CMS published its fiscal year 2026 Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System final rule on July 31.
Here are eight things to know:
1. CMS finalizes 2.6% Medicare payment increase for acute care hospitals. In 2026, CMS will increase Medicare inpatient hospital payments by 2.6% — a slight increase from the 2.4% proposed in April. The final update reflects a projected 3.3% hospital market basket increase, reduced by a 0.7 percentage point productivity adjustment. The agency estimates the 2026 update will result in a $5 billion increase in hospital payments. This includes a $2 billion increase in Medicare uncompensated care payments to disproportionate share hospitals.
“The [American Hospital Association] is pleased that CMS’ payment updates and support for hospitals that treat a disproportionately high number of low-income patients are improved in this final rule,” Ashley Thompson, senior vice president of public policy analysis and development for the AHA said in an Aug. 31 statement shared with Becker’s. “However, we are still concerned that these updates are not adequate enough for the many hospitals that are struggling in today’s challenging operating environment, especially those in rural and underserved communities.”
2. CMS sets 2.7% pay bump for long-term care hospitals. Long-term care hospitals will see a 2.7% payment rate increase in 2026, stemming from a 3.4% projected market basket increase, reduced by a 0.7 percentage point productivity adjustment.
“While we are relieved CMS finalized an outlier threshold for long-term care hospitals that is only slightly higher than last year and much less than proposed, we remain concerned about the overall payment increase for LTCHs,” Ms. Thompson said in a statement. “Given the changes in the rule, LTCHs will have an increasingly difficult time caring for some of the sickest Medicare patients and may be unable to continue relieving pressure on their acute-care hospital partners.”
3. Revision of market baskets and labor-related share changes. CMS has revised the IPPS operating and capital market baskets to reflect a 2023 base year. The agency also set a national labor-related share of 66% based on the updated market basket.
4. CMS ends low wage index policy, adds transitional support. The agency is discontinuing the low wage index hospital policy after a federal court ruled the agency lacked authority to implement it. A narrow, budget-neutral transitional exception will be available in 2026 to support affected hospitals, mirroring a similar policy for 2025.
5. Changes to the Transforming Episode Accountability Model. The five-year TEAM model, which begins Jan. 1, 2026, will have selected hospitals coordinate care for Medicare patients undergoing one of five surgical procedures. Hospitals will manage costs and quality from surgery through 30 days post-discharge. Updates to TEAM include patient-reported outcomes in the outpatient setting, refined target pricing and expanded access to post-acute care through a broader skilled nursing facility waiver.
The AHA said it supports the widespread adoption of value-based and alternative payment models to provide high-quality care at lower costs, but is concerned that the TEAM model “will not advance these objectives and puts at particular risk hospitals that are not of a large enough size or in a position to support the investments needed,” Ms. Thompson said. “This is why we continue to urge the agency to make TEAM voluntary.”
6. Hospital IQR Program gets key updates. CMS is modifying four measures and removing four others under the Hospital Inpatient Quality Reporting Program:
- Measures revised to include Medicare Advantage patients and update risk adjustment methodologies include the complication rate for hip/knee arthroplasty and 30-day stroke mortality rate.
- Hybrid readmission and mortality measures will require data submission for 70% of discharges and allow up to two missing lab and vital sign results.
- Measures removed include: hospital commitment to health equity, COVID-19 vaccination coverage among healthcare personnel, screening for social drivers of health, and screen positive rate for social drivers of health.
7. Medicare Promoting Interoperability Program changes. Key changes finalized include:
- EHR reporting period for 2026 and beyond must span at least 180 continuous days.
- Hospitals must complete annual security risk management and Safer Guides self-assessments.
- A new optional Trusted Exchange Framework and Common Agreement-based public health data exchange bonus measure is available.
- CMS is seeking feedback on shifting certain measures to performance-based scoring and improving information sharing across systems.
8. Future considerations for interoperability. CMS included a summary of comments on potential future changes to measures such as Query of the Prescription Drug Monitoring Program and broader movement toward performance-based reporting.
Click here for more details on the final rule.
