CMS issued its proposed rule on the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Long-Term Care Hospitals for Fiscal Year (FY) 2027 (IPPS). This rule updates Medicare payment policies and quality reporting programs for inpatient hospital services. The rule makes the Comprehensive Joint Replacement (CJR) model mandatory nationwide with a few exceptions beginning in FY 2028 – a major shift from voluntary to mandatory models. It also proposes new quality measures for the Hospital Readmissions and Inpatient Quality Reporting (IQR) programs and adopts new non-discrimination requirements for teaching hospitals. CMS’ fact sheet can be found here. Comments on the proposed rule are due on June 9, 2026. AHPA will share a detailed summary in the next Policy Brief and plans to submit recommendations to CMS. 

Key Highlights: 

  • Payment update: CMS proposed a 2.4% increase in IPPS operating payments for hospitals that meet IQR and EHR requirements. It also proposed $7.6 billion in uncompensated care payments, down 3.3% from FY 2026. 
  • Mandatory episode-based payments: CMS proposed to expand the current CJR model nationwide starting Oct. 1, 2027. If finalized, CJR-X would be mandatory for most acute care hospitals, with exceptions for those participating in the Transforming Episode Accountability Model (TEAM) and hospitals located in Maryland. CMS also proposed to modify the TEAM model to include more spinal fusion episodes and revised pricing and quality policies. 
  • Technology and DRG changes: CMS proposed to end the special NTAP/OPPS pass-through pathway for breakthrough devices, meaning they would need to meet the same standards as other technologies. CMS also proposed several MS-DRG changes, including new spinal fusion DRGs and updates to pacemaker/device replacement groupings.  
  • NTAP alternative pathway repeal: In the FY 2027 IPPS proposed rule, CMS proposes to eliminate the NTAP “alternative pathway” beginning with FY 2028 applications, which currently lets FDA Breakthrough Devices, QIDPs, and LPAD antibacterial/antifungal drugs bypass the usual substantial clinical improvement test; if finalized, those products would have to meet the same three NTAP criteria as all other technologies (newness, cost, and substantial clinical improvement) and antimicrobial products would also lose the current conditional approval process tied to later FDA authorization. 
  • Quality and workforce proposals: CMS proposed one new readmissions measure, plus 3 IQR measure additions, 8 measure modifications, and 3 removals.  
    • CMS is also requesting comments related to: 
      • Potential use of the Emergency Care Access and Timeliness eCQM in the inpatient setting. 
      • Potential use of the Adult Community-Onset Sepsis Standardized Mortality Ratio measure. 
      • Updating the scoring methodology associated with the Birthing Friendly Hospital designation. 
  • GME nondiscrimination requirements: CMS proposed new GME requirement and changes to how new residency programs are identified for DGME and IME payments.  
    • Nondiscrimination standard: CMS would require approved residency programs to not discriminate, or promote discrimination, based on race, color, national origin, sex, age, disability, or religion. That would also apply to nursing and allied health education programs and accreditors.  
    • New residency program criteria: CMS would revise how a program qualifies as “new” for DGME and IME cap-building purposes by dropping the requirement that faculty and the program director be new and instead requiring that at least 90% of individual residents have no prior training in the same specialty for programs starting on or after October 1, 2026. 
  • Other payment policies: CMS did not propose major wage index changes but would continue the low-wage-index transition policy. It also outlined separate policies for low-volume hospitals and MDHs because current congressional extensions only run through December 31, 2026.