The Centers for Medicare & Medicaid Services (CMS) recently published the fiscal year (“FY”) 2026 proposed rule for Hospital Inpatient Prospective Payment Systems (IPPS) (the “Proposed Rule”). Comments to the Proposed Rule must be submitted by 5 p.m. EDT on June 10, 2025.
The Proposed Rule reflects a number of broader policy changes announced by the Trump Administration through its Executive Orders and other agency actions, including an effort to de-regulate and to limit the use of notice and comment rulemaking unless it is otherwise required by statute; and removing hospital quality measures related to health equity, social drivers of health, and COVID-19 vaccination coverage among health care personnel. The Proposed Rule does not include anticipated changes to the Medicare Conditions of Participation for hospitals related to gender affirming care; those may still be forthcoming in the Medicare payment proposed rules for hospital outpatient services and physician and other health care professionals’ services that will be published in early July.
Other policy proposals of significant interest to academic medical centers and other hospitals include:
- Continued implementation of the Transforming Episode Accountability Model (TEAM) with mandatory participation for hospitals in certain geographic areas, starting in January 1, 2026 — CMS is moving forward with the five-year mandatory episode-based payment model for selected acute care hospitals, with several proposed new policies to implement the model. Proposals include a limited deferment period for new hospitals and policies to account for risk adjustment and coding changes, among other things.
- Codification of long-standing CMS policies for counting resident full-time equivalent (FTE) positions for purposes of calculating the enhanced Medicare payments to teaching hospitals for direct graduate medical education (DGME) and indirect medical education (IME) costs — CMS is not proposing any changes to its long-established FTE counting policy. Under existing policies, Medicare makes payments to teaching hospitals for DGME and IME, both of which are based on the number of residents (measured by FTEs) that the hospital trains during the year.
- Revision to the accepted cost accounting methodology for nursing and allied health programs (which Medicare reimburses on a reasonable-cost basis) — Following a decision from the U.S. District Court for the District of Columbia in favor of hospital plaintiffs disputing the current CMS methodology, CMS proposes to clarify its regulations to explain how the net costs for approved educational activities are calculated. CMS claims that the adjusted methodology will be “more accurate, albeit less” that what the providers claimed in the lawsuit.
- Discontinuation of a low-wage index hospital policy adopted during the first Trump Administration and that was declared invalid by the D.C. Circuit Court of Appeals in 2024 — In light of the court’s ruling that CMS lacked statutory authority to adopt the low-wage index hospital policy and related budget neutrality adjustment, CMS now proposes to discontinue the policy beginning in FY 2026. CMS also proposes a budget-neutral transitional exception for significantly impacted hospitals.
- Continuation of long-standing CMS policies related to add-on payments for new technologies (representing approximately $234 million in payments during FY 2026) — CMS proposes to continue making new technology add-on payments for 26 products that continue to meet the newness criterion. CMS also discusses 43 additional product applications, 29 of which applied under alternative pathways for breakthrough devices and qualified infectious disease products.
Payment Update
The Proposed Rule includes a projected 2.4% increase in IPPS payment rates for eligible general acute care hospitals, which will increase Medicare hospital payments nationwide by $4 billion. Notable components of the projected expenditures include a $1.5 billion projected increase in Medicare uncompensated care payments to disproportionate share hospitals in FY 2026, as well as $234 million in additional payments for inpatient cases involving new medical technologies in FY 2026, primarily driven by continuing new technology add-on payments (NTAP) for several technologies.
Request for Information on Deregulation
Pursuant to President Trump’s January 31, 2025 Executive Order 14191, Unleashing Prosperity Through Deregulation, CMS specifically requests public input on approaches and opportunities to streamline regulations and reduce administrative burdens on providers, suppliers, beneficiaries, Medicare Advantage and Part D plans, and other interested parties participating in the Medicare program. Among other things, CMS requests information about existing regulatory requirements and policy statements that could be waived or modified without compromising patient safety or the integrity of the Medicare program, changes to simplify reporting and documentation requirements without affecting program integrity, and requirements or processes that are duplicative either within the Medicare program itself or across other health care programs (including Medicaid, private insurance, and state or local requirements).
Like other agencies, CMS requests all comments related to the deregulation RFI be submitted through a program-specific weblink.