The Centers for Medicare & Medicaid Services (CMS) finalized a rule that lifts inpatient hospital payments by 2.3% for fiscal year 2027, a modest increase that translates into roughly $2.1 billion in additional funds for hospitals nationwide.
Details of the payment update
The rule, released on Friday, adjusts the Inpatient Prospective Payment System (IPPS) rates for the upcoming fiscal year, which begins on Oct. 1, 2026. The increase follows a 2.4% rise in FY 2026 and is based on a projected market basket growth of 3.2%, offset by a 0.9‑percentage‑point productivity adjustment. Together, these factors produce the 2.3% uplift for standard inpatient stays.
Long‑term care hospitals (LTCH) receive the same percentage increase. After a 2.4% boost in 2026, LTCHs will see a 2.3% annual update for FY 2027. The rule also keeps the LTCH outlier threshold frozen at $78,936, matching the FY 2026 level. CMS estimates that outlier payments will continue to represent about 8% of total LTCH payments, as mandated by statute.
Financial impact and new technology payments
Beyond the base rate changes, CMS added payments for new medical technologies amounting to approximately $779 million. These add‑on payments are intended to cover emerging devices and procedures that were not previously reimbursed under the IPPS.
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For LTCHs, the standard payment rate reflects the same market basket increase but is reduced by the productivity adjustment, leading to an expected rise of about 2.2%—or $54 million—in payments for discharges paid at the standard rate.
The American Hospital Association (AHA) voiced concerns about the LTCH payment structure, noting that “continued inadequacies in the LTCH payment system have contributed to declining patient volumes and the closure of facilities across the country.” The association highlighted that while the outlier threshold remained unchanged, broader reforms are needed to sustain the long‑term care sector.
CMS also announced several programmatic adjustments that tie quality reporting to payment updates. Hospitals must participate in the Hospital Inpatient Quality Reporting (IQR) program and demonstrate meaningful use of certified electronic health record technology (CEHRT) to receive the full rate increase. The Medicare Promoting Interoperability Program will revise certification criteria to align with the Office of the National Coordinator’s proposals, including changes to the Electronic Prior Authorization measure.
Other provisions include the removal of the COVID‑19 vaccination coverage measure for FY 2028 and the mandatory rollout of the expanded Joint Replacement Model (CJR‑X) on Jan. 1, 2028.
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In a broader context, the rule reflects a gradual approach to adjusting Medicare payments while preserving the fiscal balance of the program. This mirrors past cycles where CMS has incrementally raised rates to keep pace with inflation and productivity gains, rather than making large, sudden jumps that could destabilize hospital budgeting.
The modest 2.3% rise continues an incremental policy trend that aims to balance cost containment with the need to fund higher‑cost technologies.
Finally, the rule’s implementation timeline gives hospitals time to adjust billing systems and prepare for the new technology add‑on payments. CMS indicated that the updated rates and thresholds will be effective beginning Oct. 1, 2026, aligning with the start of the FY 2027 Medicare payment cycle.