Final Rule Highlights and Potential Implications

• Issued on July 31, 2026, the FY 2027 final rule will update payment rates for hospitals paid under the Inpatient Prospective Payment System (IPPS) by 2.3%. This reflects a hospital market basket update of 3.2%, reduced by a 0.9 percentage point productivity adjustment. For long-term care hospitals (LTCHs), CMS is also finalizing a 2.3% update.
• Notably, CMS finalized its proposal to expand the Comprehensive Care for Joint Replacement (CJR) Model to a mandatory, nationwide model called CJR Expanded (CJR-X). This model will apply to Medicare patients undergoing hip, knee, and ankle replacements (i.e., lower-extremity joint replacements). CJR-X will include replacements performed in both inpatient and hospital outpatient settings and is set to begin on January 1, 2028.

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Additional Details

Final Payment Updates

• IPPS: The finalized 2.3% payment increase for FY 2027 is based on a hospital market basket percentage increase of 3.2%, reduced by a 0.9 percentage point productivity adjustment. This finalized payment rate update is just below the proposed increase of 2.4%. The change is driven by the finalized 0.9 percentage point productivity adjustment compared to the initially proposed 0.8 percentage point productivity adjustment.
  
  
  • CMS estimates that these payment rate changes, in addition to other finalized changes, will result in an overall increase in hospital payments by approximately $2.1 billion. CMS also anticipates that payments for inpatient cases using new medical technology will increase by $779 million in FY 2027, driven by continued approval of new technology add-on payments.
  • Under current law, additional payments for Medicare-dependent hospitals (MDHs) and the temporary change in payments for low-volume hospitals are still set to expire on December 31, 2026. If these payments were to be extended through the end of FY 2027, CMS estimates these hospitals would receive additional payments of approximately $0.3 billion in FY 2027.
• LTCH: CMS is proposing an annual update of 2.3% to the LTCH standard payment rate, which reflects a 3.2% market basket update, reduced by a 0.9 percentage point productivity adjustment. Similarly, this is just below the previously proposed increase of 2.4%. For discharges paid at the LTCH standard payment rate, CMS expects a total increase of approximately 2.2%, or $54 million. CMS is also finalizing the proposal to maintain the LTCH PPS outlier threshold at the FY 2026 value.

Expanded CJR Model

• CMS finalized its proposal to expand the CJR model to a mandatory, nationwide model. CMS is finalizing the model to begin on January 1, 2028, for acute care hospitals paid under the IPPS and OPPS with limited exclusions.
• CJR-X will follow an episode-based payment approach that will begin with the hospital inpatient or outpatient admission and span the 90 days after discharge. The model will include five quality measures and a composite quality score (CQS) to evaluate performance. CMS will establish regional and risk-adjusted target prices that will include capped normalization and trend factors.
• CMS also provides additional details around pricing policies for low-volume and safety net hospitals as well as their policies around model and beneficiary overlap, financial gainsharing arrangements, and data-sharing requirements.

TEAM

• TEAM is a five-year mandatory hospital-based alternative payment model that was finalized in the FY 2025 IPPS rule. The model began on January 1, 2026, and is focused on the following procedures: coronary artery bypass graft (CABG), lower-extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion.
• In the FY 2027 final rule, CMS is finalizing several refinements to TEAM, including:
  
  
  • Adding Medicare Severity Diagnosis Related Groups (MS-DRGs) to initiate spinal fusion anchor hospitalizations.
  • Clarifying quality measure performance periods for certain measures, largely to align with other quality program timelines.
  • Adopting a rolling historical composite quality score (CQS) baseline and aligning baseline periods with other hospital quality reporting programs.
  • Adding ambulatory payment classification (APC) and MS-DRG update factors to the prospective trend factor used to set target prices.
  • Refining the methodology for developing the prospective normalization factor to include the full baseline period.

Final Quality Program Updates

• Hospital Inpatient Quality Reporting (IQR) Program: CMS is finalizing several changes to the IQR program, including:
  
  
  • The adoption of three new measures.
    
    
    1. Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination
    2. Hospital Harm-Postoperative Venous Thromboembolism electronic clinical quality measure (eCQM) beginning with the FY 2030 payment determination
    3. Advance Care Planning eCQM beginning with the FY 2030 payment determination
  • The modification of several measures beginning with the FY 2028 payment determination. These modifications focus on adding Medicare Advantage patients for consideration and shortening the performance period from three years to two years.
    
    • CMS notes that with the increase in Medicare Advantage beneficiaries, these modifications are intended to better reflect the overall patient population and care coordination efforts. Shortening the reporting period is intended to allow measure results to reflect more recent performance and provide more actionable insights for improvement.
  • The removal of three measures beginning with the FY 2030 payment determination:
    
    
    4. Venous Thromboembolism Prophylaxis
    5. Intensive Care Unit Venous Thromboembolism Prophylaxis
    6. Discharged on Antithrombotic Therapy
• Hospital Readmissions Reduction Program: CMS is finalizing its proposal to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure. CMS is going to provide two years of confidential reporting that will include estimated payment adjustments with the sepsis measure added prior to the measure being used in payment reduction calculations beginning with the FY 2030 program year.
• Hospital VBP Program: Aligned with finalized changes to the IQR program, CMS is finalizing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year. Modifications are focused on adding consideration of Medicare Advantage patients and shortening the performance period.
• LTCH Quality Reporting Program (QRP): CMS is finalizing the removal of two measures from the LTCH QRP: 1) COVID-19 Vaccination Coverage among healthcare personnel beginning in FY 2028, and 2) COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure beginning in FY 2028. CMS is also finalizing revisions to the data submission deadline.

Other Updates

• Modification to Criteria for New Residency Programs: In addition to receiving accreditation by the appropriate body, CMS is finalizing its proposal that for a residency program to be considered new, at least 90% of included residents must not have previous training in another program in the same specialty.
• GME Antidiscrimination Policies: CMS is finalizing its proposal to introduce protections against discrimination within medical residency training programs. Specifically, this will include requirements that 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.