CMS Finalizes FY 2026 IPPS and LTCH PPS Rule: Key Payment and Quality Program Updates Announced
On July 31, 2025, the Centers for Medicare and Medicaid Services (CMS) published the FY 2026 final rule of the Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS). This sweeping regulation was released as CMS-1833-F and describes the payment rate adjustments, changes to the quality reporting, and regulatory conditions of the hospitals involved in Medicare participation in inpatient and long-term care.
IPPS Rate Changes
CMS completed the adoption of a 2.6 percent increase in operating payment rates to general acute care hospitals that report quality data under the Hospital Inpatient Quality Reporting (IQR) program and report Promoting Interoperability data. This translates to 3.3 percent market basket improvement with a 0.7 percentage point compensation in productivity adjustment. The IPPS market basket was also rebased by CMS to a 2023 base year, with a new national labor-related factor of 66 percent.
The updates will raise the aggregate IPPS payment by $5.0 billion, with an increase of $2.0 billion in Medicare uncompensated care payments and $192 million in new technology add-on payments. The Congressional Budget Office estimates that, unless otherwise renewed by Congress, payments to Medicare-Dependent Hospitals and low-volume hospitals will expire on September 30, 2025, otherwise providing an addition of another $0.5 billion to FY 2026 payments.
LTCH PPS Updates
CMS is adding 2.7 percent as a bump to the LTCH standard payment rate, translating to an anticipated LTCH PPS payment increase of $72 million. The outlier threshold increase will also be undertaken to hold the statutory requirement that outlier payments reflect roughly 8 percent of total payments.
Policy Transition: Adjustment of Low-Wage Index
According to a ruling of the D.C. Circuit Court (Bridgeport Hosp. v. Becerra), CMS will no longer apply the low-wage index hospital policy beginning FY 2026. There will be a narrow transitional exception for seriously affected hospitals.
Quality Reporting and Digital Progression
CMS is furthering digital quality measurement (dQMs) using FHIR-enabled reporting and is sustaining performance-based models across both the IQR and Promoting Interoperability Programs.
- Including the Medicare Advantage data to risk-adjusted mortality and complication rates.
- Reduction of performance years to 2 instead of 3.
- Eliminating four measures, such as the percent of COVID-19 vaccinations among healthcare staff, and measures of Social Drivers of Health.
ECE policy was also modified by CMS, as it doubled the timeframe of the request submission to 60 days.
Promoting Interoperability Program
Starting no later than CY 2026, CMS will need:
- Reporting, including but not limited to, a 180-day EHR minimum.
- Certification in security risk analysis as well as management.
- Application of all eight 2025 SAFER Guides.
- A bonus measure of TEFCA-based data exchange.
The program is also heading in the direction of performance-based scoring, and the Query of PDMP measure may be updated to capture additional types of drugs and metrics of reporting.
Other Program Updates
- PCHQR Program: CMS is eliminating multiple measures of health equity and SDOH and codifying revised rules of ECE.
- Readmissions Reduction Program: MA data will be added to six measures, which will not be used in payment calculations. Exclusions of COVID-19 will start phasing out starting in FY 2027.
- HAC Reduction Program: Updates will be according to the new 2022 NHSN baselines.
- Hospital VBP Program: CMS finalized performance standards going through FY 2031 and eliminated the Health Equity Adjustment beginning FY 2026.
LTCH QRP Updates
Starting FY 2028, LTCHs will not have to report four patient assessment items, which pertain to SDOH. CMS also settled changes to the COVID-19 vaccination measure and revised the policy of reconsideration.
Introduction of the TEAM Model
The Transforming Episode Accountability Model (TEAM) starts on 2026 January 1. The chosen hospitals will organize care of five surgical procedures and absorb the costs during the initial 30 days after discharge. Under the model, CMS is tightening performance tracking, pricing procedures, and the process of care transitions.
Administrative Streamlining and Health IT Certification
CMS is requesting input as to how to decrease administrative burdens in accordance with Executive Order 14192 (January 2025). Also, the CMS made final rules to make improvements in e-prescribing, real-time prescription benefits, and electronic prior authorization.
Resources
Full rule text: Federal Register – CMS-1833-F
TEAM model details: CMS Innovation Center
Medicare Regulatory Relief RFI: CMS RFI Portal
