Medicare Inpatient Proposal 2026

On April 11, 2025, CMS proposed increasing hospital pay by 2.4%, or about $4 billion, for fiscal 2026 in a draft rule that also proposes modifying several quality programs. Remember, these changes are currently only PROPOSED for January 1, 2026.

To advance HHS Secretary Robert F. Kennedy Jr’s so-called Make America Healthy Again (minus vaccines) agenda, the rule also seeks comments on quality measures for well-being and optimal nutrition, and the draft rule includes requests for information on ways to reduce regulatory burdens across Medicare. The Trump first term was very big on reducing regulatory paperwork. I will believe they are serious about this if MIPS goes away.

CMS will receive comments on the fiscal 2026 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) for 60 days after it is published in the Federal Register, which is projected to be June 10, 2025. There has been some discussion about not having future proposals and comments under the Trump Administration. We shall see.

Hospitals are not happy about the increase. Here is a statement from the American Hospital Association: "However, we are disappointed to see that the agency proposed an inadequate inpatient hospital payment update of 2.4%, including of particular concern an extremely high proposed productivity cut of 0.8%. 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."

• Payment Update--According to a fact sheet, CMS’s projected increase of 2.4% for inpatient hospitals includes a 3.2% market basket update reduced by a 0.8% productivity adjustment. Overall, CMS expects the proposed changes will increase pay by $4 billion, including a projected $1.5 billion increase in uncompensated care payments and $234 million in additional payments for new medical technologies. The estimate assumes the payments for Medicare-dependent hospitals and low-volume hospitals expire on October 1, per the continuing resolution. However, if the programs are extended, hospitals would get an estimated $500 million, which, with the possible tax cuts for the rich, is unlikely.
• Low-Wage Index--This policy aimed to address wage disparities among hospitals. Each hospital has its own wage index to inflate its per-discharge rates. A court had already vacated this policy last fall shortly after the agency released its final 2025 inpatient rule that called for the program's continuation. The Biden administration later issued an Interim Final Rule, which ended the low-wage policy and created a transitional program for hospitals that would be significantly affected by the change. The Trump administration also proposes to discontinue the 2020 policy for calendar year 2026 and future years and would create a similar transitional program for affected hospitals.
• Hospital Readmissions Reduction Program--CMS proposes several modifications to the Hospital Readmissions Reporting Program. The rule may add Medicare Advantage data to all six readmissions measures, including MA data in the modified calculation of readmissions, shorten the application period from three years to two, and remove COVID-19 exclusions and risk-adjustment covariants from the measures.CMS also seeks to update and codify its Extraordinary Circumstances Exceptions (ECE) policy to clarify that the agency can also approve extensions. These proposals would begin with the FY 2027 program year.
• Exempt Cancer Hospital Quality Reporting (PCHQR) Program--For the 11 cancer hospitals excluded from the IPPS, CMS is proposing to update the policy to clarify extensions can be granted, remove the hospital commitment to health equity reporting starting with the 2024 reporting period and remove the Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health measures. No need to worry about SDoH anymore because this administration does not give a hoot about them.
• Medicare Promoting Interoperability Program (MPIP)--CMS proposes to define the electronic health record (EHR) reporting period at a minimum of any continuous 180-day period within a calendar year for eligible hospitals, require eligible providers to attest that they have conducted security risk management and self-assessments using all eight Safe Assurance Factors for EHR Resilience (SAFER) guides. CMS also proposes an optional bonus measure under the Public Health and Clinical Data Exchange objective for data exchange to occur with a public health agency (PHA) using the Trusted Exchange Framework and Common Agreement® (TEFCA), which would begin in CY 2026.
• Hospital Inpatient Quality Reporting (IQR) Program--CMS proposes to modify four measures and remove four measures in CY 2026, and also seeks feedback on measure concepts for future years. Specifically, the agency proposes to add
• MA data and to shorten the application period from three years to two years for two measures: Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) and Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke Severity.
• For two other measures -- Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) -- CMS proposes to lower the submission thresholds to allow for up to two missing laboratory results and vital signs, reduce the core clinical data elements (CCDEs) submission requirement to 70% or more of discharges, and reduce the submission requirement of linking variables to 70% or more of discharges.
• The four measures that CMS seeks to end as of the 2024 reporting period include: Hospital Commitment to Health Equity, COVID-19 Vaccination Coverage among Health Care Personnel measure, and the Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health measures. Again, this Administration is not interested in finding out who is being left out of the healthcare universe.
• Transformation to Digital Measures--The rule also includes a Request for Information on the continued advancement to digital quality measurement and use of Health Level 7® Fast Healthcare Interoperability Resources® (FHIR®) standard. The agency specifically wants comments on its anticipated approach to FHIR-based electronic clinical quality measure (eCQM) reporting in quality reporting programs and the potential use of FHIR-based patient assessment instrument reporting for inpatient psychiatric facilities.
• Hospital Value-Based Purchasing (VBP) Program—The draft rule seeks several changes to the budget-neutral VBP program that are consistent with SDoH omissions to other programs. CMS also proposes to remove the health equity adjustment from the VBP scoring methodology, starting with the 2026 payment determination.
• Changes to the Transforming Episode Accountability Model (TEAM)--In 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. Proposed changes to TEAM would capture quality measure performance using patient-reported outcomes 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. 

 

For more detailed information and less commentary, see the Fact Sheet.