payments for discharges paid by the LTCH standard payment rate to increase by approximately 3.0%, or $72 million, due primarily to the annual update along with a projected increase in high-cost outlier payments. CMS is making a moderate increase to the LTCH outlier threshold for FY 2026 compared to the outlier threshold for FY 2025, based on updated data used for the final rule, to meet the statutory requirement that estimated outlier payments are approximately 8% of total payments.
Transition for the Discontinuation of the Low Wage Index Hospital Policy
In the FY 2020 IPPS/LTCH PPS final rule, CMS finalized a temporary budget-neutral policy to address wage index disparities affecting low wage index hospitals, which includes many rural hospitals. On July 23, 2024, the Court of Appeals for the D.C. Circuit held that the Secretary lacked authority under section 1886(d)(3)(E) of the Act or under the “adjustments” language of section 1886(d)(5)(I) of the Act to adopt the low wage index hospital policy for FY 2020, and that the policy and related budget neutrality adjustment must be vacated. (Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887–91 & n.6 (D.C. Cir. 2024). After considering the appellate court’s decision, CMS is finalizing the proposal to discontinue the low wage index hospital policy for FY 2026 and subsequent years. In addition, CMS is adopting a budget-neutral narrow transitional exception to the calculation of FY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy. This transitional payment exception will operate similarly to our FY 2025 interim transitional policy established in an interim final action with comment period (89 FR 80405) (FY 2025 IFC). CMS is also finalizing the provisions of that FY 2025 IFC in this final rule without modifications.
Request for Information on the Transition Toward Digital Quality Measurement in CMS Quality Reporting Programs
CMS requested comments on continued advancements in digital quality measurement and the use of the Health Level 7® Fast Healthcare Interoperability Resources® (FHIR®) in the FY 2026 IPPS/LTCH PPS proposed rule. Specifically, CMS sought comment on the anticipated approach to FHIR-based electronic clinical quality measure (eCQM) reporting in quality reporting programs and the potential use of FHIR-based patient assessment instrument reporting in the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program. A summary of these comments is provided in the final rule and will be used to inform potential future policy development.
Hospital Inpatient Quality Reporting (IQR) Program
The Hospital IQR Program is a pay-for-reporting quality program that reduces payments to hospitals that do not meet program requirements. Hospitals that do not submit quality data or do not meet all Hospital IQR Program requirements are subject to a one-fourth reduction in their Annual Payment Update under the IPPS. In the FY 2026 IPPS/LTCH PPS final rule, CMS sought input on measure concepts of well-being and nutrition for future years in the Hospital IQR Program and received many comments to evaluate and consider. CMS is modifying four current quality measures and removing four quality measures.
CMS is finalizing the modification of four current measures:
Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) to add Medicare Advantage patients to the current cohort of patients and shorten the performance period from 3 years to 2 years. CMS is also making technical updates to the risk adjustment methodology to use International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs).
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke Severity to add Medicare Advantage patients to the current cohort of patients and shorten the performance period from 3 years to 2 years. CMS is also making technical updates to the risk adjustment methodology to use International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs).
Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures to lower the submission thresholds to allow for up to two missing laboratory results and up to two missing vital signs, reduce the core clinical data elements (CCDEs) submission requirement to 70% or more of discharges, and reduce the submission requirement of linking variables to 70% or more of discharges.
CMS is finalizing the removal of four measures beginning with the CY 2024 reporting period/FY 2026 payment determination:
Hospital Commitment to Health Equity
COVID–19 Vaccination Coverage among Health Care Personnel
Screening for Social Drivers of Health
Screen Positive Rate for Social Drivers of Health
CMS is also finalizing and codifying an update to the current Extraordinary Circumstances Exception (ECE) policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying our original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
Additionally, CMS is implementing a technical update to include patients with a principal or secondary diagnosis of COVID-19 in the numerator and denominator for seven measures.
Medicare Promoting Interoperability Program
In 2011, CMS established the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs (now known as the Medicare Promoting Interoperability Program and the Promoting Interoperability performance category of the Merit-based Incentive Payment System) to encourage eligible professionals, eligible hospitals, and critical access hospitals (CAHs) to adopt, implement, upgrade, and demonstrate the meaningful use of certified EHR technology (CEHRT).
In the FY 2026 IPPS/LTCH PPS final rule, CMS will:
- Define the EHR reporting period in CY 2026 and subsequent years as a minimum of any continuous 180-day period within that CY for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program and make corresponding revisions at 42 CFR 495.4.
- Modify the Security Risk Analysis measure for eligible hospitals and CAHs to attest “Yes” to having conducted security risk management in addition to security risk analysis, beginning with the EHR reporting period in CY 2026.
- Modify the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure by requiring eligible hospitals and CAHs to attest “Yes” to completing an annual self-assessment using all eight 2025 SAFER Guides, beginning with the EHR reporting period in CY 2026.
- Add an optional bonus measure under the Public Health and Clinical Data Exchange objective for data exchange to occur with a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement® (TEFCA), beginning with the EHR reporting period in CY 2026.
In addition, the final rule refers readers to the CY 2026 Physician Fee Schedule (PFS) proposed rule, and invites public comments on:
- A proposal to suppress the Electronic Case Reporting measure from scoring in the EHR reporting period in CY 2025.
- A proposal to adopt a measure suppression policy, allowing the suppression of measures from scoring for the EHR reporting period in CY 2026.
CMS did not propose any changes to the previously finalized performance-based scoring threshold of 80 points, beginning with the EHR reporting period in CY 2026.
CMS requested information on:
- Future modifications to the Query of Prescription Drug Monitoring Program (PDMP) measure, including seeking public input on changing the Query of PDMP measure from an attestation-based measure (“Yes” or “No”) to a performance-based measure (numerator and denominator), and expanding the types of drugs to which the Query of PDMP measure applies.
- The Medicare Promoting Interoperability Program’s objectives and measures moving toward performance-based reporting.
- Improvements in the quality and completeness of the health information eligible hospitals and CAHs are exchanging across systems.
A summary of these comments is included in the final rule, and CMS may consider them to inform potential future policy development.
PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
The PCHQR Program is a quality reporting program for the 11 cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2026 IPPS/LTCH PPS final rule, CMS finalized updates that will:
- Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
- Remove the Hospital Commitment to Health Equity measure, beginning with the CY 2024 reporting period/FY 2026 program year.
- Remove the Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health measures, beginning with the CY 2024 reporting period/FY 2026 program year.
- Modify the public reporting requirements to allow for public reporting of PCHQR Program on Care Compare or a successor website in addition to current publication in the Provider Data Catalog.
Hospital Readmissions Reduction Program
The Hospital Readmissions Reduction Program reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving health care for patients by linking payment to the quality of hospital care. In the FY 2026 IPPS/LTCH PPS final rule, CMS will:
- Modify the six readmission measures to add Medicare Advantage (MA) data, in addition to Medicare fee-for-service (FFS) data.
- Shorten the “applicable period” for measuring performance from three to two years and codify this update to the definition of “applicable period.”
- After reviewing the public comments, CMS is modifying the original proposal to not include MA data in the calculations of aggregate payments for excess readmissions.
- Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
- Remove COVID-19 exclusions and risk-adjustment covariates from the six readmission measures.
These changes will begin with the FY 2027 program year.
Hospital-Acquired Condition (HAC) Reduction Program
The HAC Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions, reducing payment by 1% for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions.
In the FY 2026 IPPS/LTCH PPS final rule, CMS is finalizing the proposal to update the Extraordinary Circumstances Exception (ECE) to clarify that we may grant an extension in response to ECE requests and to codify this updated ECE policy. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days. Additionally, CMS is providing notice of updating the CDC National Healthcare Safety Network (NHSN) healthcare-associated infections (HAI) chart-abstracted measures with the new 2022 baseline.
Hospital Value-Based Purchasing (VBP) Program
The Hospital VBP Program is a budget-neutral program funded by reducing participating hospitals’ base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments. In the FY 2026 IPPS/LTCH PPS final rule, CMS is finalizing the following proposals:
- Modification of the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure for the FY 2033 program year.
- Technical updates to the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure’s risk adjustment model to use International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs) for the FY 2033 program year.
- Technical updates to the five condition- and procedure-specific mortality measures and the THA/TKA Complications measure to include patients with a principal or secondary diagnosis of COVID-19 in the measures’ numerators and denominators for the FY 2027 program year.
- Technical updates to the CDC NHSN HAI chart-abstracted measures with the new 2022 baseline used in the FY 2029 program year and subsequent years to calculate performance standards and calculate and publicly report measure scores.
- Establishment of performance standards for the FY 2027, FY 2028, FY 2029, FY 2030, and FY 2031 program years.
- Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
- Remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year.
Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
The LTCH QRP is a pay-for-reporting program that requires LTCHs to submit quality data to CMS. Any LTCHs that do not meet reporting requirements may be subject to a 2 percentage-point reduction in their Annual Payment Update (APU). In the FY 2026 IPPS/LTCH PPS final rule, CMS will:
- Modify reporting requirements for the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure to exclude patients who have expired in the LTCH by removing an item on the LTCH Continuity Assessment Record and Evaluation Data Set (LCDS), the standardized patient assessment instrument for LTCHs, form used for patients who have expired during their stay.
- Remove four SDOH-standardized patient assessment data elements from the LCDS to reduce the current burden. Beginning with the FY2028 LTCH QRP, LTCHs will no longer be required to submit data using the LCDS on one item for Living Situation (R0310), two items for Food (R0320A and R0320B), and one item for Utilities (R0330).
- Amend the reconsideration policy and process.
- We sought public comment on several RFIs, specifically: 1) future measure concepts for the LTCH QRP; 2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and 3) advancing dQMs in the LTCH QRP. We have provided a high-level summary of the comments for each of these RFIs in the final rule.
Changes to the Transforming Episode Accountability Model (TEAM)
In TEAM, selected acute care hospitals will coordinate care for patients with Original Medicare who are undergoing one of five surgical procedures. The five-year mandatory episode-based payment model will run from January 1, 2026, to December 31, 2030. Selected acute care hospitals will take responsibility for the cost and quality of care from a hospital-based surgery through the first 30 days after the patient’s surgery. The changes to TEAM include, but are not limited to, capturing quality measure performance using patient-reported outcomes in the outpatient setting without increasing participant burden, improving target price construction, and broadening the three-day Skilled Nursing Facility Rule waiver, giving patients a wider choice of and access to post-acute care.
For a TEAM model overview fact sheet, visit: https://www.cms.gov/priorities/innovation/innovation-models/team-model.
Click here for the Frequently Asked Questions (FAQs).
Assistant Secretary for Technology Policy/Office of the National Coordinator’s (ASTP/ONC) Health Data, Technology, and Interoperability
ASTP/ONC’s Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization (HTI-4) rider in this final rule focuses on improving care delivery and reducing administrative burden through the exchange of clinical and administrative information. This rule finalizes updates to the ONC Health Information Technology (IT) Certification Program that advance health care providers’ ability to engage in electronic prescribing, real-time prescription benefit checks, and electronic prior authorization. These capabilities build on and complement important policies advanced by CMS in recent years. The provisions finalized through HTI-4 will support the department’s continued efforts to ease burdens on providers and help patients receive the timely, evidence-based care they deserve.
Request for Information on Streamlining Regulations and Reducing Administrative Burdens in Medicare
On January 31, 2025, President Trump issued Executive Order (EO) 14192 "Unleashing Prosperity Through Deregulation," which states the Administration’s policy to significantly reduce the private expenditures required to comply with federal regulations to secure America’s economic prosperity and national security and the highest possible quality of life for each citizen. To comply with the EO, CMS is including in the final rule a Request for Information (RFI) seeking public input on approaches and opportunities to streamline regulations and reduce burdens on those participating in the Medicare program. The RFI is available at https://www.cms.gov/medicare-regulatory-relief-rfi, and the public should submit all comments in response to this RFI through the provided weblink.
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