On April 10, 2026, CMS released its fiscal year (FY) 2027 Inpatient Prospective Payment System (IPPS) proposed rule. CMS estimates hospital inpatient payments will increase by $1.9 billion nationally (1.2%) in FY 2027 compared to projected FY 2026 Medicare payments. In addition to the proposed payment updates, CMS proposes a mandatory national expansion of bundled payments for lower joint replacements called the Comprehensive Care for Joint Replacement Expanded (CJR-X) Model. CMS projects CJR-X would include more than 2,500 PPS hospitals and save $725 million across five performance years.
Below we explore these updates and other key takeaways from the proposed rule.
Acute IPPS Hospital Market Basket Update
CMS proposes a net IPPS market basket update (MBU) of 2.4% for hospitals that meet quality reporting and promoting interoperability requirements, and a capital update of 3.1%. The resulting base operating and capital rates are available here (pg. 1,451). The net MBU is the result of a gross MBU of 3.2%, reduced by the Affordable Care Act (ACA)-mandated productivity reduction of 0.8%.
CJR-X: National Mandatory Lower Extremity Joint Replacement Model
Beginning on October 1, 2027, CMS proposes to establish the CJR‑X Model, a mandatory, nationwide episode‑based payment model. Acute care hospitals paid under both IPPS and the Outpatient Prospective Payment System (OPPS) would be required to participate, excluding hospitals located in Maryland and hospitals participating in the Transforming Episode Accountability Model (TEAM) until that model’s scheduled end date (December 31, 2030). CMS projects this will include more than 2,500 hospitals at the CJR-X Model’s proposed start date.
Uncompensated Care (UC) for Disproportionate Share Hospitals (DSH) Payment Decrease
CMS proposes decreasing the UC DSH dollars available for distribution to qualifying hospitals by $253 million (approximately -3.3%) in 2027 compared to the FY 2026 IPPS final rule. This is the result of a significant decrease in projected 2027 Medicare traditional DSH dollars (Factor 1), partially offset by an increase in the FY 2027 projected uninsured rate (Factor 2) relative to the FY 2026 final rule.
Factor 1
In the 2027 proposed rule, CMS projects that Factor 1 (75% of empirically justified Medicare DSH payments) is $11.477 billion. This is a significant decrease from the 2026 final rule Factor 1 of $12.413 billion, driven by a lower proposed 2027 MBU compared to the 2026 final rule update, a decrease in anticipated inpatient discharges in 2027 compared to 2026, and a year-to-year decrease in the “other” factor.
Factor 2
In the proposed rule, CMS projects a CY 2026 uninsured rate of 9.0% and a CY 2027 uninsured rate of 9.1%, for a composite FY 2027 uninsured rate of 9.075%. This is up from the FY 2026 final rule projected uninsured rate of 8.7%. CMS projects the dollars available to be distributed to Medicare DSH hospitals for UC DSH in FY 2027 is $7.46 billion. This is down from $7.71 billion in the FY 2026 final rule.
Factor 3
For FY 2027, CMS proposes to continue using the same methodology and data sources: three years of audited cost reports (FYs 2021, 2022, and 2023) to calculate Factor 3 in the UC DSH formula. Factor 3 determines each eligible hospital’s share of the available UC pool.
As a result, it is critical for DSH hospitals to capture all eligible UC costs on Worksheet S-10 for the cost reports that will determine Factor 3. This static lookback creates a timing mismatch risk for safety‑net and urban DSH hospitals, as reductions in UC funding occur just as uninsured rates are projected to rise due to ACA premium subsidy sunsets and Medicaid eligibility redeterminations. This makes S‑10 accuracy and defensibility mission‑critical. A thorough understanding of the Worksheet S-10 instructions and exhibit requirements is imperative to receive your hospital’s share of these funds.
Wage Index Adjustment
The proposed FY 2027 wage index adjustment is based on cost reporting periods beginning in FY 2023 from cost report data collected on Worksheet S-3, along with Occupational Mix survey data from calendar year (CY) 2022.
Labor-Related Share (LRS)
CMS proposes to continue using a labor-related share of 66.0% in FY 2027 for hospitals with an area wage index value greater than 1.00.
Rural Floor Calculation
Based on the calculation of the rural floor including the wage data of hospitals that have reclassified as rural under §412.103, CMS estimates that 535 hospitals would receive the rural floor in FY 2027. This will likely increase in the final rule.
Low Wage Index Policy Transition Continues
Following the D.C. Circuit Court’s decision in Bridgeport Hosp. v. Becerra, CMS discontinued the low wage index hospital policy beginning in FY 2026. For FY 2027, CMS proposes a transitional payment exception similar to FY 2026, applying only to hospitals that benefited from the FY 2024 low wage index hospital policy. CMS would compare a hospital’s proposed FY 2027 wage index to its FY 2024 wage index, and if the FY 2027 value declines by more than 14.2625% due to discontinuation of the low wage index policy, the hospital would receive a transitional payment. This payment would equal the additional amount the hospital would receive if its FY 2027 wage index were set at 85.7375% of its FY 2024 wage index, after applying the existing 5% wage index cap. CMS proposes to make this policy budget-neutral by adjusting the standardized amount for all hospitals.
Low-Volume Hospital Payment Adjustment
The proposed rule reminds hospitals receiving the low-volume hospital payment adjustment that unless Congress acts to extend the current eligibility criteria and payment mechanism, it will revert on January 1, 2027 to the statutory requirements in effect prior to the ACA. Below is a summary of the criteria and payment mechanisms for FY 2019 and subsequent years.
Low-Volume Hospital Qualifying Criteria & Payment Adjustment for FY 2019 & Subsequent Years1
| Fiscal Years | Road Miles | Total Discharges | Payment Adjustment |
|---|---|---|---|
| 2019 through 2026 and the portion of 2027 from 10/1/2026 through 12/31/2026 | >15 | <= 500 | 0.25 |
| > 500 < 3,800 | 0.25 - [0.25/3300] x (number of total discharges - 500) = (95/330) - (number of total discharges/13,200) | ||
| The portion of 2027 beginning on 1/1/2027 and 2028 and subsequent years | >25 | < 200 | 0.25 |
For FY 2027, CMS proposes continuing its established process for hospitals seeking low-volume hospital payment adjustments, requiring written requests submitted to the hospital’s Medicare Administrative Contractor (MAC) with documentation showing the hospital meets applicable mileage and discharge criteria.
- For discharges from October 1 through December 31, 2026, requests must be received by September 1, 2026.
- For discharges from January 1 through September 30, 2027, requests must be received by December 1, 2026.
Late requests may still qualify but will be applied prospectively within 30 days of MAC approval. Hospitals may submit a single request covering both periods or separate requests for each period. Hospitals that qualified for low-volume hospital status in FY 2026 may continue in FY 2027 without reapplying if they meet revised criteria and provide timely written verification.
Medicare Dependent Hospital (MDH) Status
The proposed rule reminds hospitals that, by statute, MDH status expires for discharges occurring on or after January 1, 2027, unless Congress passes another extension before CY 2026 begins. CMS has revised its sole community hospital (SCH) policies to allow MDHs to apply for SCH status in advance of the MDH program’s expiration and be paid as such if they qualify. However, an MDH that classifies as an SCH in anticipation of the MDH program expiration would have to reapply for MDH classification and meet qualifying criteria if the MDH program is extended and the provider wishes to return to its classification as an MDH.
Outlier Threshold
For FY 2027, CMS proposes a fixed loss acute outlier threshold of $51,704. This is considerably higher than the FY 2026 final rule threshold of $40,397. The increase in the threshold will result in a decrease in outlier payments relative to FY 2026.
TEAM Episodic Payment Model Updates
TEAM is a five-year mandatory model for selected hospitals that started on January 1, 2026 and will end on December 31, 2030. In the 2027 IPPS rule, CMS proposes several changes to the model, including updates to MS-DRGs, episode attribution, quality measurement performance periods, and composite quality score (CQS) baseline periods.
Graduate Medical Education (GME)
The FY 2027 IPPS rule proposes changes related to nondiscrimination requirements, as well as clarifications to cap-building rules and calculations of Indirect Medical Education (IME)/GME payments post-merger that have been sought by the industry. Most proposals would be effective for cost reporting periods beginning October 1, 2026.
Nursing & Allied Health (NAH) Education Programs
The rule also proposes changes related to nondiscrimination requirements for NAH education programs. In addition, CMS proposes clarifying how net NAH education costs are calculated, as well as clarifying NAH passthrough policies by reaffirming that only provider-incurred direct and indirect costs attributable to operating NAH programs are allowable, excluding usual patient care and related party costs.
Organ Acquisition & Reasonable Cost Payment Policies
CMS proposes to clarify and codify organ acquisition policies by standardizing nonrenal organ acquisition charges through MAC-established rates for independent organ procurement organizations (IOPOs) and histocompatibility laboratories and clarifying reasonable cost reimbursement.
Provider-Based Location Criteria Regulations
CMS proposes tightening the provider‑based location “same patient population” test by limiting the referral‑based 75% to outpatient facilities only. Under the proposal, inpatient facilities would no longer be permitted to use referrals to demonstrate patient population overlap.
Long-Term Care Hospital (LTCH) Payment Update
CMS proposes a net 2.4% payment update for LTCHs in FY 2027, reflecting a 3.2% MBU reduced by the 0.8% ACA productivity adjustment. Based on all proposed changes, CMS estimates LTCH payments would increase by $55 million (2.3%) relative to the FY 2026 final rule. CMS proposes an FY 2027 standard rate of $52,177.04 for LTCHs that meet reporting requirements, up from $50,824.51 in FY 2026. CMS proposes to maintain the LTCH fixed loss outlier threshold at $78,936, consistent with the FY 2026 final rule.
Acute Hospital Inpatient Quality Reporting (IQR)/Value-Based Purchasing (VBP) Programs
CMS proposes several changes to the Hospital IQR and VBP programs in the CY 2027 IPPS proposed rule:
New IQR Measures
If finalized, CMS would add the following new measures to the IQR:
- Excess Days in Acute Care After Hospitalization for Diabetes (FY 2029 payment determination)
- Hospital Harm-Postoperative Venous Thromboembolism (eCQM) (FY 2030 payment determination)
- Advance Care Planning eCQM (FY 2030 payment determination)
Modified Measures
CMS proposes to modify eight existing measures by including Medicare Advantage patients in their calculation and reducing the reporting period from three years to two, beginning with the FY 2028 payment determination. These modifications would apply to:
- Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate measures following AMI, heart failure, pneumonia, COPD, and CABG hospitalizations. CMS proposes using the modified version of these measures in the Hospital VBP beginning with the FY 2032 program year.
- Excess Days in Acute Care After Hospitalization for AMI, heart failure, and pneumonia.
Removed Measures
CMS proposes removing the following measures beginning with the FY 2030 payment determination:
- Venous Thromboembolism Prophylaxis (VTE-1) eCQM
- Intensive Care Unit Venous Thromboembolism Prophylaxis (VTE-2) eCQM
- Discharged on Antithrombotic Therapy (STK-02) eCQM
CMS estimates the VBP program will redistribute approximately $1.9 billion in FY 2027.
Hospital Readmissions Reduction Program (HRRP)
For FY 2027, CMS proposes adding the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure. The measure would include both Medicare fee-for-service (FFS) and Medicare Advantage patients. CMS would provide confidential “early look” reporting beginning with the FY 2028 program year, with the measure affecting payments starting in FY 2029.
How Forvis Mazars Can Help
Our professionals at Forvis Mazars are committed to helping healthcare organizations achieve regulatory excellence by understanding and adapting to the impact of evolving Medicare payment policies. If you have questions about how changes proposed in the FY 2027 IPPS rule may affect your organization, please reach out to a professional on our team.
- 1TABLE V.D.-01, FY 2027 IPPS Proposed Rule, Display Version, pg. 462.