FY 2027 Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System Final Rule (CMS-1849-F)

Hospitals Innovation models Policy Quality Share FY 2027 Hospital Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System Final Rule (CMS-1849-F) On July 31, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates Medicare payment policies and rates for inpatient and long-term care hospitals under the Medicare hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) for fiscal year (FY) 2027. The final rule also includes changes, clarifications, and codifications for Organ Acquisition and Reasonable Cost Payment Policies, and Reimbursement Appeals for Independent Organ Procurement Organizations and Histocompatibility Laboratories. The final rule updates Medicare fee-for-service payment rates and policies for inpatient hospitals and LTCHs for FY 2027. CMS is publishing this final rule to meet the legal requirements to update Medicare payment policies for IPPS hospitals and LTCHs on an annual basis. This fact sheet discusses major provisions of the final rule, which can be downloaded from the Federal Register at: https://www.federalregister.gov/d/2026-15833 . The final rule expands the Comprehensive Care for Joint Replacement (CJR) Model, which produced strong evidence of cost savings while maintaining quality of care. The expanded model, called CJR-X , is designed to improve care for Original Medicare patients undergoing hip, knee, and ankle replacements (also called lower extremity joint replacements) performed in inpatient and hospital outpatient settings. CJR-X will be mandatory nationwide and begin on January 1, 2028. Background on the IPPS and LTCH PPS CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. LTCHs are paid under the LTCH PPS. Under these two payment systems, CMS sets base payment rates prospectively for inpatient stays, generally based on the patient’s diagnosis, the services or treatment provided, and the severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge. The classification systems are for: IPPS, Medicare Severity Diagnosis-Related Groups (MS-DRGs), and for LTCH PPS, Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs). The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services these hospitals use when treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area. CMS updates LTCHs’ payment rates annually according to a separate market basket based on LTCH-specific goods and services. Changes to IPPS Payment Rates The finalized increase in the IPPS payment rates is 2.3%. This reflects a projected FY 2027 hospital market basket percentage increase of 3.2%, reduced by a 0.9 percentage point productivity adjustment. IPPS-participating hospitals must successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and be meaningful electronic health record (EHR) users to earn the full rate update. Overall, for FY 2027, CMS expects the final changes in IPPS payment rates — in addition to other changes — will generally increase hospital payments by approximately $2.1 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $779 million in FY 2027, primarily driven by new approvals for new technology add-on payments. Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals will expire December 31, 2026. In the past, legislation has extended these payments, and if they were to be extended through the end of FY 2027, CMS estimates that these hospitals would receive additional payments of approximately $0.3 billion in FY 2027. Changes to LTCH PPS Payment Rates For FY 2027, CMS finalized an annual update of 2.3% to the LTCH standard payment rate, which reflects a projected LTCH PPS market basket percentage increase of 3.2%, reduced by a 0.9 percentage point productivity adjustment. CMS expects LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 2.2%, or $54 million, due primarily to the 2.3% annual update. For FY 2027, CMS is finalizing the proposal to maintain the LTCH PPS outlier threshold at its FY 2026 value. We estimate that this threshold will result in estimated outlier payments approximating 8% of estimated total payments, as required by statute