Dive Brief:
The CMS on Thursday finalized a 2.6% payment increase for inpatient hospitals in 2026, higher than what regulators originally proposed earlier this year.
Hospital payments will now rise by about $5 billion in 2026 — $1 billion more than what was originally proposed under a 2.4% payment increase in April.
Medicare also finalized changes to quality reporting, including removing COVID-19 vaccination requirements for healthcare workers and a mandatory payment model starting in January.
Dive Insight:
The inpatient pay raise reflects a market basket increase of 3.3%, reduced by a 0.7 percentage point productivity adjustment, according to a CMS fact sheet on the final rule.
The rule also includes higher payments to disproportionate share hospitals for uncompensated care in Medicare. Disproportionate share hospitals will now receive approximately $2 billion more in uncompensated care payments, higher than the $1.5 billion increase originally proposed.
Hospital groups said they appreciated the pay bump, but still considered it inadequate. Hospitals have raised concerns about their pay alongside rising inflation and looming healthcare policies finalized in the “Big Beautiful Bill” that will cut funds to hospitals and raise the uninsured rate.
“The AHA is also pleased that CMS’ payment updates and support for hospitals that treat a disproportionately high number of low-income patients are improved in this final rule,” said Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association, in a statement. “However, we are still concerned that these updates are not adequate enough for the many hospitals that are struggling in today’s challenging operating environment, especially those in rural and underserved communities.”
Other finalized changes include the removal of some measures included in inpatient quality reporting requirements. Hospitals report certain quality metrics as a condition of their inpatient payment rate from Medicare, and those that don’t report quality data or don’t meet all program requirements can have their annual inpatient payments reduced by 25%.
Next year, hospitals won’t be required to report metrics on COVID vaccination among healthcare workers, a health equity metric and some screenings related to social determinants of health. The Trump administration has targeted mandatory COVID vaccination policies, including those in public schools and the federal agency that reviews the vaccines.
The CMS is also tweaking a mandatory payment model debuting next year, called Transforming Episode Accountability Model. The five-year alternative payment model aims to hold hospitals accountable for care quality for patients undergoing surgeries in traditional Medicare. In TEAM, select acute care hospitals in certain geographic areas will assume responsibility for the cost and quality of care from surgery through the 30 days after the Medicare enrollee leaves the hospital.
The final rule includes minor changes to TEAM, including broadening certain waivers for skilled nursing facilities and using patient-reported outcomes in outpatient settings.
Hospitals have pushed back on the mandatory payment model, which they say could burden low-resource hospitals.
“The AHA has long supported widespread adoption of meaningful, value-based and alternative payment models to deliver high-quality care at lower costs. We remain worried that the Transforming Episode Accountability Model (TEAM) will not advance these objectives and puts at particular risk hospitals that are not of a large enough size or in a position to support the investments needed,” Thompson said. “This is why we continue to urge the agency to make TEAM voluntary.”
The CMS also said it will discontinue a low wage index hospital policy for 2026 and all subsequent years, after an appellate court found the CMS lacked statutory authority to adopt the policy. The low wage index policy, first adopted in the CMS’ final rule for 2020, proposed to temporarily adjust reimbursement rates according to a wage index that would compare regional average wages to national averages. The policy, which was meant to last four years, was aimed to mitigate growing wage disparities between hospitals, but a D.C. circuit court overruled the policy in July 2024.
In addition to discontinuing the policy, the rule also finalized a “narrow,” budget-neutral transitional payment exception to the calculation of 2026 inpatient rates for hospitals significantly impacted by the discontinuation.
