Medicare Proposes FY 2027 Inpatient Hospital Payment System Updates
Published Date: 4/14/2026
Proposed Rule
Summary
Starting in fiscal year 2027, 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 payment fairness and quality programs while adjusting hospital budgets. Hospitals, teaching programs, and long-term care facilities should prepare for new rules and submit feedback by April 10, 2026.
Analyzed Economic Effects
8 provisions identified: 5 benefits, 1 costs, 2 mixed.
Medicare-dependent Hospital (MDH) Status Ends
Beginning January 1, 2027, the Medicare-dependent, small rural hospital (MDH) program is not authorized and hospitals that previously had MDH status will no longer have MDH status and will be paid based on the IPPS Federal rate.
Low-Volume Hospital Payment Rules Extended
The Consolidated Appropriations Act, 2026 extends the modified low-volume hospital definition and payment adjustment through December 31, 2026. A low-volume hospital qualifies if it is more than 15 road miles from another subsection (d) hospital and has fewer than 3,800 discharges; additional payment scales from +25% for hospitals with 500 or fewer discharges down to 0% for hospitals with more than 3,800 discharges.
CJR-X Joint Replacement Model Expansion
CMS proposes the Comprehensive Care for Joint Replacement Expanded (CJR-X) Model to begin October 1, 2027. If finalized, CJR-X would be mandatory for acute care hospitals (except those participating in TEAM and hospitals located in Maryland), hold hospitals accountable for LEJR episode spending and quality for the inpatient or hospital outpatient stay plus 90 days after discharge, and include regional risk-adjusted target prices and multiple quality measures.
LTCH Payment and Quality Reporting Changes
CMS proposes updates to payment policies and FY 2027 rates for Long-Term Care Hospitals (LTCHs) under the LTCH PPS, and proposes to remove two LTCH Quality Reporting Program measures beginning with the FY 2028 LTCH QRP and revise LTCH QRP data submission deadlines beginning with the FY 2029 LTCH QRP.
New and Revised Hospital Quality Measures
CMS proposes adoption and modification of multiple hospital quality measures with specified start years: five modified mortality measures in the Hospital Inpatient Quality Reporting Program beginning with the FY 2028 payment determination (and later modified in VBP beginning FY 2032); Excess Days in Acute Care after Hospitalization for Diabetes beginning with the FY 2029 payment determination; Advance Care Planning eCQM and Hospital Harm-Postoperative Venous Thromboembolism eCQM beginning with the FY 2030 payment determination; and other measure removals and reporting changes (for example, mandatory reporting for the Malnutrition Care Score eCQM beginning FY 2030).
TEAM Model Updates for Episode Accountability
CMS proposes updates to the Transforming Episode Accountability Model (TEAM), a mandatory 5-year model that started January 1, 2026 and runs through December 31, 2030; proposed changes include adding MS-DRGs to trigger spinal fusion episodes, clarifying quality measure performance periods, using a rolling baseline for certain measures, and adding APC and MS-DRG update factors to target prices.
Ban on Unlawful Discrimination in GME Programs
CMS proposes that approved medical residency training programs must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability, or religion (or intentional proxies) in selection, participation, resource allocation, or similar activities. CMS proposes similar non-discrimination requirements for approved nursing and allied health education programs and accreditors.
New-Residency Program Eligibility Tightened
CMS proposes revised criteria for identifying a residency program as new under 42 CFR 413.79(l): to be considered new (for cap-building), at least 90 percent of individual residents must not have prior training in another program in the same specialty, with exceptions for small programs, displaced residents, and binding third-party matches; previous employment of program directors or faculty would no longer be considered.
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Key Dates
Department and Agencies
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