On April 11, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System proposed rule. The proposed rule would update Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for FY 2026. Comments on the proposed rule are due on June 10, 2025. A fact sheet is available here. The proposed rule notably does not include anticipated provisions on hospital conditions of participation related to gender-affirming care.
KEY TAKEAWAYS FROM THE FY 2026 IPPS PROPOSED RULE
- Standardized Amount: 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 Program and are meaningful electronic health record users. This reflects a projected FY 2026 hospital market basket increase of 3.2%, less a 0.8 percentage point productivity adjustment.
- Medicare Severity Diagnosis-Related Group (MS-DRG) Updates: CMS proposes creating new MS-DRG 209 for complex aortic arch procedures, MS-DRG 213 for endovascular abdominal aorta and iliac branch procedures, MS-DRGs 359 and 360 for percutaneous coronary atherectomy with intraluminal device, MS-DRG 318 for percutaneous coronary atherectomy without intraluminal device, and MS-DRGs 403 and 404 for hip or knee procedures with principal diagnosis of periprosthetic joint infection. CMS proposes to delete hypertensive encephalopathy MS-DRGs 077, 078, and 079.
- Transforming Episode Accountability Model (TEAM): CMS proposes several updates to TEAM, including a limited deferment for certain hospitals, neutral scoring on quality for hospitals with insufficient quality data, changes to the payment methodology and risk adjustment, and expansion of the skilled nursing facility three-day rule waiver. The basic tenets of the model remain the same: it is a five-year mandatory model that will begin on January 1, 2026.
- Special Rural Designations: While Congress typically extends the Medicare-dependent hospital (MDH) program and low-volume hospital payment adjustment, both are set to expire on September 30, 2025, and Congress has not yet acted to extend them further. Because CMS could not assume the continuation of these programs for purposes of the FY 2026 proposed rule, CMS states that as of October 1, 2025, hospitals that previously qualified for MDH status will be paid based on the federal rate. On the same date, both the qualifying criteria and the payment adjustment methodology for the low-volume adjustment will revert to the statutory requirements that were in effect prior to FY 2011.
- New Technology Add-On Payments: For FY 2027 and beyond, CMS proposes one minor policy change and proposes to broaden the application details publicly posted online.
- Quality Reporting Programs: The rule signals future quality measures supporting the Make America Healthy Again priorities of well-being and nutrition, and proposes to remove quality measures on health equity and social determinants of health.
- Wage Index: CMS proposes to discontinue the low wage index policy and to use a different transition policy to phase out the policy for affected hospitals.
- Disproportionate Share Hospital Payments and Uncompensated Care Payments: The total proposed uncompensated care payment to eligible disproportionate share hospitals for FY 2026 is $7.29 billion, an increase from the $5.78 billion finalized in FY 2025.
- Graduate Medical Education: CMS proposes technical changes to the calculation of full-time equivalent resident counts, caps, and three-year rolling averages for direct graduate medical education. CMS also proposes technical changes to the calculation of net nursing and allied health education costs.
- Requests for Information (RFIs): CMS solicits comments on the use of the Health Level 7® Fast Healthcare Interoperability Resources® in electronic clinical quality measure reporting in various quality reporting programs. CMS also seeks public input on ways to streamline regulations, reduce administrative burdens, and identify duplicative requirements across the Medicare program. Responses to this RFI are to be submitted through a web-based form, separate from other comments on the rule.
Our full summary of the IPPS Proposed Rule is for McDermott+ clients 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 2026 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
