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August 27, 2025
2026 IPPS Final Rule: The Final Word on Quality

2026 IPPS Final Rule: The Final Word on Quality

Last week, we provided a summary of some of the quality programs that will soon be applicable to Medicare cases in the inpatient setting, based on the FY 2026 Inpatient Prospective Payment System (IPPS) final rule. Today’s alert provides the rest of the story. Again, much of the following is based on the CMS fact sheet that describes the major provisions of the final rule.

2026 IPPS Final Rule: The Final Word on Quality

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Cancer Hospital Quality Reporting Program

The PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) program is a quality reporting program for the 11 cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2026 IPPS final rule, CMS finalized updates that will:

  • Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests.  After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
  • Remove the Hospital Commitment to Health Equity measure, beginning with the CY 2024 reporting period/FY 2026 program year.
  • Remove the Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health measures, beginning with the CY 2024 reporting period/FY 2026 program year.
  • Modify the public reporting requirements to allow for public reporting of PCHQR Program on Care Compare or a successor website in addition to current publication in the Provider Data Catalog. 

Hospital Readmissions Reduction Program

The Hospital Readmissions Reduction Program reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving health care for patients by linking payment to the quality of hospital care. In the FY 2026 IPPS final rule, CMS will:

  • Modify the six readmission measures to add Medicare Advantage (MA) data, in addition to Medicare fee-for-service (FFS) data.
  • Shorten the “applicable period” for measuring performance from three to two years and codify this update to the definition of “applicable period.”
  • After reviewing the public comments, CMS is modifying the original proposal to not include MA data in the calculations of aggregate payments for excess readmissions.
  • Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests.  After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
  • Remove COVID-19 exclusions and risk-adjustment covariates from the six readmission measures.

These changes will begin with the FY 2027 program year.

Hospital-Acquired Condition Reduction Program

The Hospital-Acquired Condition (HAC) Reduction program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions, reducing payment by 1% for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions. 

In the FY 2026 IPPS final rule, CMS is finalizing the proposal to update the Extraordinary Circumstances Exception (ECE) to clarify that CMS may grant an extension in response to ECE requests and to codify this updated ECE policy. After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days. Additionally, CMS is providing notice of updating the CDC National Healthcare Safety Network (NHSN) healthcare-associated infections (HAI) chart-abstracted measures with the new 2022 baseline.

Hospital Value-Based Purchasing Program

The Hospital Value-Based Purchasing (VBP) program is a budget-neutral program funded by reducing participating hospitals’ base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments.  In the FY 2026 IPPS final rule, CMS is finalizing the following proposals: 

  • Modification of the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure for the FY 2033 program year.
  • Technical updates to the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure’s risk adjustment model to use International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs) for the FY 2033 program year.
  • Technical updates to the five condition- and procedure-specific mortality measures and the THA/TKA Complications measure to include patients with a principal or secondary diagnosis of COVID-19 in the measures’ numerators and denominators for the FY 2027 program year.
  • Technical updates to the CDC NHSN HAI chart-abstracted measures with the new 2022 baseline used in the FY 2029 program year and subsequent years to calculate performance standards and calculate and publicly report measure scores.
  • Establishment of performance standards for the FY 2027, FY 2028, FY 2029, FY 2030, and FY 2031 program years.
  • Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests.  After reviewing public comments, CMS is modifying the original proposal by extending the length of time to submit an ECE request from the proposed 30 days to 60 days.
  • Remove the Health Equity Adjustment from the Hospital VBP Program effective with the FY 2026 program year.

To review more information about the final rule, you can click on the following link: FY 2026 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule — CMS-1833-F | CMS