FY 2027 Inpatient Rehabilitation Facility Prospective Payment System Proposed Rule
Summary
CMS issued a proposed rule updating Medicare payment policies for Inpatient Rehabilitation Facilities for FY 2027, proposing a 2.4% payment rate increase based on a 3.2% market basket update less a 0.8% productivity adjustment. The rule includes an estimated $355 million increase in IRF payments, updates to outlier thresholds and case-mix weights, and proposes clarifying that all therapies must be initiated within 36 hours of IRF admission.
What changed
CMS proposes annual updates to the IRF Prospective Payment System for FY 2027, including a 2.4% payment rate increase ($355M total boost), updated wage indices, case-mix-group weights, and outlier thresholds. The rule applies the third year of the rural-to-urban adjustment phase-out and proposes clarifying that ALL therapies must begin within 36 hours of admission, not just some therapies, aligning enforcement across the Center for Program Integrity Demonstration, Medicare Administrative Contractors, and IRF PPS audits.
Healthcare providers and compliance teams should review the proposed 36-hour therapy initiation clarification, as it tightens a previously ambiguous policy. Public comments are being accepted on the proposed rule, and IRFs should assess how the updated payment rates and quality reporting deadline changes affect their reimbursement projections and operational compliance.
What to do next
- Review proposed 2.4% payment rate increase and updated wage indices for impact on FY 2027 reimbursement
- Assess current therapy initiation practices to ensure ALL therapies begin within 36 hours of IRF admission per proposed policy clarification
- Prepare and submit public comments on the proposed rule by the specified deadline
Penalties
IRFs failing to meet Quality Reporting Program requirements are subject to a two-percentage point reduction in their Annual Increase Factor
Archived snapshot
Apr 2, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
Fact Sheets Apr 02, 2026
Fiscal Year 2027 Inpatient Rehabilitation Facility Prospective Payment System Proposed Rule (CMS-1845-P)
Administration Medicare Parts A & B Share
Fiscal Year 2027 Inpatient Rehabilitation Facility Prospective Payment System Proposed Rule (CMS-1845-P)
On April 2, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that proposes updates to Medicare payment policies and rates for inpatient rehabilitation facilities under the Inpatient Rehabilitation Facility (IRF) Prospective Payment System (PPS) and the IRF Quality Reporting Program (QRP) for fiscal year (FY) 2027. CMS is publishing this proposed rule consistent with the legal requirements to update Medicare payment policies for IRFs annually.
For FY 2027, CMS proposes to update the IRF PPS payment rates by 2.4% based on the proposed IRF market basket update of 3.2%, less a proposed 0.8 percentage point productivity adjustment. The proposed rule includes annual updates to the prospective payment rates, the outlier threshold, the case-mix-group relative weights and average length of stay values, the wage index, and associated impact analysis.
The IRF QRP is a pay-for-reporting program. IRFs that do not meet reporting requirements are subject to a two-percentage point reduction in their Annual Increase Factor. Additionally, measures adopted into the IRF QRP are publicly reported on the Care Compare tool at Medicare.gov. For the IRF QRP, CMS is proposing to revise the data submission deadline.
Proposed Updates to the FY 2027 IRF PPS Payment Rates
For FY 2027, CMS proposes to update the IRF PPS payment rates by 2.4% based on the proposed IRF market basket percentage increase of 3.2%, less a proposed 0.8 percentage point productivity adjustment. CMS is proposing that if more recent data becomes available (for example, a more recent estimate of the market basket update or productivity adjustment), CMS would use this data, if appropriate, to determine the FY 2027 market basket percentage increase and the productivity adjustment in the final rule. This proposed rule would also apply the third and final year of the phase-out of the rural adjustment for IRFs transitioning from rural to urban, (which began in FY 2025) that were reclassified due to updated Core-Based Statistical Area delineations. Additionally, CMS proposes to update the outlier threshold to maintain outlier payments at 3.0% of total payments. CMS estimates the proposed technical rate setting changes would result in a preliminary estimated increase in IRF payments of $355 million for FY 2027.
Proposed Updates to FY 2027 IRF PPS Payment
CMS proposes revising § 412.622(a)(3)(ii) to specify that all (not just some) therapies must be initiated within 36 hours of admission to the IRF in order to clarify CMS policy and align enforcement of the policy under the Center for Program Integrity Review Choice Demonstration, Medicare Administrative Contractor audit and oversight, and the IRF PPS program. CMS believes the clarification would significantly reduce inquiries and support the IRF industry’s understanding of CMS policy.
CMS also proposes to revise the current Interdisciplinary Team (IDT) policy (§ 412.622(a)(5)(ii)) to mandate that the initial meeting is completed on or before the fourth day of admission to align with the plan of care, and clarifying that subsequent IDT meetings are conducted weekly (with CMS defining "weekly" as seven days from the date of the initial IDT meeting, that must occur by day four), which would enhance the development and execution of the patient’s plan of care.
Proposed Updates to the FY 2027 IRF QRP
CMS proposes to revise the timeframe for data submission from 4.5 months to 45 days beginning with the FY 2029 IRF QRP. This shortened data submission timeframe would reduce the lag in public reporting by up to three months resulting in more timely public reporting of data for consumers and their families. IRFs would also have earlier access to data in support of their quality initiatives.
IRF PPS and QRP Requests for Information
CMS is seeking feedback on potential enhancements to the IRF PPS, including updates to how primary diagnoses and comorbidities are used to classify patients by case-mix. These potential updates would build on selected elements of the case-mix classification methodology used in the Skilled Nursing Facility Patient Driven Payment Model, as implemented in the FY 2019 final rule, and would move IRF payment toward a more robust, modernized system that is better aligned with other post-acute payment systems settings.
CMS is also seeking feedback on one measure topic that is being considered in future years for the IRF QRP: Advanced care planning. Advanced care planning is a continuous process of conversation and documentation to align a patient’s care and interventions with their beliefs, values and preferences, in the event they become unable to make those decisions.
Proposed Change to Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP)
As part of the FY 2027 IRF PPS proposed rule, CMS proposes to update the DMEPOS Competitive Bidding Program's bid surety bond requirements. The proposed change would increase the bid surety bond amount from $50,000 to $100,000 for Remote Item Delivery competitions, while keeping the current $50,000 requirement for all other competitions. This change aims to deter bidders from submitting disingenuous bids.
CMS will soon launch the first phase of its Round 2028 DMEPOS CBP bidder education initiative. This early education phase will inform prospective DMEPOS suppliers about the upcoming bidding process, eligibility requirements, and key program changes before the registration and bidding periods open, giving them ample time to prepare. For more information, review the Frequently Asked Questions and sign up for the Competitive Bidding Implementation Contractor’s listserv at: www.dmecompetitivebid.com.
The proposed rule can be viewed at the Federal Register at: https://www.federalregister.gov/public-inspection/2026-06642/medicare-program-inpatient-rehabilitation-facility-prospective-payment-system-for-federal-fiscal.
For more information about IRF QRP, please visit: https://www.cms.gov/medicare/quality/inpatient-rehabilitation-facility.
For more information about IRF PPS, please visit: https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-rehabilitation.
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