On April 2, 2026, CMS issued its fiscal year 2027 prospective payment system (PPS) proposed rules for inpatient rehabilitation facilities (IRFs) and inpatient psychiatric facilities (IPFs). This article highlights key provisions of both rules to help affected organizations model and understand their potential impact on operating budgets and patient care.
What Are the Key Provisions in the 2027 IRF Proposed Rule?
CMS estimates the net impact of all provisions in the proposed rule will be a payment increase of $355 million (2.8%) to IRFs in FY 2027. Specific provisions include:
IRF Market Basket Update (MBU) & Standard Payment Amount
The proposed net FY 2027 IRF MBU is 2.4%. The net MBU results from a 3.2% MBU increase reduced by the 0.8% productivity adjustment. After applying budget neutrality adjustments, CMS proposes a standard payment amount for IRFs of $19,881, which is approximately 2.6% greater than in the FY 2026 IRF final rule ($19,371).
Case Mix Group (CMG) Updates
CMS proposes to update the CMG weights using FY 2025 IRF claims and FY 2024 cost report data. CMS projects 99.4% of CMGs will experience a change of less than 5% in relative value because of the update. The updated weights are listed in Table 2 in the proposed rule (pg. 17,200 in the Federal Register), and the payment amounts are listed in Table 6 (pg. 17,209).
Fixed Loss Outlier Threshold
CMS proposes an IRF fixed loss outlier threshold of $8,689. This is a decrease from the FY 2026 final threshold of $10,141, which would result in an estimated $55 million increase in outlier payments.
Wage Index
CMS proposes to complete the three-year budget-neutral phaseout of the rural adjustment for FY 2024 IRFs transitioning from rural to urban status under the revised core-based statistical area (CBSA) delineations. Affected IRFs received one third of the FY 2024 rural adjustment in FY 2026. In FY 2027, they will receive the full urban wage index with no rural adjustment.
In addition, CMS proposes to continue using the Inpatient Prospective Payment System (IPPS) pre-reclassification, pre-floor hospital wage index (based on 2024 cost report data) as the basis for the IRF PPS wage index for FY 2027. CMS proposes an IRF labor-related share of 74.5% for FY 2027, a slight increase from 74.4% in FY 2026.
In a request for information, CMS seeks input on alternative wage index data sources, including whether Bureau of Labor Statistics (BLS) wage data or IRF-specific sources could improve geographic accuracy in future years.
Quality Reporting Program (IRF QRP)
The proposed rule retains the 15 IRF QRP measures currently adopted. However, CMS proposes changing the data submission deadline to the 15th day of the second month after the end of the calendar quarter (roughly 45 days) beginning in federal FY 2029. The current data submission deadline is four and a half months after the end of each quarter. If finalized, this would apply to both the IRF Patient Assessment Instrument (IRF-PAI) data and the Centers for Disease Control and Prevention National Health Safety Network (NHSN) data.
Other Proposed Payment Policy Changes
The 2027 IRF rule proposes several policy and compliance changes that would affect operations:
- “Clarifying” the 36-Hour Rule: If finalized, CMS would require all ordered therapy treatments or therapy evaluations, not just one, to begin within 36 hours from midnight on the day of admission. IRF claims that do not comply with the 36-hour rule would not be considered reasonable and necessary.
- Documentation of Functional Status: In addition to the prior level of function, CMS proposes requiring documentation of a patient’s current functional status within the preadmission screening. The proposed rule states that the patient’s current level of function provides information necessary to build a more complete picture of a patient’s expected level of improvement while in the IRF.
- Interdisciplinary Team Meetings: CMS proposes requiring the initial interdisciplinary team meeting by day four of admission, with subsequent meetings at least every seven days.
What Are the Key Provisions in the 2027 IPF Proposed Rule?
CMS estimates that the net impact of all provisions in the proposed rule will be a $50 million (2.1%) payment increase to IPFs in FY 2027. Key proposed changes include:
IPF MBU
The proposed FY 2027 IPF net MBU is 2.3% (3.1% MBU increase reduced by the 0.8% productivity adjustment). After applying the MBU and budget neutrality adjustment, CMS proposes an IPF per diem of $912.58, approximately 2.2% more than the final FY 2026 per diem of $892.87. CMS proposes an electroconvulsive therapy (ECT) payment per treatment of $688.73 in FY 2027, up from $673.85 in the FY 2026 final rule. For IPFs that did not meet quality reporting requirements, the proposed per diem and ECT payments are $894.74 and $675.26, respectively.
Fixed Loss Outlier Threshold
CMS proposes to decrease the IPF fixed dollar loss threshold amount from $39,360 in the FY 2026 final rule to $37,820 for FY 2027. The decreased threshold would result in an increase in outlier payments.
In addition, CMS proposes to cap total outlier payments to no more than 20% of an individual IPF’s total IPF PPS payments beginning in FY 2027. The agency says the policy is intended to prevent a small number of high-cost facilities from disproportionately driving outlier spending and inflating the outlier threshold. In the proposed rule, CMS projects that 3.6% of IPFs would be subject to the cap. If finalized, this change would take effect for discharges occurring in cost reporting periods beginning on or after October 1, 2026.
Patient-Level Adjustments
For FY 2027, CMS proposes to use the same patient age, patient comorbidity, and variable per diem adjustment factors as previously finalized.
Wage Index
CMS proposes continuing to use the concurrent pre-floor, pre-reclassified IPPS hospital wage index as the basis for the IPF wage index. As with IRFs, CMS proposes to complete the three-year budget-neutral phaseout of the rural adjustment for FY 2024 IPFs transitioning from rural to urban status under the revised CBSA delineations. Affected IPFs received one third of the FY 2024 rural adjustment in FY 2026. In FY 2027, they will receive the full urban wage index with no rural adjustment.
For FY 2027, CMS proposes an IPF labor-related share of 79.1%, a slight increase from 79.0% in the 2026 final rule. As in prior years, CMS proposes to apply the IPF wage index adjustment to the labor-related share of the national IPF PPS base rate and ECT payment per treatment.
In addition, as in the IRF proposed rule, CMS seeks input on alternative wage index data sources, including whether BLS wage data or IPF-specific sources could improve geographic accuracy in future years.
Facility-Level Adjustments
Each year, CMS adjusts claims payments for inpatient psychiatric services based on a variety of facility-specific factors. For 2027, CMS proposes using the same rural location, teaching, and emergency department adjustments finalized in 2026.
The proposed rule also updates cost-of-living adjusters for Alaska and Hawaii. These values can be found in Table 2 of the proposed rule (pg. 17,731 in the Federal Register). In addition, CMS proposes to use Department of Defense Overseas Cost-of-Living Allowance data to adjust IPF non-labor costs for Alaska and Hawaii, and to eliminate the 25% cap on cost-of-living adjustment (COLA) factors.
IPF QRP
CMS proposes the following changes related to the IPF QRP:
- IPF-PAI: As required by the Consolidated Appropriations Act, 2023, CMS proposes to implement a standardized IPF-PAI beginning in FY 2028. Under the proposal, an IPF would be required to submit IPF-PAI assessments on a quarterly basis, with data due by the 15th day of the second month following each calendar quarter. To avoid a payment penalty of two percentage points, an IPF would need to successfully complete 100% of the required items on at least 80% of submitted IPF-PAIs for the applicable reporting period.
- Measure Removal: The agency also proposes to remove two chart-abstracted measures to reduce reporting burden: Alcohol Use Brief Intervention (SUB2/2a) and Tobacco Use Treatment at Discharge (TOB3/3a).
How Forvis Mazars Can Help
Our healthcare reimbursement and compliance professionals are committed to helping organizations across the continuum of care achieve regulatory excellence by understanding and adapting to the impact of evolving Medicare payment policies. If you have questions about how the proposed IRF and IPF changes may affect your organization, please reach out to a professional on our team.