CMS Releases Inpatient Payment Final Rules for FY 2026

The Centers for Medicare & Medicaid Services (CMS) released the final rule for the Fiscal Year (FY) 2026 Medicare Inpatient Prospective Payment System (IPPS). The Final Rule increased hospital payment rates by 2.6%, slightly higher than the 2.4% increase in the proposed rule. CMS finalized its proposal to end the low-wage index program as the result of a court decision and institute a transitional payment for hospitals that are most affected by the discontinuance. CMS also finalized all proposed updates to the mandatory bundled-care model, the Transforming Episode Accountability Model (TEAM), and included a low volume policy set at 31 episodes for an episode category during a baseline period.

Low Wage Index Hospital Policy

In 2024, a Court ruled that HHS lacked the authority to implement a Low Wage Index (LWI) hospital policy. In response, CMS finalized its proposal to discontinue the LWI policy starting FY 2026 and will adopt a budget-neutral narrow transitional exception for LWI hospitals that would be significantly impacted by the discontinuation of the policy.

Transforming Episode Accountability Model (TEAM)

CMS finalized all proposals to TEAM, such as the limited deferment period for new hospitals, adding the Information Transfer Patient Reported Outcome-based Performance measure (Information Transfer PRO-PM), accounting for changes to MS-DRGs that impact target prices, using a 180-day lookback period for risk adjustment and broadening the Skilled Nursing Facility (SNF) Three-Day Inpatient rule. Based on public comments, CMS finalized a low volume threshold of at least 31 episodes in a given baseline period for an episode category. TEAM participants won’t be accountable for downside risk in a given episode category if they don’t meet the low volume threshold.

Promoting Interoperability

CMS defined the CY 2026 EHR reporting period as a minimum of any continuous 180-day period within the calendar year. CMS finalized raising the scoring threshold from 70 to 80 points. The Agency also finalized its proposed measure changes, including attesting “yes” to having implemented security risk management in accordance with HIPAA Security Rule implementation specification and a bonus measure for reporting public health data using the Trusted Exchange Framework and Common Agreement (TEFCA).

Measure Removals

CMS will be removing four measures beginning with the CY2024 reporting period: