CMS on April 11 proposed a 2.4% pay increase for hospitals under the fiscal year 2026 Inpatient Prospective Payment System — but, much like previous years, hospitals say the update falls short of what’s needed to sustain care delivery amid ongoing financial strain.
National hospital groups are concerned that the proposed update fails to meaningfully address the real cost pressures hospitals face, particularly in rural and underserved areas still reeling from pandemic-era inflation and workforce shortages.
The proposed 2.4% pay bump includes a 3.2% market basket update offset by a 0.8% productivity cut, consistent with statutory formulas. While CMS estimates the proposal would result in a $4 billion net increase in payments — including $1.5 billion more in disproportionate share hospital payments and $234 million for new medical technologies — hospital leaders say it barely scratches the surface.
“While CMS’s proposed update reflects the inflation formulas established by law, the reality is that patient care still faces the twin problems of hangover cost increases from hyperinflation and the cumulative effect of inadequate payment over time from Medicare and Medicaid,” America’s Essential Hospitals said in an April 11 statement. “This is why it’s mission critical Congress protects Medicaid coverage by avoiding funding cuts as well as extends the enhanced tax credits to protect individual coverage, a lifeline for millions of Americans.”
Similarly, the American Hospital Association argues that the 0.8% productivity cut embedded in the proposal ignores hospitals’ current operational realities.
“We are disappointed to see that the agency proposed an inadequate inpatient hospital payment update of 2.4%, including of particular concern an extremely high proposed productivity cut of 0.8%,” Ashley Thompson, the AHA’s senior vice president for public policy analysis and development, said in a statement. “We are very concerned that this update will hurt our ability to care for our communities. Indeed, many hospitals across the country, especially those in rural and underserved communities, already operate under unsustainable financial situations, including negative margins.”
The AHA urged CMS to reconsider its policy in the final rule and enable hospitals to maintain high-quality, round-the-clock care.
While critical of the payment update, the AHA praised CMS’ inclusion of a request for information aimed at reducing administrative burden and streamlining quality measurement programs.
“The AHA appreciates the administration’s request for information on approaches and opportunities to streamline regulations and reduce burdens in the Medicare program,” Ms. Thompson said. “We look forward to … working closely with CMS to further cut down on excessive administrative red tape.”
However, the association remains concerned about the mandatory nature of the Transforming Episode Accountability Model — CMS’ newest bundled payment model, launching in January 2026.
“We are concerned that TEAM, even with the proposed changes, may force some hospitals to assume more risk than they can manage, threatening their ability to maintain access to quality car,” Ms. Thompson said. “We continue to urge the agency to make TEAM voluntary.”
CMS is accepting comments on the proposed rule through June 10. The agency says it welcomes feedback on the TEAM model, payment policies and regulatory simplification efforts.
Click here for more details on the proposed rule.
