Last month, the Centers for Medicare & Medicaid Services (CMS) released the Inpatient Prospective Payment System (IPPS) proposed rule for fiscal year (FY) 2027. CMS also published a fact sheet that acts to summarize the proposed rule. The following contains highlights from that publication.
Background
CMS pays acute care hospitals (with a few exceptions specified in the law) for inpatient stays under the IPPS. CMS sets base payment rates prospectively for inpatient stays, generally based on the patient’s diagnosis, the services or treatment provided and the severity of illness. Subject to certain adjustments, a hospital receives a single payment for each case depending on the payment classification assigned at discharge.
The law requires CMS to update payment rates for IPPS hospitals annually and to account for changes in the prices of goods and services these hospitals use when treating Medicare patients, as well as for other factors. The index used to do this is known as the hospital “market basket.” The IPPS pays hospitals for services provided to Medicare beneficiaries using a national base payment rate, adjusted for a number of factors that affect hospitals’ costs, including the patient’s condition and the cost of hospital labor in the hospital’s geographic area.
Payment Rates
The proposed increase in IPPS payment rates is projected to be 2.4%. This reflects a projected FY 2027 hospital market basket percentage increase of 3.2%, reduced by a 0.8 percentage point productivity adjustment. There is one condition to receiving this payment increase: those hospitals participating in IPPS must successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and be meaningful electronic health record (EHR) users to earn the full rate update.
Overall, for FY 2027, CMS expects that the proposed changes in IPPS payment rates—in addition to other changes—will generally increase hospital payments by approximately $1.4 billion. CMS also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $464 million in FY 2027, primarily driven by the continuation of new technology add-on payments for several technologies, subject to determinations on applications following a review of public comments on the proposed rule.
Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals will expire December 31, 2026. In the past, legislation has extended these payments; and, if they were to be extended through the end of FY 2027, CMS estimates that these hospitals would receive additional payments of approximately $0.4 billion in FY 2027.
Graduate Medical Education
To further strengthen the protections against unlawful discrimination finalized in the calendar year (CY) 2026 Outpatient Prospective Payment System (OPPS) Final Rule, CMS is proposing to require that, in addition to meeting other applicable requirements, an approved medical residency training program must not discriminate, or promote or encourage discrimination, on the basis of race, color, national origin, sex, age, disability or religion, including the use of those characteristics or intentional proxies for those characteristics as a selection criterion for employment, program participation, resource allocation or similar activities, opportunities or benefits.
Similar requirements would also apply to approved nursing and allied health education programs and accreditors.
Organ Acquisition and Reasonable Cost Policies
As part of broader efforts to strengthen Medicare cost reimbursement and appeals policies to ensure payment accuracy and reduce inappropriate spending, CMS is proposing to codify Medicare’s reconciliation of organ acquisition costs for non-renal organs for Independent Organ Procurement Organizations and Histocompatibility Laboratories.
The government is also clarifying and proposing to codify certain longstanding instructions on allowable costs under Medicare’s reasonable cost principles for all provider types, including public education for Organ Procurement Organizations.
Finally, in response to stakeholder requests, CMS is clarifying and proposing to codify Medicare’s longstanding rules for allocating overhead costs across all provider types.