FFY 2027 IPPS and LTCH Proposed Rules

April 21, 2026

FFY 2027 IPPS and LTCH Proposed Rules

David Ault, Brittany DiBiaggio, Summer Durant, Jake Fulton, Ryan Gorman, James Harold Richards, Stephanie Webster Ropes & Gray LLP + Follow Contact LinkedIn Facebook X ;) Embed

On April 14, 2026, the Centers for Medicare & Medicaid Services (CMS) published its annual proposed rule for the federal fiscal year (FFY) 2027 Inpatient Prospective Payment System (IPPS) and long-term care hospital (LTCH) prospective payment system (the LTCH PPS). The rule addresses a wide range of topics, including (A) proposed increases to operating payments for acute care hospitals that meet quality reporting standards by 2.4%, for a projected $1.9 billion rise in total IPPS payments; (B) updates to graduate medical education (GME) standards; (C) modifications to provider-based department policies; (D) transitional rules for hospitals impacted by the discontinuation of the low wage index hospital policy; (E) revisions to the rules governing organ acquisition costs; (F) revisions to the calculation of uncompensated care payments to disproportionate share hospitals; (G) expiration of expanded criteria for the low-volume hospital payment adjustment and Medicare-Dependent Hospital (MDH) program; (H) modifications to criteria for new technology add-on payments; (I) updates to the Transforming Episode Accountability Model (TEAM); (J) expansion of the Comprehensive Care for Joint Replacement Expanded (CJR-X) model; (K) modifications to several quality programs, including the Hospital Inpatient Quality Reporting (IQR) Program, Hospital Value-Based Purchasing (VBP) Program, the Hospital Readmissions Reduction Program (HRRP), the Medicare Promoting Interoperability Program, the PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program; and (L) modifications to the LTCH Quality Reporting Program. Below is a summary of its key proposals. Comments on the proposed rule are due by June 9, 2026.

A. Payment Rate Updates

CMS proposes to update the national standardized amount for inpatient hospital operating costs by an applicable percentage increase of 2.4% for hospitals that submit quality data and are meaningful Electronic Health Record (EHR) users. 1 This update reflects a proposed 3.2% market basket percentage increase, reduced by a 0.8 percentage point productivity adjustment as required under § 1886(b)(3)(B)(xi) of the Social Security Act. 2 For hospitals that fail to submit quality data, the applicable percentage increase would be reduced by one-quarter of the market basket update (0.8 percentage points), and for hospitals that are not meaningful EHR users, the update would be reduced by three-quarters of the market basket update (2.4 percentage points). 3 For LTCHs, CMS proposes an annual market basket update of 2.4% to the LTCH PPS standard Federal payment rate, resulting in a proposed LTCH PPS standard Federal payment rate of $52,177.04. LTCHs that fail to submit quality reporting data would receive an update of only 0.4%. 4

B. Graduate Medical Education (GME) Residency Programs and Payments

CMS proposes to modify criteria for identifying new residency programs under 42 C.F.R. § 413.79(l), specifically by requiring at least 90% of individual residents to not have had previous experience training in another program in the same specialty, excluding “small” residency programs accredited for 16 or fewer resident positions, and excepting from the 90% calculation any residents admitted via the National Resident Matching Program or other third-party resident matching programs whose results are binding on hospitals. 5

CMS also proposes to require that an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis or race, color, national origin, sex, age, disability, or religion, including intentional use of proxies as selection criteria. 6 CMS finalized similar requirements for GME accrediting bodies in the calendar year 2026 Outpatient Prospective Payment System and Ambulatory Surgery Center final rule—in response to Executive Order 14279 (April 23, 2025), which directed the Attorney General, in consultation with the Secretary of Health and Human Services, to investigate and take appropriate action to terminate unlawful discrimination “that is advanced by the Liaison Committee on Medical Education or the Accreditation Council for Graduate Medical Education or other accreditors of graduate medical education, including unlawful ‘diversity, equity, and inclusion’ requirements under the guise of accreditation standards.” 7 CMS states that anti-discrimination requirements are also necessary for individual residency programs to assure that “individual programs do not implement policies that constitute unlawful discrimination under Federal law.” 8 CMS proposes to codify these anti-discrimination requirements at a new 42 C.F.R. § 413.84, which will apply to residency programs along with approved nursing and allied health education programs.

C. Provider-Based Department Policies

CMS proposes revising requirements for off-campus provider-based departments, with the stated objective of eliminating arguably unwarranted payment advantages by hospitals. 9 Under 42 C.F.R. § 413.65(e)(3)(iii), there are two options to satisfy the requirement for an off-campus facility (or organization) to have a high level of integration with the main provider, and therefore meet one of the criteria for provider-based status: (A) having at least 75% of the patients served by the facility reside in the same zip code areas as at least 75% of the patients served by the main provider; or (B) having at least 75% of the patients served by the facility who required the type of care furnished by the main provider to have received care from the main provider. CMS proposes to limit option (B) to outpatient departments only and therefore exclude inpatient facilities from this test. 10 CMS states that option (B) was intended to encompass “referral-based” arrangements between the main provider and an outpatient facility, and CMS is concerned that, if option (B) continued to apply to inpatient facilities, certain specialty and PPS-excluded hospitals could obtain significant payment advantages for inpatient services provided at considerable distances from the main provider. 11 Under this proposal, to qualify for provider-based status, off-campus inpatient facilities would be required to meet option (A) by having at least 75% of patients served by the facility reside in the same zip code areas as at least 75% of patients served by the main provider.

D. Continued Transition for the Discontinuation of the Low Wage Index Hospital Policy

Following the D.C. Circuit’s decision in Bridgeport Hospital v. Becerra, CMS discontinued the low wage index hospital policy beginning with FFY 2025 and removed the associated budget neutrality factor from the IPPS standardized amounts. 12 CMS states that, due to the discontinuation of the low wage index hospital policy, some hospitals that previously benefited from the policy are experiencing significant year-over-year wage index decreases from their FFY 2024 levels. 13 CMS states that to mitigate these impacts, it proposes to extend a narrow transitional exception to the calculation of FFY 2027 IPPS payments for those significantly affected hospitals, invoking its authority under § 1886(d)(5)(I)(i) of the Social Security Act. 14 CMS proposes to make transitional payments to impacted hospitals in the same manner as FFY 2026, which will be available to hospitals with a wage index that has decreased by more than 14.2625% compared to its FFY 2024 wage index. 15 Such hospitals will receive additional reimbursement in their payment rates equal to the additional amount the hospital would have received if its wage index were equal to 85.7375% of its FFY 2024 wage index. CMS also will apply a budget neutrality factor of 0.999782, calculated using FFY 2025 discharge data to simulate payments with and without the transition payment. 16 Alongside these transitional payments, CMS proposes preserving the existing 5% cap on annual wage index decreases under 42 C.F.R. § 412.64(h)(7)—,which assures that a hospital’s final wage index in a new FFY is never less than 95% of its wage index from the previous FFY. 17

E. Reasonable Cost Payment Policies and Reimbursement Appeals for Independent Organ Procurement Organizations (IOPOs) and Histocompatibility Laboratories (HCLs)

CMS proposes to clarify, codify, and in some cases revise Medicare reasonable cost reimbursement policies under 42 C.F.R. Part 413, prompted in part by recent Office of Inspector General (OIG) findings of unallowable costs claimed on Medicare cost reports by IOPOs, Critical Access Hospitals, and transplant hospitals. 18

CMS proposes to extend Medicare's reasonable cost reimbursement and reconciliation framework—historically limited to kidney acquisition—to nonrenal organ acquisition costs (heart, liver, lung, pancreas) for IOPOs and HCLs, effective for cost reporting periods beginning on or after October 1, 2027. The proposal would revise 42 C.F.R. § 413.420 by changing “kidney” to “organ” throughout and adding new provisions to distinguish kidney and nonrenal organ services, while requiring IOPOs and HCLs to comply with reasonable cost principles for all organ types. CMS also proposes that Medicare contractors—rather than IOPOs themselves—would establish, adjust, and publish nonrenal organ-specific Standard Acquisition Charges (SACs) and interim rates, following the same procedures used for kidney SACs, with the stated objective of enhancing transparency, payment accuracy, and oversight of nonrenal organ costs.

Other notable proposals include (i) formally codifying the longstanding “prudent buyer” standard from the Provider Reimbursement Manual, Part 1 (PRM-1), § 2103, defining a prudent buyer as one who purchases with caution, good judgment, and cost consciousness; (ii) limiting allowable OPO public education costs to direct, community-based engagement within the OPO’s donation service area; (iii) codifying the prohibition on entertainment costs for all providers, including sponsorship of sporting events, parade floats, concert tickets, spa retreats, golf outings, wine tours and similar activities; (iv) codifying the existing PRM-1 prohibition on costs for furnishing alcoholic beverages to anyone, regardless of context; (v) codifying detailed rules distinguishing allowable from unallowable education and travel costs, such as making overnight travel an allowable cost when the event is more than 50 miles away and requires over eight hours of attendance, but disallowing entertainment and vacation travel (e.g., cruises, resorts, sporting events) regardless of any educational component; and (vi) disallowing costs for meals provided to employees, staff, nonpersonnel and attendees at educational events. 19 CMS also proposes to codify overhead cost allocation requirements, with the stated objective of preventing improper distribution of Administrative & General (A&G) costs, using two correction methods—the Negative Adjustment Method and the “Componentizing” Method. 20 The Negative Adjustment Method applies a negative adjustment for cost centers that should be excluded from receiving allocation of A&G costs, and the Componentizing Method requires adding additional columns (or “components”) to allocation worksheets that expand broad A&G cost centers into multiple cost centers, which CMS states will allow for a more granular and accurate allocation and ensure that overhead costs are properly assigned to reimbursable departments.

Lastly, CMS proposes to codify the CMS Administrator’s asserted discretionary authority to review official decisions in OPO and Histocompatibility Laboratory cost report reimbursement appeals, including a 15-day window for parties to request Administrator review, a 30-day window for the Administrator to issue a notice of intent to review, and a 60-day deadline for the Administrator’s final decision after issuance of a notice to review. 21

F. Medicare Disproportionate Share Hospitals and Uncompensated Care Payments

The proposed rule includes proposed modifications and corresponding projections for uncompensated care payments to disproportionate share hospitals. CMS projects that Factor 1 payments for FFY 2027 will total $11.477 billion, a decrease from the FFY 2026 final rule’s Factor 1 of $12.412 billion. 22 CMS proposes to increase Factor 2, which estimates the percentage of individuals who are uninsured, from 62.14% in FFY 2026 to 65.00% for FFY 2027. 23 CMS will continue to calculate Factor 3 using the most recent three years of audited cost data from Worksheet S-10 of hospital cost reports. 24 Overall, CMS estimates total uncompensated care payments and supplemental payments to be approximately $7.563 billion for FFY 2027, a slight decrease compared to $7.821 billion in FFY 2026. 25

G. Low-Volume Hospital and MDH Program Changes

Under Section 1886(d)(12)(C)(i) of the Social Security Act, as amended by the Consolidated Appropriations Act of 2026, for FFYs 2019 through 2026 and a portion of FFY 2027 beginning on October 1, 2026 and ending on December 31, 2026, hospitals qualify as “low-volume” and are entitled to a corresponding payment adjustment if they have fewer than 3,800 discharges and are located more than 15 road miles from another qualifying hospital. 26 Beginning January 1, 2027, the low-volume hospital definition reverts to the permanent statutory requirements, requiring hospitals to have fewer than 200 discharges and be located more than 25 road miles from another qualifying hospital. 27 Similarly, the MDH program was extended only through December 31, 2026, under § 6202 of the Consolidated Appropriations Act of 2026. 28 CMS notes that, under current law, all MDH hospitals will receive payment based solely on the federal rate beginning January 1, 2027. 29 CMS estimates that approximately 80 MDHs currently paid under the blended rate would experience an overall decrease in payments of approximately $110 million due to the expiration of MDH status. 30

H. New Technology Add-On Payments

CMS proposes to continue new technology add-on payments for 41 technologies in FFY 2027, with an aggregate estimated total impact of more than $836 million. 31 CMS received 47 applications for FFY 2027 new technology add-on payments (15 traditional and 32 alternative pathway), of which 30 applications remain under consideration after withdrawals and ineligibility determinations. 32 CMS also proposes to repeal the alternative pathway for new technology add-on payments beginning with applications received for FFY 2028 and subsequent fiscal years. 33 Under this proposal, all applicants, including Food and Drug Administration (FDA) designated Breakthrough Devices and Qualified Infectious Disease Products (QIDPs) or drugs approved under FDA’s Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway, would be required to demonstrate substantial clinical improvement over existing technologies rather than receiving automatic eligibility under the alternative pathway. 34

I. TEAM Updates

CMS proposes several updates to TEAM, the mandatory episode-based alternative payment model finalized in the FFY 2025 IPPS/LTCH PPS final rule that began January 1, 2026 and will run through December 31, 2030. 35 TEAM tests five surgical episode categories, namely: Coronary Artery Bypass Graft, Lower Extremity Joint Replacement, Major Bowel Procedure, Surgical Hip/Femur Fracture Treatment, and Spinal Fusion, to see whether an episode-based pricing methodology linked with quality measure performance for select acute care hospitals reduces Medicare program expenditures while preserving or improving the quality of care for Medicare beneficiaries subject to the foregoing surgical episode categories. 36 Key proposed changes include updates to the spinal fusion definition to add Medicare Severity Diagnosis Related Groups (MS-DRGs) 523, 524, and 525 to the spinal fusion episode category, as well as modifications to episode attribution rules to address overlap with the proposed CJR-X model. 37 CMS also proposes updates to quality measures. 38 CMS is soliciting public comment through two RFIs regarding potential ambulatory surgical center episodes and voluntary participation of hospitals with physician ownership. 39

J. Proposed Expansion of CJR-X Model

CMS proposes to expand the CJR-X Model nationwide based on evaluation results showing the original CJR Model achieved $112.7 million in net savings to Medicare across performance years 6 and 7 while maintaining quality of care. 40 Under § 1115A(c) of the Social Security Act, the Secretary has determined that expansion would reduce spending without reducing quality of care, and CMS notes that its Chief Actuary has certified that expansion would produce Medicare savings. 41 CJR-X would begin October 1, 2027 and would be mandatory for all eligible acute care hospitals except those participating in TEAM and hospitals located in Maryland. 42 Episodes would include a 90-day post-discharge period, compared to the 30-day period in TEAM, to allow for direct comparison between the two models. 43 CMS projects CJR-X would generate approximately $725 million in net Medicare savings over five years. 44

K. Quality Program Updates

CMS proposes updates to several quality programs, including the Hospital IQR, Hospital VBP, HRRP, Medicare Promoting Interoperability, and PCH programs. 45 For the Hospital IQR Program, CMS proposes to modify the Malnutrition Care Score electronic clinical quality measure (eCQM) from self-selected to mandatory reporting beginning with CY 2028. 46 For the VBP Program, CMS is proposing modifications to five condition-specific and procedure-specific mortality measures beginning with the FFY 2032 program year, namely: Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) 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 (COPD) Hospitalization measure; and Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Coronary Artery Bypass Graft (CABG) Surgery measure. 47

For the HRRP Program, CMS is proposing to adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure beginning with the FFY 2029 program year. 48 For the Medicare Promoting Interoperability Program, CMS proposes to update the definition of certified electronic health record technology (CEHRT) based on updates proposed by the Office of the National Coordinator. 49 CMS also proposes to: modify the Electronic Prior Authorization measure; add the Unique Device Identifiers for Implantable Medical Devices measure to the reporting requirements for the Public Health and Clinical Data Exchange objective; and adopt two new eCQMs and remove three new eCQMs beginning with the FFY 2030 payment determination. 50 For the PCH Quality Reporting Program, CMS proposes to adopt the Advance Care Planning eCQM and the Malnutrition Care Score eCQM beginning with FFY 2030. 51 CMS also proposes to establish reporting and submission requirements for eCQMs in the PCH setting and to remove the COVID-19 Vaccination Coverage Among Healthcare Personnel measure beginning with the FFY 2028 program year. 52

L. LTCH Quality Reporting Program

For the LTCH Quality Reporting Program, CMS proposes to continue updating quality measures and reporting requirements under § 1886(m)(5) of the Social Security Act. 53 LTCHs that fail to submit quality reporting data will have their annual update to the LTCH PPS standard Federal payment rate reduced by 2.0 percentage points, resulting in an update of only 0.4% for FFY 2027. 54 Moreover, beginning with the FFY 2028 LTCH QRP, CMS is proposing to remove the COVID-19 Vaccination Coverage among health care personnel measure and the COVID-19 Vaccine: Percent of Patients/Residents Who Are Up to Date measure. 55 Finally, CMS also seeks to revise the data submission deadline and seeks public comment on these proposals. 56

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