CMS Finalizes FY 2026 IPPS Rule: Key Medicare Payment & Policy Changes for Hospitals

Healthcare Policy Update
Article Background

What’s happening

On July 31, the Centers for Medicare & Medicaid Services (CMS) posted finalized updates to the Medicare hospital Inpatient Prospective Payment System for fiscal year 2026.

Of interest

For FY 2026, CMS will be making a number of policy changes important to hospitals, including the following:

Discontinuing the low wage index policy, but supporting affected hospitals with an alternative transitional wage index
Discontinuing the Medicare-dependent hospital and low volume adjustment programs until such time as Congress enacts legislation extending these programs
Updating and adding funds to the DSH uncompensated care payment pool
Updating all payment rate updates by a market-basket adjustment and other factors
Updating the Transforming Episode Accountability Model, including adding a new low volume exception
Updating a variety of quality measures in Medicare’s various pay-for-performance programs

The final rule also discussed changes to HTI- 4 and electronic prior authorization policies that implement new and revised standards and certification criteria for prescription benefit information and prior authorization.

Our partners at McDermott+, one of healthcare’s most trusted and respected policy and lobbying consulting firms, wrote a summary of these updates that provides valuable information about the impending changes. Most of these changes will be effective with the new federal fiscal year, which begins October 1, 2025.

Why you should care

The provisions included in this final rule will impact hospital payment and quality reporting program requirements. Hospital leaders should be informed about these policy changes and their implications.

Looking to learn more?

McDermott+ offers valuable insights into what these policy updates mean and how they could affect organizations. Read more to see what McDermott+ is saying about these proposals and how your organization could be impacted.

Click here for the final rule summary and click here for a copy of the final rule.