On April 10, 2026, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2027 Inpatient Prospective Payment System (IPPS) proposed rule. This proposed rule would update Medicare payment policies and quality reporting programs relevant for inpatient hospital services.
A CMS fact sheet on the proposed rule is available here. Comments are due by 5 pm EDT on June 9, 2026.
Key takeaways from the FY 2027 IPPS proposed rule
- CMS proposes a 2.4% increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users. This reflects a projected FY 2027 hospital market basket increase of 3.2%, less a 0.8 percentage point productivity adjustment.
- CMS proposes to nationalize the Comprehensive Care for Joint Replacement (CJR) Model. If finalized, all hospitals that bill Medicare Part A and Part B will be paid through the Comprehensive Care for Joint Replacement Expansion (CJR-X) or the Transforming Episode Accountability Model (TEAM) for lower-extremity joint replacement episodes of care for Medicare fee-for-service beneficiaries.
- CMS proposes to eliminate the alternate pathway for new technology add-on payments under IPPS and the transitional pass-through under the Outpatient Prospective Payment system (OPPS), requiring medical devices with breakthrough device designation (BDD) to meet the same eligibility criteria as non-BDD technologies.
- Consistent with prior years’ rulemaking, CMS proposes a number of MS-DRG changes, including the creation of new extensive and complex spinal fusion MS-DRGs, reorganization of cardiac pacemaker revision and device replacement MS-DRGs, and deleting a number of MS-DRGs with severity levels to create a few single-base MS-DRGs.
- CMS is proposing one new measure for the Hospital Readmissions Reduction Program, but no new measures to the other two pay-for-performance programs. CMS is proposing new measures, modified measures, and measure removals for the inpatient quality reporting program.
- CMS is not proposing any major changes to wage index policy. CMS proposes to continue the transitional exception for hospitals that benefitted from the low wage index policy before it ended in FY 2024.
- Proposed uncompensated care payment and supplemental payment for FY 2027 totals $7.563 billion, a 3.3% decrease from the FY 2026 total of $7.821 billion.
- CMS is proposing requirements to prohibit unlawful discrimination by graduate medical education (GME) programs and to modify the criteria for identifying new residency programs for purposes of direct GME and indirect medical education (IME) payments.
- Because Congress extended the low-volume hospital payment adjustment and Medicare-Dependent Hospital (MDH) programs only through the end of the calendar year, CMS sets forth proposed policies for these hospitals for both the portion of the fiscal year that falls within that window (October 1, 2026, through December 31, 2026) and the remainder of the fiscal year, beginning on January 1, 2027.
- CMS proposes updates to TEAM to expand eligible spinal fusion episodes, better align attribution and quality measures with other CMS programs and models, and refine pricing methodologies. The agency is also seeking input on expanding participation to other organizations and episodes.
Our full summary of the IPPS proposed 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 proposed 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
