CMS Fiscal Year 2026 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule CMS-1833-F

Overview

On July 31, 2025 CMS released the Fiscal Year 2026 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule (CMS-1833-F), which will become effective on October 1, 2025. This is a mandatory annual CMS regulatory update, the purpose of which is to provide notice of adjustments to Medicare payment policies and rates for both inpatient and long-term care hospitals.

Key Updates

1. IPPS/LTCH PPS Payment Rate Updates.

On par with previous years, CMS increased the Medicare inpatient prospective payment system rates by 3.3%, which was adjusted by a .7% productivity cut, equating to an overall net 2.6% increase for fiscal year 2026. This update also increased the LTCH standard payment rate by a net 2.7% and is making what the Agency termed a moderate increase to the LTCH outlier threshold for FY 2026 from last year, to meet the statutory requirement that estimated outlier payments be at least 8% of total payments.

1. Program Updates.

There were numerous incentive program updates addressed in the FY 2026 IPPS. What follows are those updates yielding the most potential impact to CorroHealth clients.

Updates to the Hospital Inpatient Quality Reporting (IQR) Program include modifications to the following measures:

• Medicare Advantage patients are being added to the cohort for Hospital-Level, Risk-Standardized Complication Rate (RSCR) following elective primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA); as well as the Hospital 30-day, All-Cause, Risk-Standardized Mortality Rate (RSMR) following acute ischemic stroke hospitalization with claims-based risk adjustment for stroke severity

and the performance period for both is being shortened from 3-years to 2-years.

• The submission thresholds are being lowered to allow for up to two missing lab results and up to two missing vital signs for Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures, and the submission requirement and the linking variables requirement for the Core Clinical Data Elements (CCDEs) are also both being reduced to 70% or more of the discharges.

• CMS has also finalized the removal of the following measures beginning with the CY 2024 reporting period/FY 2026 payment determination:
  • Hospital Commitment to Health Equity
  • COVID-19 Vaccination Coverage Among Health Care Personnel
  • Screening for Social Drivers of Health
  • Screen Positive Rate for Social Drivers of Health

There were also impactful updates to the Hospital Readmissions Reduction Program, which penalizes hospitals with higher-than-expected readmissions by linking payments to the quality of care provided specifically as related to the six readmission measures.

• CMS will now include Medicare Advantage patient data in addition to the MFFS data; however this data will not be included in the calculations of aggregate payments for excess readmissions;
• CMS has shortened the “applicable period” for measuring performance from 3-years to 2-years;
• CMS has removed the COVID-19 exclusion and risk-adjustment covariates from the six readmission measures; and
• CMS has also updated and codified the Extraordinary Circumstances Exception policy, extending the length of time to submit an ECE request to 60-days.

CMS did not make any meaningful updates to the Hospital-Acquired Condition (HAC) Reduction Program, which incentivizes hospitals to improve patient safety by encouraging implementation of best practices to reduce rates of infections associated with their hospital stay. CMS has however, updated the Fact Sheet for the FY 2026 HAC Reduction Program, including the CMS PSI 90 performance period: July 1, 2022 to July 30, 2024 and the CDC’s NHSN HAI measure performance period: January 1, 2023 to December 31, 2024.

III. Modifications to the TEAM Initiative.

CMS rolled out the Transforming Episode Accountability Model (TEAM) in the FY 2025  IPPS Final Rule, stating the purpose of this value-based care model is to improve beneficiary care through hospital financial accountability,  specifically for “episodes of care” for one of the following five procedures: 1) Coronary artery bypass graft surgery, 2) Lower extremity joint replacement, 3) Major bowel procedure, 4) Surgical hip or femur fracture treatment, and 5) spinal fusion.

This initiative is slated to launch on January 1, 2026 and run for five years until December 30, 2030, mandating over 740 select acute care hospitals coordinate care for patients with original Medicare undergoing one of the five surgical procedures. The select hospitals will be responsible for the cost and quality of care from surgery through 30-days post-discharge, with hospitals receiving a bundled-payment-system target price.

CMS provided notice within the FY 2026 IPPS Final Rule of changes to the TEAM initiative including: the capture of quality measure performance using patient-reported outcomes in the outpatient setting; improving target price construction; and they are also broadening the 3-day skilled nursing facility rule waiver in order to enhance patient post-acute care options. CMS has also developed a robust TEAM-specific CMS webpage with the most relevant dates, details and guidance for hospitals mandated to participate in this initiative.

1. Request For Information.

Within this Final Rule, CMS has also included a new Request for Information regarding the Streamlining Regulations and Reducing Administrative Burdens on Medicare, aligning with the Trump Administration’s Executive Order – EO 14192, which encourages feedback and comment from the public. Questions raised by CMS include whether there are any existing regulatory requirements that could potentially be waived, modified or streamlined to reduce administrative burden? Are there any opportunities to simplify the Medicare reporting and documentation requirements? Are there any duplicative or redundant Medicare requirements? And of course the catch-all – are there any other suggestion or recommendations for deregulating or reducing administrative burden?

To participate in the RFI, providers may refer to the CMS weblink as follows to view the full RFI and submit responses electronically or by mail by September 15, 2025: https://www.cms.gov/medicare-regulatory-relief-rfi.

For more information regarding this Final Rule, CMS has developed a Fact Sheet for the FY 2026 Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule, highlighting the updates and offering additional insight into Agency intent.