CMS proposes 2.4% IPPS bump, joint replacement model expansion

CMS is floating a 2.4% increase in Medicare reimbursement for inpatient care next fiscal year, in addition to the national expansion of an Innovation Center bundled payment model.

On Friday, the federal agency released a proposed rule that would update Medicare payment policies and rates for inpatient and long-term care hospitals under the Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) for fiscal year (FY) 2027.

The rule would generally increase hospital payments under the IPPS by about $1.9 billion, CMS said. Long-term care hospitals would also see a 2.4% increase to the LTCH PPS standard payment rate, resulting in $55 million more next fiscal year.

The IPPS payment rate update is based on a hospital market basket percentage increase of 3.2%, reduced by a 0.8 percentage point productivity adjustment. Participating hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) program and are meaningful EHR users are expected to earn the full rate update.

CMS also estimated in the proposed rule about $464 million more in additional inpatient reimbursement for cases involving new medical technologies.

The proposed rule also included an estimated $400 million in FY 2027 for Medicare-Dependent Hospitals and low-volume hospitals, but only if Congress once again extends the temporary payment changes to the facilities. The payments are slated to expire on Dec. 31, 2026.

However, the American Hospital Association (AHA) estimated a potential decrease of $564 million in disproportionate share and uncompensated care payments under the rule, even as the uninsured rate is expected to increase significantly.

"[H]ospitals face mounting financial pressures. Despite this, CMS has proposed another inadequate update to inpatient payment rates, another extremely high productivity cut, and reductions to disproportionate share payments -- in the face of rising need for care and higher uninsured rates," Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said in a statement.

Hospital associations, including the AHA, were also critical of CMS' proposal to expand the Comprehensive Care for Joint Replacement (CJR) Model.

The CJR Model was a mandatory bundled payment model run by the CMS Innovation Center from April 2016 through December 2024. The model generated significant savings, giving $112.7 million back to Medicare while maintaining quality of care for over 98,000 knee and hip replacements.

The Innovation Center built on the CJR Model when it launched the Transforming Episode Accountability Model (TEAM), another mandatory bundled payment model for surgical episodes. However, CMS now wants to make an expanded version of the CJR Model part of the IPPS.

If finalized, the rule would establish the CJR Expanded, or CJR-X, Model starting Oct. 1, 2027. Most hospitals that are paid under IPPS would need to participate, unless they are already part of TEAM or located in Maryland.

In CJR-X, hospitals would be accountable for the quality and costs of care for patients undergoing lower extremity joint replacement surgery through 90 days of recovery.

CMS Administrator Mehmet Oz, M.D., said in an announcement that the proposed expansion of the CJR Model "would better align financial incentives with improved health outcomes -- protecting taxpayer dollars while ensuring patients get the care they need before, during, and after surgery."

However, hospital groups did not welcome another mandatory model from CMS.

"The continued use of mandatory models further destabilizes the system by interfering with clinical decision-making, failing to reflect how care is delivered across providers, and limiting providers' ability to determine the best course of care for each patient," said Charlene MacDonald, president and CEO of the Federation of American Hospitals.

AHA's Thompson also highlighted the challenges some hospitals face in implementing mandatory models, including a lack of financial capacity to make the necessary investments to succeed in value-based payment models.

"A phased or voluntary approach would better support success, allowing organizations to build the infrastructure and partnerships needed to achieve shared savings and improved outcomes," she stated.

The proposed rule also included several changes to programs under the IPPS, including the Medicare Promoting Interoperability Program, which would add two new electronic clinical quality measures and remove three. CMS also proposed to update reporting requirements for the Public Health and Clinical Data Exchange objective by creating a unique device identifier for the implantable medical devices measure.

CMS is also seeking changes to IPPS quality programs. For the IQR Program, the agency would adopt three new measures and remove another three, in addition to updating data reporting and submission requirements for some measures, such as the Maternal Morbidity Structural Measure.

The rule would also modify three condition-specific measures to include Medicare Advantage beneficiaries in the patient populations and make the same modification to five condition-specific mortality measures in the Hospital Value-based Purchasing Program.

Additionally, it would adopt a new measure on readmission following sepsis hospitalization into the Hospital Readmissions Reduction Program. The agency seeks public comment on measures related to emergency care throughput, sepsis mortality and the Birthing Friendly Hospital designation.

The public can comment on the proposed rule through June 9, 2026.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.