FY 2027 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Proposed Rule — CMS-1849-P
On April 10, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would update 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) for fiscal year (FY) 2027. The proposed rule also includes proposed changes, clarifications, and codifications for Organ Acquisition and Reasonable Cost Payment Policies, and Reimbursement Appeals for Independent Organ Procurement Organizations and Histocompatibility Laboratories.
The proposed rule would update Original Medicare payment rates and policies for inpatient hospitals and LTCHs for FY 2027. CMS is publishing this proposed rule to meet the legal requirements to update Medicare payment policies for IPPS hospitals and LTCHs on an annual basis. This fact sheet discusses major provisions of the proposed rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/public-inspection/current.
The proposed rule would also expand the Comprehensive Care for Joint Replacement (CJR) Model, which produced strong evidence of cost savings while maintaining quality of care. The expanded model [https://www.cms.gov/priorities/innovation/innovation-models/cjr-x], called CJR-X, would improve care for Original Medicare patients undergoing hip, knee and ankle replacements (also called lower extremity joint replacements) performed in the inpatient and hospital outpatient settings. CJR-X would be mandatory nationwide and begin on October 1, 2027.
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 a number of 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 proposed increase in IPPS payment rates is projected to be 2.4%. This reflects a projected FY 2027 hospital market basket percentage increase of 3.2%, reduced by a 0.8 percentage point productivity adjustment. IPPS-participating hospitals must successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and be meaningful electronic health record (EHR) users to earn the full rate update.
Overall, for FY 2027, CMS expects the proposed changes in IPPS payment rates — in addition to other changes — will generally increase hospital payments by approximately $1.4 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $464 million in FY 2027, primarily driven by the continuation of new technology add-on payments for several technologies, subject to determinations on applications following a review of public comments on the proposed rule. Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals will expire December 31, 2026. In the past, legislation has extended these payments, and if they were to be extended through the end of FY 2027, CMS estimates that these hospitals would receive additional payments of approximately $0.4 billion in FY 2027.
Changes to LTCH PPS Payment Rates
For FY 2027, CMS is proposing an annual update of 2.4% to the LTCH standard payment rate, which reflects a projected LTCH PPS market basket percentage increase of 3.2%, reduced by a 0.8 percentage point productivity adjustment. CMS expects LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 2.3%, or $55 million, due primarily to the 2.4% annual update. For FY 2027, CMS is proposing to maintain the LTCH PPS outlier threshold at its FY 2026 value. We estimate that this threshold will result in estimated outlier payments approximating 8% of estimated total payments, as required by statute, considering information currently available regarding possible LTCH charging practices and other information.
Graduate Medical Education (GME) Payments
To further strengthen the protections against unlawful discrimination finalized in the calendar year (CY) 2026 Outpatient Prospective Payment System (OPPS) Final Rule, we are proposing to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation, or similar activities, opportunities, or benefits. Similar requirements would also apply to approved nursing and allied health education programs and accreditors.
Organ Acquisition and Reasonable Cost Payment Policies, and Reimbursement Appeals for Independent Organ Procurement Organizations and Histocompatibility Laboratories
As part of broader efforts to strengthen Medicare cost reimbursement and appeals policies to ensure payment accuracy and reduce inappropriate spending, we are proposing to codify Medicare’s reconciliation of organ acquisition costs for non-renal organs for Independent Organ Procurement Organizations and Histocompatibility Laboratories. We are also clarifying and proposing to codify certain longstanding instructions on allowable costs under Medicare’s reasonable cost principles for all provider types, including public education for Organ Procurement Organizations. Additionally, in response to stakeholder requests, we are clarifying and proposing to codify Medicare’s longstanding rules for allocating overhead costs across all provider types.
Hospital Inpatient Quality Reporting Program
The Hospital Inpatient Quality Reporting 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 Inpatient Quality Reporting Program requirements are subject to a one-fourth reduction in their Annual Payment Update under the IPPS.
In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is proposing to adopt three new measures:
Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination.
Hospital Harm-Postoperative Venous Thromboembolism electronic clinical quality measure (eCQM) beginning with the FY 2030 payment determination.
Advance Care Planning eCQM beginning with the FY 2030 payment determination.
CMS is proposing to adopt five modified mortality measures, beginning with the FY 2028 payment determination, before moving the modified versions to the Hospital Value-Based Purchasing Program. Modifications include adding Medicare Advantage patients and shortening the performance period from 3 years to 2 years:
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure.
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure.
CMS is proposing modifications to three measures beginning with the FY 2028 payment determination. Modifications include adding Medicare Advantage patients and shortening the performance period from 3 years to 2 years:
Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction.
Excess Days in Acute Care after Hospitalization for Heart Failure.
Excess Days in Acute Care after Hospitalization for Pneumonia.
CMS is proposing to remove three measures beginning with the FY 2030 payment determination:
Venous Thromboembolism Prophylaxis (VTE-1) eCQM.
Intensive Care Unit Venous Thromboembolism Prophylaxis (VTE-2) eCQM.
Discharged on Antithrombotic Therapy (STK-02) eCQM.
CMS is also proposing changes to the data reporting and submission requirements for some eCQMs and structural measures, specifically:
Mandatory reporting for the Malnutrition Care Score eCQM beginning with the FY 2030 payment determination.
Establishing a mandatory reporting policy to make hospital harm eCQMs mandatory after two years of reporting beginning with the FY 2030 payment determination.
An update to the reporting of the Maternal Morbidity Structural measure beginning with the FY 2028 payment determination to identify which perinatal quality collaborative program the hospital participates in.
Finally, CMS is requesting comments related to:
Potential use of the Emergency Care Access and Timeliness eCQM in the inpatient setting.
Potential use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure.
Updating the scoring methodology associated with the Birthing Friendly Hospital designation.
Medicare Promoting Interoperability Program
The Medicare Promoting Interoperability Program encourages eligible hospitals and critical access hospitals to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record technology (CEHRT).
In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is proposing to:
Update the definition of CEHRT for the Medicare Promoting Interoperability Program based on updates proposed by the Office of the National Coordinator for Health IT (ONC).
Remove ONC Direct Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance attestations.
Remove the Support Electronic Referral Loops by Sending Health Information and Support Electronic Referral Loops by Receiving and Reconciling Health Information measures.
Modify the Electronic Prior Authorization measure.
Modify the reporting requirements for the Public Health and Clinical Data Exchange objective by adding the Unique Device Identifiers for Implantable Medical Devices measure.
Adopt two new eCQMs beginning with the FY 2030 payment determination in alignment with the Hospital Inpatient Quality Reporting Program (the Hospital Harm-Postoperative Venous Thromboembolism and the Advance Care Planning eCQMs).
Remove three eCQMs beginning with the FY 2030 payment determination in alignment with the Hospital Inpatient Quality Reporting Program (Venous Thromboembolism Prophylaxis – VTE-1, Intensive Care Unit Venous Thromboembolism Prophylaxis – VTE-2 and Discharged on Antithrombotic Therapy – STK-02– eCQMs).
PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program
The PCH Quality Reporting Program is a quality reporting program for the eleven cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures.
In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is proposing to adopt two new measures beginning with the FY 2030 program year:
- Advance Care Planning eCQM.
- Malnutrition Care Score eCQM.
CMS is also proposing to remove the COVID–19 Vaccination Coverage Among Healthcare Personnel measure beginning with the FY 2028 program year. Finally, CMS is proposing to establish reporting and submission requirements for eCQMs in the PCH setting.
Hospital Readmissions Reduction Program
The Hospital Readmissions Reduction Program is a value-based purchasing program that reduces payments to hospitals with excess readmissions. It also supports CMS’s goal of improving health care for patients by linking payment to the quality of hospital care. In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is proposing to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure beginning with the FY 2029 program year.
Hospital-Acquired Condition Reduction Program
The Hospital-Acquired Condition Reduction Program creates an incentive for hospitals to improve patient safety and reduce the rate of hospital-acquired conditions. Hospitals in the worst performing quartile receive a payment reduction of 1 percent on overall Medicare fee-for-service payments. In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is not proposing any updates to this program.
Hospital Value-Based Purchasing Program
The Hospital Value-Based Purchasing 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 2027 IPPS/LTCH PPS proposed rule, CMS is proposing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year. Modifications include adding Medicare Advantage patients and shortening the performance period:
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization measure.
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure.
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure.
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization measure.
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery Acute Ischemic Stroke measure.
We also include requests for information on two topics:
Potential use of the Emergency Care Access and Timeliness eCQM for the inpatient setting.
Potential future use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure.
Long Term Care Hospital Quality Reporting Program (LTCH QRP)
The LTCH QRP is a pay for reporting program, which requires LTCHs to submit quality data to CMS. Any LTCHs that do not meet reporting requirements may be subject to a two-percentage point (2%) reduction in their Annual Payment Update. Additionally, measures adopted into the LTCH QRP are publicly reported on the Care Compare tool at Medicare.gov. In the FY 2027 IPPS/LTCH PPS proposed rule, CMS is proposing to:
- Remove two measures from the LTCH QRP:
- COVID-19 Vaccination Coverage among healthcare personnel measure beginning with the FY 2028 LTCH QRP.
- COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure beginning with the FY 2028 LTCH QRP.
- Revise the data submission deadline.
- Seek public comment on one future measure concept: Advance Care Planning for the LTCH QRP.
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