CMS finalizes 2.3% hospital pay bump, mandatory joint replacement model: 9 things to know

CMS on July 31 finalized its Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System rule for fiscal 2027, setting a 2.3% payment increase for acute care and long-term care hospitals and locking in the first mandatory, nationwide episode-based payment model for joint replacements. “Knee, hip, and ankle replacements are important for helping seniors preserve their mobility and overall well-being,” CMS Administrator Mehmet Oz, MD, said in a July 31 news release. “Expanding the joint replacement pilot program to support more of our seniors will help match financial incentives in Medicare with improved health outcomes, safeguard taxpayer resources and ensure patients experience a positive, comprehensive care journey throughout the surgical process.” Nine things to know: 1. Hospitals get a 2.3% inpatient pay increase, slightly below the initial proposal. The final IPPS rate update is 2.3%, reflecting a 3.2% market basket increase minus a 0.9 percentage point productivity adjustment. That lands just under the 2.4% CMS floated in April, when the productivity cut was 0.8 percentage point. Hospitals must meet Hospital Inpatient Quality Reporting requirements and be meaningful EHR users to earn the full update. LTCHs received the same 2.3% standard rate update, with payments rising about 2.2%, or $54 million. 2. Total inpatient payments will rise about $2.1 billion. CMS estimates the combined changes will increase hospital payments by roughly $2.1 billion in fiscal 2027, well above the $1.4 billion the agency projected in the proposed rule. 3. A mandatory nationwide joint replacement model starts in 2028. CMS finalized the Comprehensive Care for Joint Replacement Expanded model, or CJR-X, as the first mandatory, nationwide test of episode-based payment. The start date moved to Jan. 1, 2028, pushed back from the Oct. 1, 2027 date in the proposal. Most IPPS hospitals will be accountable for Medicare spending on hip, knee and ankle replacements, covering the surgery, hospitalization and first 90 days of recovery. The predecessor CJR model — which ran from April 2016 through December 2024 — saved Medicare more than $100 million while holding quality steady. Hospitals in the Transforming Episode Accountability Model, those in Maryland, and those not paid under both the IPPS and OPPS may be exempt. 4. Special payments for rural and small hospitals expire at the end of 2026. Add-on payments for Medicare-dependent hospitals and the temporary low-volume hospital adjustment lapse Dec. 31, 2026, under current law. Congress has extended these before; if extended through fiscal 2027, CMS estimates the affected hospitals would receive about $300 million. Without action, it is another cliff for rural and small community hospitals already under the most financial strain. 5. Add-on payments for new technologies jump to $779 million. CMS now expects new technology add-on payments to increase by about $779 million in fiscal 2027, up sharply from the roughly $464 million estimated in the proposed rule, driven by new approvals. 6. Medicare Advantage data is moving into quality and payment measures. Across the Inpatient Quality Reporting, Value-Based Purchasing and Readmissions Reduction programs, CMS is adding Medicare Advantage patients to claims-based measures and shortening performance periods from three years to two. The agency tied the change to Medicare Advantage now covering more than half of all Medicare beneficiaries, about 35 million people. The shift affects the risk-standardized mortality measures for heart attack, heart failure, pneumonia, COPD and coronary artery bypass graft surgery. 7. A sepsis measure joins the Readmissions Reduction Program. CMS finalized a 30-day, risk-standardized sepsis readmission measure. Hospitals get two years of confidential early-look reports in the fiscal 2028 and 2029 program years, with the measure factored into payment reductions starting in fiscal 2030. 8. Interoperability rules add electronic prior authorization. Under the Medicare Promoting Interoperability Program, the electronic prior authorization measure becomes an optional bonus in 2027 and mandatory in 2028. CMS also added a unique device identifier measure for implantable devices, aligned certification criteria with the Office of the National Coordinator for Health IT HTI-5 proposal, and adopted and removed several eCQMs to match the Inpatient Quality Reporting Program. 9. Graduate medical education programs face new nondiscrimination requirements. CMS finalized a rule barring approved medical residency programs from discriminating, or promoting or encouraging discrimination, on the basis of race, color, national origin, sex, age, disability or religion, including using those characteristics or intentional proxies for them as selection criteria. The same requirements extend to approved nursing and allied health education programs and their accreditors. CMS said the provisions build on nondiscrimination protections finalized in the 2026 OPPS final rule. Click here to access the 2,704-page final rule. At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. 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