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.
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.
Low Wage Index Hospital Policy
In the FY 2020 IPPS 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 of the U.S. Department of Health and Human Services (HHS), hereinafter, “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.
TEAM Model
In Transforming Episode Accountability Model (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 here.
Data, Technology and Interoperability
Assistant Secretary for Technology Policy/Office of the National Coordinator’s (ASTP/ONC) 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. The rule finalizes updates to the ONC Health Information Technology (IT) Certification Program that advance healthcare 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 timely, evidence-based care.
Reducing Regulatory Burdens
On January 31, 2025, Executive Order (EO) 14192 "Unleashing Prosperity Through Deregulation" was issued, which seeks to significantly reduce the private expenditures required to comply with federal regulations, among other goals. To comply with the EO, CMS is including in the IPPS 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.
In our next offering, we will summarize the final rule’s quality provisions.