CMS proposes 2.4% inpatient Medicare reimbursement hike

CMS is seeking a 2.4% increase to inpatient Medicare reimbursement rates, as well as public feedback on ways to streamline regulations within the Medicare program to reduce administrative burden. 

The federal agency proposed the rate hike in the new Fiscal Year (FY) 2026 Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule. The rule estimates a 3.2% increase in the hospital market basket next fiscal year, reduced by a 0.8% productivity adjustment, which anticipates improvements in hospital efficiency. 

The proposed rate adjustments to inpatient Medicare reimbursement also reflects CMS' proposed revision to the IPPS operating market basket and IPPS capital market basket. The revisions would reflect a 2023 base year, which would come out to a national labor‑related share of 66%. 

Additionally, CMS proposed an increase in Medicare uncompensated care payments to disproportionate share hospitals of approximately $1.5 billion in FY 2026. Medicare-Dependent Hospitals are also slated to receive $0.5 billion in payments if Congress extends changes to low-volume hospitals as it has done in the recent past. 

Overall, CMS expects the proposed rate hike and other policies within the proposed rule to increase hospital Medicare reimbursement for inpatient care by about $4 billion in FY 2026.  

The federal agency also expects about $234 million more payments for inpatient cases involving new medical technologies. CMS plans to continue new technology add-on payments for several technologies depending on application determinations. 

The FY 2026 IPPS and LTCH PPS proposed rule would also apply a 2.6% annual update to the LTCH standard rate, based on a projected LTCH PPS market basket percentage increase of 3.4%, less a 0.8 percentage point productivity adjustment. However, high-cost outlier payments are expected to fall by 0.3% in FY 2026 for LTCHs. 

CMS projects LTCH PPS payments for discharges paid the LTCH standard payment rate to increase by approximately 2.2%, or $52 million. 

The proposed rule would also discontinue the low-wage index hospital policy following a recent court ruling vacated the changes and its budget neutrality adjustment. The low-wage index hospital policy would have applied a temporary budget-neutral adjustment to address wage index disparities affecting low-wage index hospitals, including many rural hospitals.  

Instead, CMS proposes to adopt a narrow transitional exception to the calculation of FY 2026 IPPS payments for low-wage index hospitals impacted by the discontinuation of the policy. The new exception would also be budget neutral. 

CMS is also calling for comments on how to reduce administrative burdens on providers, suppliers, beneficiaries, Medicare Advantage and Part D plans and other healthcare stakeholders under President Trump's recent executive order.  

Executive Order 14192, "Unleashing Prosperity Through Deregulation," seeks to reduce private spending on compliance with federal regulations. The new Request for Information from CMS calls for potential changes to Medicare regulations with the goal of cutting healthcare spending on federal regulatory compliance. 

Comments are due by June 10, 2025. 

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.