The Centers for Medicare & Medicaid Services (CMS) released the Fiscal Year (FY) 2026 Inpatient Prospective Payment System (IPPS) final rule. Provisions go into effect Oct. 1 unless otherwise noted.
The CMS finalized a 2.6% increase in payment for items and services paid under IPPS for FY 2026, reflecting an FY 2026 hospital market basket percentage increase of 3.3%, reduced by a 0.7 percentage point productivity adjustment. The agency finalized total uncompensated care-based payments equal to $7.71 billion (up from the proposed $7.14 billion and an increase of $2.07 billion from FY 2025) and empirically justified disproportionate share hospital payments equal to $4.14 billion in FY 2026 (up from $3.92 billion in the proposed rule). CMS is also discontinuing its low-wage index policy for FY 2026 and beyond and finalizing a narrow budget-neutral transitional policy in FY 2026 for hospitals significantly impacted by the elimination of the policy, similar to what was implemented in the FY 2025 IPPS interim final rule [refer to Washington Highlights, Oct. 4, 2024.]
For graduate medical education (GME) updates, the CMS provided clarification for its policy of calculating full-time equivalent (FTE) counts for cost reporting periods other than 12 months. In a separate rule, the Inpatient Psychiatric Facility PPS, the CMS finalized an increase to the teaching status adjustment factor and a new policy to allow inpatient psychiatric facility FTE cap increases associated with the portion of resident training for awarded positions under Section 4122 of the Consolidated Appropriations Act, 2023 (P.L. 117-328).
The rule finalized several changes to the inpatient quality reporting and value programs, including the removal of quality measures on health equity and social determinants of health, as well asl COVID-19 vaccination, and proposes the inclusion of Medicare Advantage patients in certain existing measures. The rule retained the mandatory Transforming Episode Accountability Model finalized last year that will bundle payment for certain surgical procedures for a subset of selected hospitals beginning Jan. 1, 2026. The CMS finalized some modifications to quality measurement in the model, changes to the payment methodology and risk adjustment, expansion of the skilled nursing facility three-day waiver, and removal of the decarbonization and resilience initiative.
Finally, the Assistant Secretary for Technology Policy/Office of the National Coordinator for Health IT (ONC) included a new final rule within the Health Data, Technology, and Interoperability rule series to update certain ONC health IT module certification standards [refer to Washington Highlights, Aug. 8].