Final Rule Highlights and Potential Implications

• Issued on April 10, 2026, the FY 2027 proposed rule would update payment rates for hospitals paid under the Inpatient Prospective Payment System (IPPS) by 2.4%. This reflects a hospital market basket update of 3.2%, reduced by a 0.8 percentage point productivity adjustment. For long-term care hospitals (LTCHs), CMS is proposing a 2.4% update.
• Notably, CMS is proposing to expand the Comprehensive Care for Joint Replacement (CJR) Model to a mandatory, nationwide model called CJR Expanded (CJR-X). If finalized, CJR-X would be mandatory for most acute care hospitals, except for those participating in the Transforming Episode Accountability Model (TEAM) and acute care hospitals located in Maryland. This would represent the first nationwide, mandatory, episode-based payment model in Medicare.

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Additional Details

Proposed Payment Updates

• IPPS: The proposed 2.4% payment increase for FY 2027 is estimated to boost hospital payments by $1.4 billion. CMS also anticipates that payments for inpatient cases using new medical technology will increase by $464 million due to the continuation 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 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 these hospitals would receive additional payments of approximately $0.4 billion in FY 2027.
• LTCH: CMS is proposing an annual update of 2.4% to the LTCH standard payment rate, which reflects a 3.2% market basket update, reduced by a 0.8 percentage point productivity adjustment. For discharges paid at the LTCH standard payment rate, CMS expects a total increase of approximately 2.3%, or $55 million.

Expanded CJR Model

• CMS is proposing to expand the CJR model to a mandatory, nationwide model beginning on October 1, 2027. CJR-X would continue to focus on lower-extremity joint replacements through an episode-based payment approach that begins with the procedure and ends 90 days following discharge.
• If finalized, most hospitals paid under the IPPS would be required to participate in CJR-X; exempt hospitals would include those participating in TEAM and hospitals located in Maryland. Non-IPPS hospitals, such as critical access hospitals and rural emergency hospitals, would also be excluded.

TEAM

• TEAM is a five-year mandatory hospital-based alternative payment model that was finalized in the FY 2025 IPPS rule 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 proposed rule, CMS is proposing 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.
• CMS is also seeking feedback on two Requests for Information (RFIs) regarding ambulatory surgical center episodes and voluntary participation of hospitals with physician ownership.

Proposed Quality Program Updates

• Hospital Inpatient Quality Reporting (IQR) Program: CMS is proposing several changes to the IQR program, including but not limited to:
  • The proposed adoption ofthree 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 proposed 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.
• Hospital Readmissions Reduction Program: 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 VBP Program: Similar to changes proposed to the IQR program, CMS is proposing 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 proposing to remove 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 proposing to revise the data submission deadline and seeking public comment on future inclusion of Advance Care Planning in the LTCH QRP.

Other Updates

• Modification to Criteria for New Residency Programs: In addition to receiving accreditation by the appropriate body, CMS is proposing 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 proposing 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.