The Centers for Medicare & Medicaid Services (CMS) on Friday issued a proposed rule for inpatient hospitals and long-term care hospitals that would update Medicare payments and policies and asks the public for ways to improve the quality of care provided by inpatient hospitals.
The Fiscal Year (FY) 2026 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule, which is scheduled to be published in the Federal Register on April 30, would increase the payment rate for hospitals by 2.4 percent.
The increase reflects a 3.2 percent projected increase in the hospital market basket for the fiscal year 2026, reduced by a 0.8 percent productivity adjustment. CMS said in an announcement that the productivity adjustment results from anticipated improvements in efficiency. These proposed payment rates reflect the most accurate, updated data on the cost of goods, services, and labor, the agency said.
In a fact sheet, CMS said it expects the proposed changes in operating and capital IPPS payment rates—in addition to other changes—will generally increase hospital payments by $4 billion. This includes a projected increase in Medicare uncompensated care payments to disproportionate share hospitals in FY 2026 of approximately $1.5 billion.
Although CMS said the increased payment will help support people with Medicare, the American Hospital Association (AHA) called it inadequate.
We are disappointed to see that the agency proposed an inadequate inpatient hospital payment update of 2.4 percent, including of particular concern an extremely high proposed productivity cut of 0.8 percent,” said Ashley Thompson, AHA’s senior vice president for public policy analysis and development. “We are very concerned that this update will hurt our ability to care for our communities. Indeed, many hospitals across the country, especially those in rural and underserved communities, already operate under unsustainable financial situations, including negative margins. We urge CMS to reconsider its policy in the final rule to enable all hospitals to provide high-quality, around-the-clock, essential care for their patients and communities.”
In addition to the payment updates, CMS said it wants public input on ways to improve the quality of care provided by inpatient hospitals. The feedback will help advance the agency’s commitment to Making America Healthy Again by reprioritizing patients’ activity, nutrition, and overall wellness. Specifically, CMS seeks comments related to measures that focus on well-being and nutrition for consideration in future years.
The proposed rule also seeks to:
Modify four current quality 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, shorten the performance period from three to two years, and change the risk adjustment methodology.
- 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, shorten the performance period from three to two years, and make changes to the risk adjustment methodology.
- Hybrid Hospital-Wide Readmission (HWR) and (4) 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 percent or more of discharges, and reduce the submission requirement of linking variables to 70 percent or more of discharges.
Remove four measures
- Hospital Commitment to Health Equity beginning with the CY 2024 reporting period/FY 2026 payment determination.
- COVID-19 Vaccination Coverage among Health Care Personnel measure, beginning with the CY 2024 reporting period/FY 2026 payment determination.
- Both 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 payment determination.
Modernize health care regulations
CMS wants to reduce duplications through technology and holding providers accountable for safety and outcomes. CMS wants feedback on potential future quality measures, implementing Fast Healthcare Interoperability Resources® (FHIR®), modernizing health reporting, and reducing burden.
Modify the Transforming Episode Accountability Model (TEAM)
CMS wants to capture quality measure performance in the outpatient setting without increasing participant burden, improve target price construction, and expand the three-day Skilled Nursing Facility Rule waiver, giving patients a wider choice of and access to post-acute care. Under the proposal, 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.
Update LLTCH PPS payment rates
CMS proposes an annual update of 2.6 percent to the LTCH standard payment rate, which reflects a projected LTCH PPS market basket percentage increase of 3.4 percent, 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 2.2 percent, or $52 million, due primarily to the 2.6 percent annual update and a projected 0.3 percent decrease in high-cost outlier payments as a percentage of total LTCH PPS standard federal payment rate payments. CMS is proposing an increase to the LTCH outlier threshold for FY 2026, consistent with the increases in recent years. This increase is needed to ensure that estimated outlier payments are approximately eight percent of total payments, as required by statute.