On July 29, 2026, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2027 final Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) Rate Update rule. CMS released a fact sheet accompanying the rule.
In this rule, CMS finalizes policies to:
- Increase IPF PPS payment rates by 2.3 percent;
- Increase electroconvulsive therapy (ECT) payment per treatment;
- Cap facility-level outlier payments at 20 percent beginning FY 2028;
- Set the FY 2027 outlier threshold at $40,750;
- Remove two measures from the IPF Quality Reporting (IPFQR) Program beginning with the FY 2028 payment determination; and
- Implement a standardized IPF patient assessment tool, as required by statute.
This final rule is scheduled to be published in the Federal Register on July 31, 2026.
IPF Payments for FY 2027
FINALIZED WITH MODIFICATION
Pages 11-19[1]
For FY 2027, CMS finalizes a 2.3 percent increase in IPF payment rates. This rate increase is based on a 3.2 percent market update, reduced by a 0.9 percentage point productivity adjustment, which is updated from the proposed rule based on more recent data.[2] Overall, CMS estimates that payments to IPFs will increase by $60 million (2.3 percent) in FY 2027 compared to FY 2026. IPFs that fail to report required quality data will continue to have an additional 2-percentage point reduction applied to their payments.
Payment Rates
FINALIZED WITH MODIFICATION
Pages 22-26
IPFs receive a daily base rate that covers routine, ancillary, and capital costs, which is adjusted based on patient and facility characteristics. Patient-level adjustments include age, Diagnosis-Related Group (DRG) assignment, comorbidities, and per diem costs that vary throughout a patient’s stay. Facility-level adjustments account for wage index, rural location, teaching status, cost of living, and emergency department (ED) presence. The IPF PPS also provides additional payment policies for outlier cases, interrupted stays, and per-treatment payments for ECT patients. Payments are further adjusted to reflect higher costs at the start of a patient’s stay and lower costs toward the end.
See Table 1 below for final FY 2027 per diem and electroconvulsive therapy (ECT) payment rates, relative to FY 2026. These numbers are updated from the proposed rule based on more recent data.
Table 1. IPF PPS Payment Rates by Fiscal Year
| IPF PPS | FY 2026 (Current) | FY 2027 (Final) |
| Per Diem Base Rate | $892.87 | $912.40[3] |
| Electroconvulsive Therapy Payment (per treatment) | $673.85 | $688.59[4] |
Outlier Threshold
FINALIZED WITH MODIFICATION
Pages 51-72
The IPF PPS includes an outlier adjustment designed to encourage access to care for patients requiring high-cost treatment and to limit the financial risk for IPFs treating unusually costly cases. Outlier payments are calculated by comparing the estimated cost of an IPF stay to a fixed threshold, which is updated annually to limit outlier payments to 2 percent of total IPF PPS payments.
In the proposed rule, CMS noted that under the current methodology, outlier payments have become concentrated among a few facilities with relatively high routine costs, contributing to increases in the outlier threshold and a decline in qualifying facilities and cases. To address this, CMS finalizes a provider-level cap on outlier payments of 20 percent. However, CMS is postponing the policy’s effective date to FY 2028, rather than FY 2027 as initially proposed, to provide affected providers with additional time to adjust while the agency conducts further analyses of the cost drivers identified by commenters. Additionally, the agency is granting an exception to the outlier cap policy for facilities with fewer than 50 stays in the cost reporting year.
With these changes, the agency estimates that the 20 percent cap will affect 0.8 percent of providers in a typical year, compared with 3.6 percent under the proposed policy. CMS expects the cap to reduce the influence of high-cost facilities, increase the number of providers and stays qualifying for outlier payments, and improve payment distribution.
CMS had proposed reducing the FY 2027 outlier fixed-dollar loss threshold to $37,820 from $39,360 in FY 2026, consistent with the proposed provider-level outlier cap. However, following the delayed implementation of the cap, CMS instead finalizes an FY 2027 threshold of $40,750.
| These payment updates will result in modest overall payment increases for IPFs. The delayed implementation of the outlier cap until FY 2028 provides affected providers additional time to adjust before payment reductions take effect. CMS expects the revised policy to better target consistently high-outlier facilities while improving the distribution of outlier payments across the IPF system. |
IPF Quality Reporting Program Changes
Under the IPFQR Program, all IPFs paid under the IPF PPS are required to submit specified quality data to CMS within designated timeframes. Failure to meet these requirements results in a 2.0 percentage-point reduction in the facility’s annual payment update.
Removal of Two Measures Beginning with the FY 2028 Payment Determination
FINALIZED AS PROPOSED
Pages 74-89
CMS finalizes the removal of the following two measures beginning with the calendar year (CY) 2026 reporting period/FY 2028 payment determination:
- Alcohol Use Brief Intervention Provided or Offered and Alcohol Use Brief Intervention (SUB-2/2a) Measure
- Tobacco Use Treatment Provided or Offered at Discharge (TOB3/3a) Measure
CMS finalizes the removal of these two measures because their costs outweigh the benefits of continued use in the program. Additionally, for the SUB-2/2a measure, the agency states it can be replaced by a more broadly applicable measure.
Standardized Patient Assessment Instrument
FINALIZED WITH MODIFICATION
Pages 90-172
As mandated by section 4125(b)(1) of the Consolidated Appropriations Act of 2023 (CAA, 2023), CMS finalizes its proposal to implement the IPF Patient Assessment Instrument (IPF-PAI) to support standardized data collection under the IPFQR Program. Beginning with data collection in FY 2028 (impacting the FY 2029 payment determination), IPFs will be required to report assessment data for all patients age 18 and older at admission and discharge. CMS states that the IPF-PAI is intended to improve data comparability, support care coordination, and inform future refinements to quality measurement and payment, while minimizing burden through a streamlined set of assessment items.
The IPF-PAI will include standardized assessment items across the five statutory data categories: functional status; cognitive function and mental status; special services, treatments, and interventions; medical conditions and comorbidities; and impairments.
CMS originally proposed mandatory quarterly IPF-PAI reporting beginning October 1, 2027. In response to stakeholder feedback, however, CMS finalizes three quarters of voluntary reporting beginning October 1, 2027, followed by mandatory reporting beginning July 1, 2028. CMS also proposed requiring at least 80 percent of submitted IPF-PAIs to be 100 percent complete to satisfy the IPF QRP reporting requirement. In the final rule, the agency instead adopts a phased compliance threshold, requiring that at least 50 percent of submitted IPF-PAIs be 100 percent complete for Q3-Q4 of CY 2028 and for all of CY 2029, with the threshold increasing to 70 percent beginning in CY 2030.
CMS is also limiting the Medicare Number requirement to beneficiaries for whom Medicare is the primary payer. Additionally, the agency clarifies that assessments for stays shorter than three calendar days will count as both admission and discharge assessments for compliance purposes.
To support implementation, CMS finalizes two data submission options: a CMS-developed, no-cost web-based application and application programming interfaces (APIs) based on the Fast Healthcare Interoperability Resources (FHIR®) standard for integration with electronic health records. CMS indicates that both methods will use FHIR-based standards and transmit data securely to the Internet Quality Improvement and Evaluation System (iQIES).
| The IPF-PAI establishes a standardized approach for collecting patient assessment data across IPFs, supporting consistent reporting for quality measurement and care coordination. Over time, implementing the IPF-PAI may yield a more uniform dataset to inform future policy decisions, quality reporting, and payment adjustments. |
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This Applied Policy® Summary was prepared by Caitlyn Bernard Shreve with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at cbernard@appliedpolicy.com or at (571) 451-6594.
[1] All page numbers listed are from the unpublished final rule.
[2] Proposed: 3.1 percent market update, reduced by a 0.9 percentage point productivity adjustment.
[3] Proposed per diem base rate: $912.58
[4] Proposed ECT payment: $688.73
