The Centers for Medicare & Medicaid Services (CMS) recently released a final rule to update the Medicare fee-for-service (FFS) inpatient prospective payment system (IPPS) for fiscal year (FY) 2026.
Highlights of the final rule include:
- Increasing the standard operating rate by a net 1.9%, after the 0.7% productivity cut and budget neutrality adjustments, from $6,624.39 to $6,752.61, for hospitals that successfully comply with the CMS quality reporting program and electronic health record requirements. Hospitals that do not meet requirements for these programs are subject to a reduced annual update.
- Increase the federal capital rate by 2.3%, from $512.14 to $524.15.
- Decrease the cost outlier threshold by 12.6% from $46,217 to $40,397 to maintain the target of paying 5.1% of aggregate IPPS payments as outlier.
- Rebasing and revising the labor-related share of the standardized operating rate from 67.6% to 66% for hospitals with a wage index greater than 1.0.
- Increasing disproportionate share hospital and uncompensated care (UCC) payments by approximately $2 billion nationally. UCC payments will be allocated using the average of three most recent years of audited Worksheet S-10 data.
- Adding five new Medicare Severity Diagnosis Related Groups (MS-DRGs) while deleting six MS-DRGs, with most changes within Major Diagnostic Category 05, Diseases and Disorders of the Circulatory System.
- Removing four measures from the Hospital Inpatient Quality Reporting Program effective with the 2024 reporting and FY 2026 payment period:
- COVID-19 vaccination coverage among health care personnel.
- Hospital commitment to health equity structural measure.
- Screening for social drivers of health.
- Screen positive rate for social drivers of health.
- Modifying the Hybrid hospital-wide readmission and mortality measures and the stroke mortality and elective total hip and knee arthroplasty measures.
- Updating and codifying the Extraordinary Circumstances Exception (ECE) policy to clarify that the CMS has discretion to grant an extension in response to an ECE request from a hospital.
- Removing the health equity adjustment from the hospital value-based purchasing program scoring methodology beginning with the FY 2026 program.
- Modifying the six measures in the Readmissions Reduction Program to include Medicare Advantage (MA) beneficiaries in the patient cohorts and shortening the applicable performance period from three years to two years. For example, FY 2027 HRRP penalties would be based on performance July 1, 2023, through June 30, 2025. The CMS did not finalize its proposal to include MA data in the calculations of aggregate payments for excess readmissions; as a result, aggregate penalties are expected to include 2% instead of 13% under the proposed update.
- Making a technical update to the National Healthcare Safety Network healthcare associated infection measures baseline.
The MHA continues to review the final rule and will provide hospitals with an updated estimated impact analysis and rule brief in the next few weeks. Members with questions should contact Vickie Kunz at the MHA.