On July 31, 2026, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2027 Inpatient Prospective Payment System (IPPS) final rule. This rule updates Medicare payment policies and quality reporting programs relevant for inpatient hospital services.
A CMS fact sheet on the proposed rule is available here. The final rule is scheduled to be published in the Federal Register on August 4, 2026.
Key takeaways from the FY 2027 IPPS final rule
- CMS finalized a 2.3% payment increase for hospitals that successfully participate in CMS reporting programs.
- CMS finalized its proposal to nationalize the Comprehensive Care for Joint Replacement (CJR) model, with mandatory participation beginning January 1, 2028.
- CMS finalized updates to the Transforming Episode Accountability Model (TEAM) to expand eligible spinal fusion episodes, better align attribution and quality measures with other CMS programs and models, and refine pricing methodologies.
- CMS finalized its proposals to create new Medicare severity diagnosis-related group (MS-DRGs), including extensive and complex spinal fusion (MS-DRGs 523 – 525), hip and knee procedures with principal diagnosis of periprosthetic joint infection (MS-DRGs 403, 404), and cardiac pacemaker revision and device replacement (MS-DRGs 210, 211). CMS also finalized its proposal to delete several MS-DRGs.
- CMS finalized its proposals, with modifications, to repeal the alternative IPPS new technology add-on payment (NTAP) and Outpatient Prospective Payment System (OPPS) transitional pass-through payment (TPTP) pathways and require all applicants, regardless of US Food and Drug Administration (FDA) breakthrough device designation or qualified infectious disease product (QIDP) status, to demonstrate that their technology meets all three eligibility criteria.
- CMS will continue NTAP eligibility for 41 technologies for FY 2027 based on its existing newness policy. CMS approved 19 NTAP applications to start in FY 2027.
- CMS finalized one new measure for the Hospital Readmissions Reduction Program, with modifications. CMS did not propose or finalize any new measures for the Value-Based Purchasing Program or the Hospital-Acquired Condition Reduction Program. CMS finalized new measures, measure modifications, and measure removals for the Inpatient Quality Reporting (IQR) Program.
- CMS did not propose any major changes to wage index policy. CMS finalized its proposal to continue the transitional exception for hospitals that benefitted from the low wage index policy before it ended in FY 2024.
- Uncompensated care payment (UCP) and supplemental payment for FY 2027 totals $8.049 billion, a 2.9% increase from the FY 2026 total of $7.821 billion.
- CMS finalized prohibitions on unlawful discrimination by approved medical residency training programs and finalized modifications to the criteria for identifying new residency programs for purposes of direct graduate medical education (GME) and indirect medical education (IME) payments.
- Because Congress extended the low-volume hospital payment adjustment and Medicare-dependent hospital (MDH) programs through the end of the calendar year (CY), CMS finalized policies for these hospitals, as proposed, for both the portion of the FY that falls within that window (October 1, 2026, through December 31, 2026) and the remainder of the FY, beginning on January 1, 2027.
Our full summary of the IPPS final rule is for McDermott+ clients and McDermott+ Insider subscribers only; please contact your relationship consultant with questions. For inquiries, please contact us.
INTERACTIVE IPPS DATA DASHBOARD
McDermott+ has developedan interactive dashboard that shows total Medicare fee-for-service volume and the average cost per inpatient stay by MS-DRG, as calculated by CMS for the FY 2027 IPPS final rule. This information can illuminate trends in inpatient volume and payments and identify the resource costs to hospitals for providing care for individual MS-DRGs.
ACCESS DASHBOARD
