Healthcare Reimbursement
News Briefs: CMS proposes a modest increase to hospital inpatient payments for FY27
Published
May 28, 2026
12:38 pm
CMS projects an average Medicare inpatient payment increase of 2.4%, totaling $1.4 billion industrywide, when the new fiscal year begins Oct. 1. The update, described in a proposed rule for inpatient care and long-term care hospitals (LTCHs), is based on a 3.2% increase to the market basket and a 0.8% reduction via a mandatory economywide productivity adjustment.
Hospital advocates expressed a measure of discontent with the preliminary payment change.
“CMS’s proposed update is a step in the right direction, but it does not negate the compounding effects of rising inflation, record levels of uncompensated care and a growing uninsured population,” Charlene MacDonald, president and CEO of the Federation of American Hospitals, said in a written statement.
Reductions to supplementary payments are projected to drop the net payment increase to 1.2%, on average, albeit with significant regional variation.
Among the projected drags on the base update is a 0.7% negative impact from a year-over-year drop in payments for high-cost outlier cases. The decrease is anticipated because FY26 outlier payments are estimated to exceed the statutory target, CMS wrote in the rule.
LTCHs would receive a payment update of 2.3% per discharge.
Breakdown of the proposed FY27 Medicare payment rate change for hospital inpatient care
| FY27 | Hospital submitted quality data and is a meaningful EHR user | Hospital submitted quality data and is not a meaningful EHR user | Hospital did not submit quality data and is a meaningful EHR user | Hospital did not submit quality data and is not a meaningful EHR user |
|---|---|---|---|---|
| Proposed market basket rate-of-increase | 3.2% | 3.2% | 3.2% | 3.2% |
| Proposed adjustment for failure to submit quality data | 0% | 0% | –0.8% | –0.8% |
| Proposed adjustment for failure to be a meaningful EHR user | 0% | –2.4% | 0% | –2.4% |
| Proposed productivity adjustment | –0.8% | –0.8% | –0.8% | –0.8% |
| Proposed applicable percentage increase or decrease | 2.4% | 0% | 1.6% | –0.8% |
The proposed base payment increase of 2.4% (see the lead brief on page 12) hinges on whether the hospital meets requirements related to quality-data reporting and EHR meaningful use.
CJR-X model to bring mandatory bundled payments for hospitals
The big policy proposal in the FY27 Medicare inpatient rule is for a nationwide iteration of the Comprehensive Care for Joint Replacement (CJR) Model to launch Oct. 1, 2027. CJR took place in select markets from 2016 through 2024 as a mandatory bundled payment model covering hip and knee replacements.
In the new model, known as CJR-X (Comprehensive Care for Joint Replacement Expanded), ankle replacement surgeries also would be part of the program. The model would apply in hospital inpatient units and outpatient departments.
The rationale for expanding the model across the country, according to CMS, is strong evidence of cost savings from applying bundled payments to joint replacement, with no adverse impact on quality measures.
Financial accountability for an episode would encompass the procedure, the subsequent hospital stay and a 90-day post-discharge window. Episode spending would be compared to a risk-adjusted target price to determine whether the hospital receives a reconciliation payment or owes money back to CMS.
CJR-X participation would be delayed until 2031 for the 700-plus hospitals engaging with bundled payments via the mandatory five-year Transforming Episode Accountability Model starting in 2026.
PAMA lab data reporting requirements are set to impact Medicare payments
Hospital outreach labs should take note of reporting obligations that will affect Medicare payment rates.
Reporting of commercial final-paid claim rates as the basis for Medicare rate setting was included in the Protecting Access to Medicare Act of 2014 (PAMA) and initially took place in 2017. Subsequent phases of data reporting were supposed to happen at three-year intervals but have been continually delayed by Congress since the COVID-19 pandemic.
Now, however, a reporting period is underway from May 1 through July 31 to convey commercial payment data for lab tests spanning the first half of 2025. The resulting Medicare rates will take effect for 2027-2029.
For labs that are subject to the reporting mandate, noncompliance can result in penalties of up to $10,000 per day, as noted in an FAQ.
There also could be industrywide consequences because the widespread absence of data from hospital-based labs likely would depress the rate that is applied to the Clinical Laboratory Fee Schedule over the next three years.
According to a recently published estimate in the trade journal Laboratory Economics, the reporting requirements apply to roughly 2,600 hospitals.
In a first, a drugmaker’s lawsuit challenges HRSA’s 340B patient definition
In a new chapter for litigation involving the 340B Drug Pricing Program, a drugmaker is suing the federal government over the definition of patient as it pertains to the program.
AbbVie Inc. says the definition established by the Health Resources and Services Administration (HRSA) in 30-year-old guidance is unwieldy and enables inappropriate access to 340B pricing discounts, according to the lawsuit filed at the U.S. District Court for Washington, D.C.
The 1996 guidance includes criteria such as requiring the covered entity (i.e., the provider) to have records of the individual’s care. AbbVie argues that the guidance nonetheless allows for instances of diversion, meaning a 340B-discounted drug is dispensed to individuals who do not meet the program’s statutory definition of an eligible patient.
A primary goal of the lawsuit is to ensure HRSA allows the company to audit 340B providers based on a narrower definition of patient. AbbVie alleges that the agency rejected the manufacturer’s audit plans in 2025 because of AbbVie’s intention to apply a stricter definition of patient eligibility.
MA 2027 payment update increases after a CMS revision
Belying earlier projections, CMS gave Medicare Advantage (MA) health plans a payment hike for 2027.
Payments will increase by 2.48%, or more than $13 billion, according to a final rate notice. It’s a better outcome for stakeholders than was anticipated when CMS released the advance rate announcement in January. Then, the payment change was projected to essentially stay flat year over year.
The big shift between the advance notice and the final notice was CMS’s decision to hold off on using updated Medicare fee-for-service cost data in the MA risk adjustment model. The change in course is estimated to mean a difference of 2.2 percentage points in the payment rate.
A data refresh and resulting recalibration of the risk adjustment model still could be instituted in 2028 or later. But for 2027, CMS eschewed making a major update in the year after completing a three-year implementation of risk adjustment changes based on new hierarchical condition categories.
