The Centers for Medicare and Medicaid Services on Friday locked in a 2.3% increase for base inpatient hospital payments for fiscal year 2027 and slightly delayed the launch of the CJR-X Model, the first mandatory nationwide test of an episode-based payment model.
The finalized increase to the base pay rate is below what the agency floated in the Inpatient Prospective Payment System (IPPS) proposed rule last April. The final rule reflects a 3.2% annual market basket update and a statutory 0.9 percentage point productivity adjustment, as opposed to the proposed 0.8 percentage point trim.
That said, CMS said the base pay tweak and other changes outlined in the roughly 2,700-page regulation will yield a $2.1 billion overall year-to-year increase in hospital payments plus about $779 million of additional payments tied to inpatient cases involving new medical technologies. These counts are well above the proposed rule’s estimate of $1.4 billion plus another $464 million from the technology add-on payments.
The decision comes after CMS had finalized a 2.6% base pay increase in the prior year’s IPPS final rule.
The agency laid out identical rate increases for long-term care hospitals' standard payment rate, leading to a $54 million estimated increase, but for the outlier threshold to remain at its existing value.
While the IPPS final rule serves as the vehicle for a slew of regulatory changes, including changes to quality reporting and interoperability requirements, CMS trumpeted its plan to ramp up the Comprehensive Care for Joint Replacement (CJR) Model across the nation.
The CJR-X Model, or the Comprehensive Care for Joint Replacement Expanded Model, will see most of the nation’s hospitals responsible for government spending on Medicare patients’ joint replacement surgeries, hospital stays and the first 90 days of recovery, including follow-up care. While CMS initially proposed kicking off its mandatory payment model expansion in October 2027, hospital groups who told the agency to pump the brakes earned a bit of a reprieve with a newly announced Jan. 1, 2028 start.
“Knee, hip, and ankle replacements are important for helping seniors preserve their mobility and overall well-being,” CMS Administrator Mehmet Oz, M.D., said in a 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.”
The CJR-X Model’s smaller scale predecessor ran from April 2016 through 2024, and over that period saved the Medicare program more than $100 million “while maintaining quality of care for patients. CMS Innovation Center Director Abe Sutton, in a statement, attributed the expected gains to “the right financial incentives to enhance care coordination, reduce unnecessary services, such as preventable readmissions and emergency visits, and prioritize patient outcomes with post-acute care providers supporting recovery.”
Hospital groups, in public comments, had taken issue with the CJR-X Model’s mandatory participation for most hospitals and called for either a phased, voluntary or observation-only ramp-up, and also told CMS that several components of the model were overly complex or introduced overlapping accountability obligations.
"We believe that flexibility is critical, as some hospitals lack the scale or financial capacity to make the investments in care redesign that are necessary for success," Joanna Hiatt Kim, vice president of payment policy at the American Hospital Association, said in a reaction statement. "As such, we are disappointed CMS failed to make meaningful improvements to its expanded joint replacement bundled payment program. Mandatory models present significant challenges, and CMS' low-volume threshold fails to ensure that hospitals have enough cases to integrate changes in care delivery and actually determine if they had an impact."
Kim's statement went on to describe the annual payment update as "inadequate ... in the face of rising need for care and higher uninsured rates."
Charlene MacDonald, president and CEO of the Federation of American Hospitals, which represents for-profits, similarly pointed to the inflexibility of a "one-size-fits-all" mandatory payment model and the growing burdens of uncompensated care.
“As hospitals care for a growing number of patients who either can’t afford coverage or use the coverage they have, every policy should strengthen—not strain—patients’ access to care,” she said in a statement.
Other changes included in CMS’ final rule broadly align with those it proposed earlier this year, per a fact sheet from the agency. Those include adjustments to the Transforming Episode Accountability Model (TEAM), an alternative payment model from the prior year’s rule; changes to changes to graduate medical education payments; measure additions or modifications under the Hospital Inpatient Quality Reporting Program, including the addition of Medicare Advantage patients; and criteria to include electronic prior authorization in the Medicare Promoting Interoperability Program.
Editor's note: This story was updated after publication with hospital industry group reactions to the final rule.