The Trump administration has locked in a 2.6% payment rate increase for inpatient services in the coming fiscal year as well as an industry-opposed mandatory payment model for five common surgical procedures.
The Centers for Medicare & Medicaid Services’ (CMS’) Inpatient Prospective Payment Systems (IPPS) and Long-Term Care Hospital Prospective Payment System final rule, released Thursday afternoon, reflects a 3.3% market basket update that is reduced by a 0.7 percentage point productivity adjustment.
The increase is a notch higher than the 2.4% bump proposed back in April but a step back from last year’s 2.9%.
The now-finalized 2.6% hospital pay raise also encompasses a shift establishing 2023 as the base year for the IPPS operating market basket and the IPPS capital market basket. Upon this, the agency also established a national labor-related share of 66%.
The CMS said the changes for fiscal year 2026 will raise hospital payments by $5 billion, which includes about $2 billion in projected Medicare uncompensated care payments for disproportionate share hospitals. Also included are $192 million of additional payments for inpatient cases involving new medical technologies due to add-on payment continuations.
Another half billion of payments could be in store for Medicare-dependent hospitals and low-volume hospitals should Congress elect to extend the two subsidies (set to expire Sept. 30) as it has numerous times before.
Meanwhile, the CMS moved ahead with its court-ordered discontinuation of the low wage index hospital policy, which, since fiscal year 2020, has provided extra funds to hospitals where workers earn lower wages to encourage higher pay. Hospitals that would be significantly impacted by the change will be able to take advantage of “a budget-neutral narrow transitional exception.”
For long-term care hospitals, the CMS finalized a 2.7% annual pay update, reflecting a market basket percentage increase of 3.4% cut by a 0.7 percentage point productivity adjustment.
As in years past, hospital and provider-adjacent organizations had decried the initial 2.4% inpatient pay bump as “simply inadequate.” The American Hospital Association (AHA) and the Federation of American Hospitals (FAH), in statements, said they appreciated the small top-line increase and support for disproportionate share hospitals but reiterated the need for more funds amid financial headwinds and upcoming Medicaid cuts.
"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," AHA Senior Vice President of Public Policy Analysis and Development Ashley Thompson said in a statement.
"With a nearly trillion-dollar cut to Medicaid, obstacles to sustain individual coverage in the marketplaces, and the impending expiration of the enhanced tax credit, hospitals face an uphill battle providing 24/7 patient care," FAH President and CEO Chip Kahn said in a statement. "This makes it all the more important for Congress to act, protect hospital care, and extend the enhanced premium tax credits—lifelines for the healthcare of hardworking Americans across the country."
The CMS’ statutory payment rules are also replete with broader policy changes, and, this time around, no item caught the industry’s ire like the Transforming Episode Accountability Model (TEAM). The model is set to begin Jan. 1 and will require certain acute care hospitals to participate in episode-based payments for five common surgical procedures.
Hospitals had taken issue with the mandatory participation requirement they argued might not be feasible for some providers and recommended tweaks around exemption thresholds, referral requirements and the methodology of its risk adjustment.
The CMS said it is moving forward with the model and, in its 2,000-page-plus final rule, wrote that some of the public comments it received on TEAM including those about voluntary participation, were “outside of the scope of the proposed rule” but could be taken into consideration during implementation and monitoring.
"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 [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."
Eddie Qureshi, CEO and founder of Rainfall Health, a vendor that’s working with hospitals on their TEAM compliance, told Fierce Healthcare earlier this week “not a single one” of the more than 100 hospitals the company has engaged with is fully prepared.
“Most health systems underestimate the scope and stakes of this model: while it narrowly targets a set of procedures, it broadly expands hospital responsibilities around care coordination, quality, and outcomes,” he said. “Our analysis shows that each system faces an average of $14 million annually—and more than $70 million over the model’s term—in potential penalties or incentives.”
Other programs related to quality reporting, data sharing and various incentives or disincentives are slated for technical changes, according to the CMS’ fact sheet on the final rule.
These include: the Hospital Inpatient Quality Reporting Program, the Hospital Readmissions Reduction Program, the Medicare Promoting Interoperability Program, the PPS-Exempt Cancer Hospital Quality Reporting Program, the Hospital-Acquired Condition Reduction Program, the Hospital Value-Based Purchasing Program and the Long-Term Care Hospital Quality Reporting Program.