Acute care hospitals get a 2.6% payment increase under a final rule released Thursday afternoon by the Centers for Medicare and Medicaid Services.
This reflects a projected 2026 hospital market basket percentage increase of 3.3%, reduced by a 0.7 percentage point productivity adjustment. CMS said it has rebased and revised both the Inpatient Prospective Payment System (IPPS) operating and capital market baskets to reflect a 2023 base year. Based on the 2023-based IPPS market basket, CMS is also establishing a national labor‑related share of 66%.
CMS said it expects the payment changes to increase hospital payments by $5 billion in 2026. Included in this figure is a projected increase in Medicare uncompensated care payments to disproportionate share hospitals of approximately $2 billion.
The American Hospital Association said the payment for disproportionate share hospitals is an improvement but is not enough.
“The AHA is also pleased that CMS’ payment updates and support for hospitals that treat a disproportionately high number of low-income patients are improved in this final rule. However, we are still concerned that these updates are not adequate enough for the many hospitals that are struggling in today’s challenging operating environment, especially those in rural and underserved communities,” said Ashley Thompson, AHA senior vice president of public policy analysis and development.
Due to add-on payments for new technologies, CMS said it also estimates that additional payments for inpatient cases involving new medical technologies will increase by approximately $192 million in 2026.
Under current law, additional payments for Medicare-Dependent Hospitals (MDHs) and the temporary change in payments for low-volume hospitals will expire on Sept. 30. In the past, legislation has extended these payments, and if they were to be extended, CMS estimates these hospitals would receive payments of approximately $0.5 billion in 2026.
WHY THIS MATTERS
The AHA said members will be receiving a Regulatory Advisory with further details on the rule.
But Thompson did comment on certain aspects and, in particular, the rule’s continuation of the upcoming Transforming Episode Accountability Model (TEAM) as mandatory. TEAM will provide bundled payment for certain surgical procedures beginning Jan. 1, 2026.
An estimated 750 hospitals and providers are mandated to take part.
“The AHA has long supported widespread adoption of meaningful, value-based and alternative payment models to deliver high-quality care at lower costs,” Thompson said. “We remain worried that the Transforming Episode Accountability Model (TEAM) will not advance these objectives and puts at particular risk hospitals that are not of a large enough size or in a position to support the investments needed. This is why we continue to urge the agency to make TEAM voluntary.”
CMS said it 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.
LONG-TERM CARE PAYMENTS
The final rule updates long-term care hospital payment rates according to a separate market basket.
Long-term care hospitals will get a 2.7% increase to the standard payment rate, which reflects a projected market basket percentage increase of 3.4%, reduced by a 0.7 percentage point productivity adjustment.
CMS expects payments for discharges to increase by approximately 3%, or $72 million, due primarily to the annual update along with a projected increase in high-cost outlier payments. CMS is making a moderate increase to the outlier threshold for 2026 based on updated data, to meet the statutory requirement that estimated outlier payments are approximately 8% of total payments.
Outlier payments will increase by 0.3%, according to the AHA. CMS is increasing the outlier threshold from $77,048 to $78,936.
“While we are relieved CMS finalized an outlier threshold for long-term care hospitals (LTCHs) that is only slightly higher than last year and much less than proposed, we remain concerned about the overall payment increase for LTCHs,” Thompson said. “Given the changes in the rule, LTCHs will have an increasingly difficult time caring for some of the sickest Medicare patients and may be unable to continue relieving pressure on their acute-care hospital partners.”
For the LTCH Quality Reporting Program, CMS will remove four patient assessment data elements related to social drivers of health and modify the COVID-19 vaccine among patients and residents measure.
The rule will become effective Oct. 1.
WHAT ELSE:
CMS has finalized its proposal to discontinue the low-wage index hospital policy for 2026 and establish a transitional exception policy for hospitals significantly impacted by the discontinuation.
CMS makes a number of changes to its quality reporting and value programs.
Among other updates, the agency has finalized a proposal to remove the Health Equity Adjustment from the Hospital Value-based Purchasing program and remove four measures from the inpatient quality reporting program.
CMS is also including Medicare Advantage patients in calculating hospital performance in the Hospital Readmission Reduction Program but has not finalized its proposal to include payment data for these beneficiaries in the calculation of excess readmissions.
Thompson said, “The AHA appreciates CMS’ recognition of the importance of an appropriate balance of burden and value in quality measurement programs, especially the sunsetting of the COVID-19 vaccination coverage among healthcare personnel measure(s)."
Published as part of the IPPS final rule, the Health Data, Technology, and Interoperability: Electronic Prescribing, Real-time Prescription Benefit and Electronic Prior Authorization final rule adopts three new certification criteria to support more efficient electronic prior authorization processing and reduce administrative burden for providers.
The Centers for Medicare and Medicaid Services issued the final rule Thursday under the Medicare hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) for fiscal year 2026.
Email the writer: SMorse@himss.org