Hospitals' 2026 Medicare Cash: Rates Up, Rules Tweak
Published Date: 4/30/2025
Proposed Rule
Summary
Starting in fiscal year 2026, Medicare is updating how it pays hospitals for inpatient care, including changes to teaching hospital funding and long-term care hospital rates. These updates aim to improve quality programs and adjust payment policies, affecting hospitals and patients nationwide. Comments on these proposed changes are open until June 10, 2025, so stakeholders have a chance to weigh in before the new rules take effect.
Analyzed Economic Effects
11 provisions identified: 4 benefits, 1 costs, 6 mixed.
Acute Care Hospital Payments Rise by $4.0B (FY2026)
CMS estimates that the proposed FY 2026 IPPS payment rate and policy changes would increase payments to acute care hospitals by approximately $4.0 billion in FY 2026. CMS attributes this increase primarily to FY 2026 operating payments, uncompensated care payments, capital payments, and the expiration of temporary changes in the low-volume hospital program and the Medicare-dependent, small rural hospital (MDH) program on October 1, 2025.
Low Wage Index Policy Ends with FY2026 Transition
CMS proposes to discontinue the "low wage index hospital" policy for FY 2026 and later. For hospitals that benefitted from the FY 2024 low wage index policy and whose proposed FY 2026 wage index would fall by more than 9.75% compared to FY 2024, CMS would provide a one-year transitional exception for FY 2026 equal to the additional amount the hospital would receive if its FY 2026 wage index were set to 90.25% of its FY 2024 wage index. CMS would implement this transition in a budget-neutral way by applying an adjustment to the standardized amounts for all hospitals.
Labor-Related Share Reduced to 66.0%
CMS proposes to rebase the IPPS market basket to a 2023 base year and set the labor-related share at 66.0% for discharges on or after October 1, 2025. The proposed labor-related share of 66.0% is 1.6 percentage points lower than the current share of 67.6%. CMS states this change is budget neutral.
LTCH Payments Estimated to Increase $61 Million
CMS estimates that the proposed FY 2026 changes to the Long-Term Care Hospital (LTCH) prospective payment system would increase payments to LTCHs by approximately $61 million in FY 2026, based on data for 328 LTCHs in CMS’s database.
MDH Program Expires October 1, 2025
Under current law CMS says the Medicare-dependent, small rural hospital (MDH) program is effective only through September 30, 2025. Beginning October 1, 2025, hospitals that previously qualified for MDH status will no longer have MDH status and will be paid based on the IPPS Federal rate.
Hospital IQR: Measure Changes and Reporting Burden Drop
CMS proposes refinements to four Hospital Inpatient Quality Reporting (IQR) measures and removal of four other measures beginning with reporting periods tied to the FY 2026 payment determination. CMS estimates that across 3,050 IPPS hospitals these IQR changes would reduce information collection burden by up to 660,577 hours and $18,008,959 for the FY 2026 payment determination or subsequent years.
TEAM Model Updates and Estimated $481M Medicare Savings
CMS proposes updates to the Transforming Episode Accountability Model (TEAM), a mandatory model running January 1, 2026 through December 31, 2030, including changes to participation policies, quality measures, risk-adjustment (180-day lookback and HCC v28), replacement of the Area Deprivation Index with the Community Deprivation Index, removal of certain reporting requirements, expansion of the SNF 3-day rule waiver, and removal of the Decarbonization and Resilience Initiative. CMS estimates these TEAM proposals would save the Medicare program $481 million across the five performance years.
Readmissions Program Adds Medicare Advantage Data
CMS proposes to add Medicare Advantage (MA) beneficiaries into the six Hospital Readmissions Reduction Program (HRRP) measures and to remove the COVID-19 diagnosis denominator exclusion from all six readmission measures beginning with the FY 2026 program year. CMS also proposes to shorten the applicable period from 3 years to 2 years, to modify DRG payment ratios to include MA beneficiaries, and to codify related administrative updates and the extraordinary circumstances exception (ECE) policy.
Cancer Hospitals: Public Reporting and Fewer Measures
CMS proposes to publicly report data for PPS-exempt cancer hospitals on the CMS website (replacing references to the Provider Data Catalog) and to remove three measures beginning with the CY 2024 reporting period/FY 2026 payment determination. CMS estimates a reduction in information collection burden across 11 PPS-exempt cancer hospitals of up to 153 hours and $7,765.
LTCH QRP: Data Element Removals and Burden Changes
CMS proposes to remove five items from the LTCH Continuity Assessment Record and Evaluation (LCDS), amend the LTCH Quality Reporting Program (QRP) reconsideration process, and request information on future measure concepts. CMS estimates a FY 2026 information collection burden increase of 4 hours and $187.60 across 330 LTCHs associated with reconsideration policy updates, and estimates for the FY 2028 LTCH QRP a decrease of 2,633.51 hours and a total cost decrease of approximately $180,016.80.
EHR Reporting Period and New Attestation Rules (CY2026+)
For the Medicare Promoting Interoperability Program, CMS proposes to define the EHR reporting period in CY 2026 and subsequent years as any continuous 180-day period within that calendar year. Beginning with the CY 2026 EHR reporting period, CMS also proposes that eligible hospitals and critical access hospitals must (1) attest "yes" to having conducted security risk management in addition to security risk analysis, (2) attest "yes" to completing an annual self-assessment using the eight SAFER Guides published in January 2025, and (3) may report an optional bonus measure for submitting data to a public health agency using the Trusted Exchange Framework and Common Agreement (TEFCA). CMS estimates no change to the information collection burden across 4,550 eligible hospitals and CAHs for CY 2026 and subsequent years.
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Key Dates
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