FY 2027 Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System Final Rule (CMS-1849-F)

FY 2027 Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System Final Rule (CMS-1849-F)

On July 31, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates Medicare payment policies and rates for inpatient and long-term care hospitals under the Medicare hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) for fiscal year (FY) 2027. The final rule also includes changes, clarifications, and codifications for Organ Acquisition and Reasonable Cost Payment Policies, and Reimbursement Appeals for Independent Organ Procurement Organizations and Histocompatibility Laboratories.

The final rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for FY 2027. CMS is publishing this final rule to meet the legal requirements to update Medicare payment policies for IPPS hospitals and LTCHs on an annual basis. This fact sheet discusses major provisions of the final rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/public-inspection/current .

The final rule expands the Comprehensive Care for Joint Replacement (CJR) Model, which produced strong evidence of cost savings while maintaining quality of care. The expanded model, called CJR-X , is designed to improve care for Original Medicare patients undergoing hip, knee, and ankle replacements (also called lower extremity joint replacements) performed in inpatient and hospital outpatient settings. CJR-X will be mandatory nationwide and begin on January 1, 2028.

Background on the IPPS and LTCH PPS

CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays, generally based on the patient's diagnosis, the services or treatment provided, and the severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are for: IPPS, Medicare Severity Diagnosis-Related Groups (MS-DRGs), and for LTCH PPS, Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs).

The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services these hospitals use when treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital "market basket." The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals' costs, including the patient's condition and the cost of hospital labor in the hospital's geographic area. CMS updates LTCHs' payment rates annually according to a separate market basket based on LTCH-specific goods and services.

Changes to IPPS Payment Rates

The finalized increase in the IPPS payment rates is 2.3%. This reflects a projected FY 2027 hospital market basket percentage increase of 3.2%, reduced by a 0.9 percentage point productivity adjustment. IPPS-participating hospitals must successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and be meaningful electronic health record (EHR) users to earn the full rate update.

Overall, for FY 2027, CMS expects the final changes in IPPS payment rates - in addition to other changes - will generally increase hospital payments by approximately $2.1 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $779 million in FY 2027, primarily driven by new approvals for 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 that these hospitals would receive additional payments of approximately $0.3 billion in FY 2027.

Changes to LTCH PPS Payment Rates

For FY 2027, CMS finalized an annual update of 2.3% to the LTCH standard payment rate, which reflects a projected LTCH PPS market basket percentage increase of 3.2%, reduced by a 0.9 percentage point productivity adjustment. CMS expects LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 2.2%, or $54 million, due primarily to the 2.3% annual update. For FY 2027, CMS is finalizing the proposal to maintain the LTCH PPS outlier threshold at its FY 2026 value. We estimate that this threshold will result in estimated outlier payments approximating 8% of estimated total payments, as required by statute, considering information currently available regarding possible LTCH charging practices and other information.

Graduate Medical Education (GME) Payments

To further strengthen the protections against unlawful discrimination finalized in the calendar year (CY) 2026 Outpatient Prospective Payment System (OPPS) Final Rule, we are finalizing the proposal to require that, in addition to meeting other applicable requirements, an 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 will also apply to approved nursing and allied health education programs and accreditors.

Organ Acquisition and Reasonable Cost Payment Policies, and Reimbursement Appeals for Independent Organ Procurement Organizations and Histocompatibility Laboratories

As part of broader efforts to strengthen Medicare cost reimbursement and appeals policies to ensure payment accuracy and reduce inappropriate spending, this rule finalizes the proposal that Medicare reconcile organ acquisition costs for non-renal organs for Independent Organ Procurement Organizations (IOPOs) and Histocompatibility Laboratories (HCLs) with a modification for a 2-year delayed implementation date for cost reporting periods beginning on or after October 1, 2028.This rule also finalizes the proposal to clarify and codify certain longstanding policies on allowable costs under Medicare's reasonable cost principles for all provider types, including public education for Organ Procurement Organizations. This rule also finalizes the proposal to clarify and codify Medicare's longstanding policies for allocating overhead costs across all provider types. Additionally, this final rule codifies the Administrator's discretionary review of reimbursement appeals for IOPOs and HCLs.

Hospital Inpatient Quality Reporting Program

The Hospital Inpatient Quality Reporting Program is a pay-for-reporting quality program that reduces payments to hospitals that do not meet program requirements. Hospitals that do not submit quality data or do not meet all Hospital Inpatient Quality Reporting Program requirements are subject to a one-fourth reduction in their Annual Payment Update under the IPPS.

In the FY 2027 IPPS/LTCH PPS final rule, CMS is finalizing the adoption of three new measures:

• Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination.
• Hospital Harm-Postoperative Venous Thromboembolism electronic clinical quality measure (eCQM) beginning with the FY 2030 payment determination.
• Advance Care Planning eCQM beginning with the FY 2030 payment determination.

CMS is finalizing the removal of three measures beginning with the FY 2030 payment determination:

• Venous Thromboembolism Prophylaxis eCQM.
• Intensive Care Unit Venous Thromboembolism Prophylaxis eCQM.
• Discharged on Antithrombotic Therapy eCQM.

CMS is finalizing modifications to three measures beginning with the FY 2028 payment determination. Modifications include adding Medicare Advantage patients and shortening the performance period from 3 years to 2 years:

• Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction.
• Excess Days in Acute Care after Hospitalization for Heart Failure.
• Excess Days in Acute Care after Hospitalization for Pneumonia.

CMS is finalizing the adoption of five modified mortality measures, beginning with the FY 2028 payment determination, before moving the modified versions to the Hospital Value-Based Purchasing Program. Modifications include adding Medicare Advantage patients and shortening the performance period from 3 years to 2 years:

• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft Surgery measure.

CMS is also finalizing changes to the data reporting and submission requirements for some eCQMs and structural measures, specifically:

• Mandatory reporting for the Malnutrition Care Score eCQM beginning with the FY 2030 payment determination.
• Establishing a mandatory reporting policy to make hospital harm eCQMs mandatory after 2 years of reporting beginning with the FY 2030 payment determination. We note that the proposed policy has been modified such that the data will be publicly reported on the Provider Data Catalog for the first year of mandatory reporting before publicly reporting on the Care Compare tool at Medicare.gov , including Hospital Star Ratings, beginning with the second year of mandatory reporting.
• An update to the reporting of the Maternal Morbidity Structural measure beginning with the FY 2028 payment determination to identify which perinatal quality collaborative the hospital participates in.

Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program is a value-based purchasing program that reduces payments to hospitals with excess readmissions. The program supports improving quality of care and care coordination for patients. In the FY 2027 IPPS/LTCH PPS final rule, CMS is finalizing the proposal to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure, with modifications. Hospitals will have 2 years of confidential early look reports that will include estimated Hospital Readmissions Reduction Program payment adjustments with the sepsis readmission measure added during the FY 2028 and FY 2029 program years. The measure will be used in payment reduction calculations beginning with the FY 2030 program year.

Hospital-Acquired Condition Reduction Program

The Hospital-Acquired Condition Reduction Program creates an incentive for hospitals to improve patient safety and reduce the rate of hospital-acquired conditions. Hospitals in the worst-performing quartile receive a payment reduction of 1% on overall Medicare fee-for-service payments. CMS is not making any changes to this program in the FY 2027 IPPS/LTCH PPS final rule.

Hospital Value-Based Purchasing Program

The Hospital Value-Based Purchasing Program is a budget-neutral program funded by reducing participating hospitals' base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments. In the FY 2027 IPPS/LTCH PPS final rule, CMS is finalizing modifications to five condition-specific and procedure-specific mortality measures beginning with the FY 2032 program year. Modifications include adding Medicare Advantage patients and shortening the performance period:

• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart Failure Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Pneumonia Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease Hospitalization measure.
• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft Surgery Acute Ischemic Stroke measure.

We note that several proposals across our Quality Reporting and Value-Based Purchasing Programs include the addition of Medicare Advantage data for purposes of calculating claims-based measures. With the increase in Medicare Advantage beneficiaries to more than half of all Medicare beneficiaries, these modifications will better reflect overall patient care coordination among a broader population of patients, improving measure reliability. Shortening the reporting period will also allow measure results to reflect more recent hospital performance and provide more actionable insights for quality improvement.

PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program

The PCH Quality Reporting Program is a quality reporting program for eleven cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2027 IPPS/LTCH PPS final rule, CMS is adopting the Advance Care Planning eCQM and the Malnutrition Care Score eCQM, with a modification to offer an initial voluntary reporting period for the FY 2030 program year and mandatory reporting beginning with the FY 2031 program year. CMS is also finalizing removal of the COVID-19 Vaccination Coverage Among Healthcare Personnel measure beginning with the FY 2028 program year. Finally, CMS is finalizing the reporting and submission requirements for eCQMs in the PCH setting.

Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

The LTCH QRP is a pay-for-reporting program, which requires LTCHs to submit quality data to CMS. Any LTCHs that do not meet reporting requirements may be subject to a 2-percentage point (2%) reduction in their Annual Payment Update. Additionally, measures adopted into the LTCH QRP are publicly reported on the Care Compare tool at Medicare.gov . In the FY 2027 IPPS/LTCH PPS final rule, CMS is finalizing the following:

• Removal of two measures from the LTCH QRP:
  • COVID-19 Vaccination Coverage Among Healthcare Personnel measure beginning with the FY 2028 LTCH QRP.
  • COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure beginning with the FY 2028 LTCH QRP.
• Revision of the data submission deadline.
• CMS summarized public comment received on one future measure concept: advance care planning for the LTCH QRP.

Medicare Promoting Interoperability Program

The Medicare Promoting Interoperability Program encourages eligible hospitals and critical access hospitals to adopt, implement, upgrade, and demonstrate meaningful use of certified electronic health record technology (CEHRT).

In the FY 2027 IPPS/LTCH PPS final rule, CMS is finalizing policies to:

• Remove and revise certification criteria required for the Medicare Promoting Interoperability Program in alignment with proposals made by the Office of the National Coordinator for Health IT (ONC) in the Health Data, Technology, and Interoperability: Assistant Secretary for Technology Policy (ASTP)/ONC Deregulatory Actions to Unleash Prosperity proposed rule (HTI-5 proposed rule).
• Remove ONC Direct Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance attestations beginning with the EHR reporting period in CY 2026.
• Remove, with modification to delay removal an additional year, the Support Electronic Referral Loops by Sending Health Information and Support Electronic Referral Loops by Receiving and Reconciling Health Information measures beginning with the EHR reporting period in CY 2029.
• Modify the Electronic Prior Authorization measure as an optional bonus measure for the EHR reporting period in CY 2027 and mandatory beginning with the EHR reporting period in CY 2028.
• Add the Unique Device Identifiers for Implantable Medical Devices measure to the Public Health and Clinical Data Exchange objective beginning with the EHR reporting period in CY 2027.
• Adopt two new eCQMs beginning with the FY 2030 payment determination in alignment with the Hospital Inpatient Quality Reporting Program (the Hospital Harm-Postoperative Venous Thromboembolism and the Advance Care Planning eCQMs).
• Remove three eCQMs beginning with the FY 2030 payment determination in alignment with the Hospital Inpatient Quality Reporting Program (Venous Thromboembolism Prophylaxis, Intensive Care Unit Venous Thromboembolism Prophylaxis, and Discharged on Antithrombotic Therapy eCQMs).

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