News: FY 2026 IPPS final rule released

CMS released the fiscal year (FY) 2026 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) final rules last week for use on discharges beginning on October 1, 2025.

According to the American Hospital Association (AHA), the IPPS final rule includes a 2.6% payment update to reflect a hospital market basket increase of 3.3% and a productivity cut of 0.7%. The rule also includes a $2 billion increase in disproportionate share hospital payments and a $192 million increase in new medical technology payments. It increases hospital payments by $5 billion in FY 2026 compared to FY 2025, the AHA reported.

The rule also includes updates to several quality reporting programs, including measures under the Hospital Inpatient Quality Reporting Program:

• Modifications to four measures:
  
  • Hospital-Level, Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) to add Medicare Advantage patients to the current cohort of patients and shorten the performance period from three years to two years. CMS is also making technical updates to the risk adjustment methodology to use ICD-10 codes instead of Hierarchical Condition Categories (HCCs). 
  • Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke Severity to add Medicare Advantage patients to the current cohort of patients and shorten the performance period from three years to two years. CMS is also making technical updates to the risk adjustment methodology to use ICD-10 codes instead of HCCs.
  • Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures to lower the submission thresholds to allow for up to two missing laboratory results and up to two missing vital signs, reduce the core clinical data elements (CCDEs) submission requirement to 70% or more of discharges, and reduce the submission requirement of linking variables to 70% or more of discharges.

• Removal of four measures:
  
  • Hospital Commitment to Health Equity
  • COVID-19 Vaccination Coverage among Health Care Personnel
  • Screening for Social Drivers of Health
  • Screen Positive Rate for Social Drivers of Health

Additionally, the rule includes several modifications to the Hospital Readmissions Reduction Program which will begin with the FY 2027 program year:

• Modifies the six readmission measures to add Medicare Advantage (MA) data, in addition to Medicare fee-for-service data.
• Shortens the “applicable period” for measuring performance from three to two years and codify this update to the definition of “applicable period.”
• After reviewing the public comments, CMS is modifying the original proposal to not include MA data in the calculations of aggregate payments for excess readmissions.
• Updates and codifies the Extraordinary Circumstances Exception (ECE) policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
• Removes COVID-19 exclusions and risk-adjustment covariates from the six readmission measures.

The final rule also finalizes the proposal to update the ECE under the Hospital-Acquired Condition (HAC) Reduction Program to clarify that CMS may grant an extension in response to ECE requests and to codify the updated ECE policy.

CMS also finalized the following proposals to the Hospital Value-Based Purchasing Program:

• Modification of the Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary THA and/or TKA measure for the FY 2033 program year.
• Technical updates to the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure’s risk adjustment model to use ICD-10 codes instead of HCCs for the FY 2033 program year.
• Technical updates to the five condition- and procedure-specific mortality measures and the THA/TKA Complications measure to include patients with a principal or secondary diagnosis of COVID-19 in the measures’ numerators and denominators for the FY 2027 program year.
• Technical updates to the CDC NHSN Hospital-Acquired Infections (HAI) chart-abstracted measures with the new 2022 baseline used in the FY 2029 program year and subsequent years to calculate performance standards and calculate and publicly report measure scores.
• Establishment of performance standards for the FY 2027, FY 2028, FY 2029, FY 2030, and FY 2031 program years.
• Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
• Remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year.

Of course, there are many more updates including those to the Interoperability Program, the PPS-Exempt Cancer Hospital Quality Reporting Program, Long-Term Care Hospital Quality Reporting Program, the Transforming Episode Accountability Model, and more. CDI professionals are always encouraged to read the rule, and associated fact sheet, in its entirety to understand the full breadth of the regulatory changes for the coming year.

Editor’s note: To read the full FY 2026 IPPS Final Rule, click here. To read the CMS fact sheet, click here. To read the AHA coverage of the final rule, click here.