On July 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the fiscal year (FY) 2026 Hospital Inpatient Prospective Payment Systems (IPPS) for Acute Care Hospitals and the Long-Term Care Hospital (LTCH) Prospective Payment System final rule. CMS released a fact sheet accompanying the rule.

Overall, the final rule codified the vast majority of proposed policies, such as discontinuing the low wage index policy, increasing uncompensated care payments, and removing social determinants of health measures from quality programs.

The final rule establishes the following policies:

• Increase hospital operating payment rates by 2.6 percent rate based on market basket and productivity adjustments[1]
• Recalibrate MS-DRG weights using updated claims and cost data
• Increase Disproportionate Share Hospital (DSH) uncompensated care payments by 35 percent
• Discontinue the low wage index policy, with transitional relief for impacted hospitals
• Update wage index policies including cap, rural floor, and Medicare Geographic Classification Review Board (MGCRB) adjustments
• Update quality reporting programs with measure removals, Medicare Advantage integration, ICD-10 risk models, and data submission changes,
• Codify changes to the Extraordinary Circumstances Exception (ECE)
• Finalize New Technology Add-on Payments (NTAPs) for 27 continuing and 27 new technologies,
• Increase Long-Term Care Hospital payments by 2.7%
• Remove Social Determinant of Health (SDOH ) elements from LTCH Quality Reporting Program, and
• Update the TEAM model with changes to participation, pricing, quality, care coordination, and low-volume protections

This final rule is scheduled to be published in the Federal Register on August 4, 2025.

CMS FINALIZES 2.6% IPPS PAYMENT RATE INCREASE IN FY2026 HOSPITAL REIMBURSEMENTS

Pages 906-952

The Inpatient Prospective Payment System (IPPS) per-discharge payment is based on two national standardized base payment rates, one for operating costs and the other for capital-related costs. CMS adjusts each of these rates for geographic, case-mix, and other factors.

For FY 2026, CMS finalizes a 2.6 percent increase in its operating payment rates for general acute care hospitals that submitted quality data and were meaningful electronic health record (EHR) users (see Tables 1 and 2). This increase is based on a finalized 3.3 percent market basket update for FY 2026, offset by a 0.7 percentage point reduction for productivity.^[2] The rule also includes rebasing and revising both the IPPS operating and capital market baskets to reflect a 2023 base year. As part of this update, CMS establishes a national labor-related share of 66 percent.

Overall, CMS now anticipates that total hospital payments under the IPPS will rise by approximately $5 billion in FY 2026. This figure includes an estimated $2.0 billion increase in Medicare uncompensated care payments for hospitals that qualify for disproportionate share hospital (DSH) adjustments. CMS also projects that payments for cases involving new medical technologies will increase by about $192 million, primarily due to the continuation of new technology add-on payments. Lastly, unless Congress acts to extend them, special payment adjustments for Medicare-Dependent Hospitals (MDHs) and low-volume hospitals are set to expire after September 30, 2025. If renewed, these payments are projected to total approximately $500 million in FY 2026.

Table 1. Update Factors for Hospital Operating Payment Rates (FY 2026)[3]

Submitted Quality Data	Meaningful EHR User	Gross   FY2023 Market Basket	Adjustment for Failure to Submit Quality Data	Adjustment for Failure to be Meaningful EHR User	Multifactor Productivity Adjustment[4]	Net Increase in Operating Payment Rates
Yes	Yes	+3.3	0.0	0.0	-0.7	+2.6
No	Yes	+3.3	-0.825	0.0	-0.7	+1.775
Yes	No	+3.3	0.0	-2.475	-0.7	0.125
No	No	+3.3	-0.825	-2.475	-0.7	-0.7

 

Table 2. Standardized Operating Amounts (FY 2026)[5]

Submitted Quality Data	Meaningful EHR User	Standardized Operating Amounts (Wage Index > 1)		Standardized Operating Amounts (Wage Index <= 1)
		Labor	Non-Labor	Labor	Non-Labor
Yes	Yes	$4,456.72	$2,295.89	$4,186.62	$2,565.99
No	Yes	$4,420.88	$2,277.43	$4,152.95	$2,545.36
Yes	No	$4,349.21	$2,240.51	$4,085.63	$2,504.09
No	No	$4,313.38	$2,222.05	$4,051.97	$2,483.46

Capital-Related Payments

Page 1746

The capital Federal rate for each hospital discharge in FY 2026 is calculated using this formula:

• Capital-Related Payment = (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor [GAF]) x (Cost-of-Living Adjustment [COLA] for hospitals located in Alaska and Hawaii) x (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)[6]

For FY 2026, CMS finalizes a capital outlier adjustment factor of 0.961694.

CMS FINALIZES FY 2026 MS-DRG RECALIBRATION USING UPDATED COST AND CLAIMS DATA

Pages 298-321

CMS finalizes its methodology for recalibrating MS-DRG relative weights using FY 2024 MedPAR claims and FY 2023 Healthcare Cost Report Information System (HCRIS) cost report data. Claims were grouped using the FY 2026 GROUPER, standardized across 19 cost centers, and converted to costs using national average cost-to-charge ratios (CCRs). CMS excluded claims with implausible values, insufficient cost center data, and statistical outliers. A normalization factor was applied to ensure budget neutrality, along with a permanent 10% cap on year-over-year reductions in relative weights.

CMS maintains its specialized approach for MS-DRG 018 (CAR T-cell and other immunotherapies), excluding clinical trial and no-cost product cases from the average cost calculation. These were identified through diagnosis code Z00.6 (without payer-only code ZC), condition code 90 (expanded access), or drug charges below $27,466. Such cases were adjusted with a 0.16 weight multiplier to reflect their lower resource use. CMS also finalized monotonicity corrections for MS-DRGs 095/096 and 217/218 to ensure higher-severity DRGs reflect higher average costs. Final relative weights are available on the CMS website.

UNCOMPENSATED CARE PAYMENTS TO DSH HOSPITALS TO RISE 35% IN FY 2026

Pages 853-896

Hospitals that receive Medicare disproportionate share hospital (DSH) receive two separate payments:

1. 25 percent of the amount they previously would have received under Section 1886(d)(5)(F) of the Social Security Act (Act) for DSH; and
2. An additional payment for uncompensated care (UC) as determined by the product of three factors:

• Factor 1: 75 percent of the payments that would otherwise be made under Section 1886(d)(5)(F) of the Act,
• Factor 2: 1 minus the percent change in the percent of individuals who are uninsured, and
• Factor 3: a hospital’s UC amount relative to all DSH hospitals expressed as a percentage.

CMS finalizes its calculations for Factor 1 and Factor 2 and methodological approach for Factor 3 in this rule.

1. Factor 1: CMS finalizes that Factor 1 for FY 2026 will be $11.843 billion. CMS issued a correction[7]to the proposed rule on June 5, 2025, that proposed this same figure.
2. Factor 2: CMS finalizes that Factor 2 for FY 2026 will be 62.14 percent. The proposed figure was 60.71 percent.
3. Factor 3: For FY 2026, for calculating Factor 3, CMS will use data from the three most recent years of audited cost reports: FY 2020, FY 2021, and FY 2022. The methodology for Factor 3 is the same as applied in FY 2024 and will also use the scaling factor, new hospital, newly merged hospital, CCR trim methodology, UCC trim, and alternative trim methodology policies as applied in FY 2025.

CMS estimates that FY 2026 uncompensated care payments and supplemental payments will total $7.821 billion, an increase of approximately 35.2 percent from FY 2026. In the proposed rule, CMS estimated that this figure would be approximately $7.291 billion, an increase of approximately 26.01 percent from FY 2025.

CMS TO DISCONTINUE LOW-WAGE INDEX POLICY

Pages 754-785

The wage index reflects the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. To determine a hospital’s labor market area, CMS uses Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget (OMB). In this rule, CMS finalizes the annual update of the wage index, using wage data from cost reporting periods beginning in FY 2022.

Discontinuation of Low Wage Index Policy

Under the FY 2020 IPPS/LTCH PPS final rule, CMS finalized a temporary policy to address wage index disparities affecting low-wage index hospitals, many of which are rural hospitals. This policy increased wage indexes for hospitals with a wage index below the 25^th percentile by half the difference between the hospital’s wage index and the 25^th percentile wage index. Following a court decision requiring this policy to be vacated (Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887–91 & n.6 (D.C. Cir. 2024), CMS published an Interim Final Action with Comment for the FY 2025 IPPS Final Rule to address how CMS would remove the policy. For FY 2026, CMS finalizes its proposal to discontinue this low wage index policy and finalizes its proposed budget-neutral narrow transitional exception for low-wage index hospitals that would be significantly impacted by the removal of this policy for FY 2026. This transitional policy is similar to what was implemented via the FY 2025 Interim Final Action with comment.

Other wage index policies with a budget neutral impact include:

Page 1859

• The permanent cap policy, which was finalized in the FY 2023 IPPS/LTCH PPS final rule and prevents any hospital from having a wage index below 95 percent of its wage index for the previous fiscal year. For FY 2026, the budget neutrality adjustment associated with this policy will be .999397 (proposed .993116).
• The rural floor, which was implemented as part of the Balanced Budget Act of 1997 and mandates that wage indexes for urban hospitals in a state cannot be lower than said state’s rural area wage index. In the FY 2024 IPPS/LTCH PPS final rule, CMS finalized that rural reclassified hospitals be treated the same as geographically rural hospitals for wage index calculation purposes. For FY 2026, the budget neutrality adjustment associated with this policy will be .973976 (proposed .985942).
• Medicare Geographic Classification Review Board (MGCRB) reclassifications, which were implemented as part of the Omnibus Budget Reconciliation Act of 1989 and allow hospitals to apply to be reclassified to a higher wage index area. For FY 2026, the budget neutrality adjustment associated with this policy will be .956835 (proposed .976960).

CMS CLARIFIES GME AND IME FTE CALCULATIONS

Pages 953-964

CMS reiterates its existing policy for calculating full-time equivalent (FTE) resident counts and caps for direct GME and indirect medical education (IME) payments, particularly for cost reporting periods other than 12 months. While GME FTEs are prorated to reflect a 12-month equivalent using 365 or 366 days, IME FTEs are based on the actual number of days in the reporting period. Equations for the counts are shown below:

Critical Access Hospitals (CAHs) and Rural Emergency Hospitals (REHs) remain excluded from the GME policy and calculations in this final rule.

HOSPITAL INPATIENT QUALITY REPORTING PROGRAM

Page 1191

The Hospital Inpatient Quality Reporting (IQR) Program aims to enhance healthcare quality through a pay-for-reporting model.  Hospitals failing to meet program requirements face reductions in their Annual Payment Update under the Inpatient Prospective Payment System (IPPS). In this final rule, CMS codifies several significant adjustments to the IQR Program, which are summarized below.

Four Measures Removed

With a focus on reducing provider burden, and the end of the COVID-19 Public Health Emergency in April 2023, CMS removed four measures from the program. All measures removals will begin with the CY2024 reporting period/FY 2026 payment determination:

1. Hospital Commitment to Health Equity
2. COVID-19 Vaccination Coverage among Healthcare Personnel

1. Screening for Social Drivers of Health
2. Screen Positive Rate for Social Drivers of Health

CMS Receives Feedback on Potential Wellbeing and Nutrition Measure Concepts

CMS received feedback on well-being and nutrition measures for future potential inclusion in the program. Both requests cast a wide net for feedback, including potential assessments for both sleep and physical activity, which CMS identifies as helping support nutritional status.

Commenters were mixed on the utility of nutrition measures in the inpatient context compared with outpatient or primary care, though expressed strong support for the existing Malnutrition Care Score (MCS) electronic clinical quality measure (eCQM). Commenters also offered general support for measure concepts related to wellbeing. CMS acknowledged these comments and reiterated any proposals for new measures would occur in future rulemaking.

Proposed Refinements and Technical Updates to Two Measures

CMS finalized refinements and technical updates to two measures for 2023-2025 reporting period and FY2027 payment determination: Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke Hospitalization (MORT-30-STK), and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (COMP-HIP-KNEE).

For both measures, CMS expands the eligible population to include Medicare Advantage (MA) patients and shortens the performance period from three to two years. CMS also announced the updated risk model will utilize International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs). The inclusion of the MA population will add approximately 34.4 million beneficiaries currently ineligible for the measure, offering additional points of comparison between MA and traditional Medicare, as well as increasing measure reliability. CMS added the newly shortened performance period will also provide both consumers and hospitals with more recent data, while maintaining a satisfactory level of reliability according to internal analyses.

Other Changes and Removal of the COVID-19 Exclusion

Beginning in FY 2027, CMS removes the COVID-19 exclusion from all Hospital IQR measures with the conclusion of the COVID-19 Public Health Emergency in 2023. CMS also finalized changes to the Form, Time, Manner, and Timing of Hospital IQR data submission, and a decrease in the Hybrid Measures CCDE and Linking Variable Submission Thresholds beginning in FY 2028.

HOSPITAL-ACQUIRED CONDITION REDUCTION PROGRAM

Page 1077

The Hospital-Acquired Condition Reduction Program (HACRP) penalizes hospitals that rank in the bottom quartile nationally on a set of six quality measures related to hospital-acquired conditions. Beyond routine updates to calculation of the standardized infection ratio, there are no substantive changes to the HACRP in this final rule.

HOSPITAL READMISSIONS REDUCTION PROGRAM

Page 982

In the Hospital Readmissions Reduction Program (HRRP), CMS applies up to a three percent payment reduction to hospitals based on their performance on six procedure-specific readmission measures. CMS finalized two technical updates to the program beginning with the FY2027 program year for all measures: removal of the COVID-19 exclusion and an update to the risk model replacing existing Hierarchical Condition Categories (HCCs) with International Classification of Diseases (ICD)-10 codes. CMS also finalized two wide-ranging proposed changes, which CMS argued will increase the measure populations, validity and reliability; all while providing more up to date data for consumers and providers. All changes begin in the FY2027 program year:

• Integration of Medicare Advantage (MA) beneficiaries into all measures, and
• Reduction of the applicable period used to calculate excess readmission rations (ERRs) and payment adjustment factors from three to two years.

Please note as part of the proposal to integrate MA beneficiaries into all measures, CMS also sought to include payment data for eligible FFS and MA beneficiaries as part of calculations of aggregate payments due to excess readmissions. Following public comment, CMS is not moving forward with this part of the proposal, and will continue using FFS claims for aggregate payment calculations, with MA data only used in excess readmission ratio (ERR) calculations.

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

Page 1325

In the Medicare Promoting Interoperability (PI) Program, CMS maintains the minimum electronic health record (EHR) reporting period from any continuous 90-day period to the 180-day period established for CY 2024. Codifying this change is designed to provide stability for providers and their vendors to further develop and maintain their EHR systems. Additionally, to encourage additional security policies and efforts to modernize health infrastructure, CMS finalized changes to the Security Risk Analysis (with clarifications based on commenter feedback) and Safety Assurance Factors for EHR Resilience (SAFER) Guides measure; and adopted an optional bonus measure for Public Health Reporting Using the Trusted Exchange Framework and Common Agreement (TEFCA). All measure changes begin with the CY2026 reporting period.

CMS also received comments on a Request for Information (RFI) regarding the Query of Prescription Drug Monitoring Program (PDMP) measure. CMS specifically requested feedback regarding the potential for transitioning this measure from attestation-based to performance based, recommendations for alternative measures to assess utilization of PDMPs, and solicited concepts for new PDMP-based measures. CMS did not summarize comments. Any changes to this measure, or the introduction of new measure(s), would be conducted through rulemaking.

HOSPITAL VALUE-BASED PURCHASING PROGRAM

Pages 1030-1076

The Hospital Value-Based Purchasing (VBP) Program operates under a budget-neutral framework, in which participating hospitals’ base operating DRG payments are reduced by 2 percent each fiscal year. The withheld funds are then redistributed back to hospitals as value-based incentive payments.

CMS finalizes several updates as proposed to the Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (COMP-HIP-KNEE) beginning with the FY2033 program year, including the addition of MA patients, and shortening the performance period from three to two years.

CMS also finalizes the removal of the COVID-19 exclusion for all measures beginning in the FY2027 program year, as well as utilizing ICD-10 codes instead of grouping them into HCCs. CMS provided a technical update to standardized infection ratio calculation for the five National Healthcare Safety Network (NHSN) Healthcare-Associated Infection (HAI) measures and finalized as proposed updates to performance standards for other measures to accommodate proposed technical changes.

Finally, CMS is adopting new measures for the Safety domain, Clinical Outcomes domain, and the Efficiency and Cost Reduction domain for future program years to ensure that they adopt sufficient length of baseline and performance periods for scoring purposes. These new measures will take effect ranging from FY 2029 to FY 2031.[8]

PPS-EXEMPT CANCER HOSPITAL QUALITY REPORTING PROGRAM

Page 1276

For the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program, CMS removes the Hospital Commitment to Health Equity measure and two Social Drivers of Health measures citing provider burden and finalized its proposal to begin publicly reporting program data on both the Provider Data Catalog and Care Compare following supportive public comments. All measure removals are effective for the CY 2024 reporting period / FY 2026 program year.

CMS CODIFIES CHANGES TO THE EXTRAORDINARY CIRCUMSTANCES EXCEPTION POLICY

Page 1026

CMS formalizes its Extraordinary Circumstances Exception (ECE) policy, which allows hospitals to request relief from quality reporting requirements due to events beyond their control. Under current ECE regulations, an exception may be granted for circumstances such as natural disasters or systemic problems with CMS data collection systems that directly affect the ability of facilities to submit data. Hospitals can request an ECE for multiple programs based on the same extraordinary circumstance using one ECE request form, including IQR, VBP, PCHQR, and HAC Reduction. In codification under 42 CFR 412.154(d), CMS finalizes that CMS has the discretion to grant an extension in response to an ECE request from a hospital. Extraordinary circumstances are “defined as an event beyond the control of a hospital (for example a natural or man-made disaster such as a hurricane, tornado, earthquake, terrorist attack, or bombing)—that affected the ability of the hospital comply with one or more applicable reporting requirements with respect to a fiscal year.”^[9] While the process for requesting or granting an ECE will remain the same as the current process, CMS finalizes codification of the following:

• A hospital may request an ECE within 60 calendar days of the date that the extraordinary circumstance occurred;
  • CMS originally proposed a timeframe of 30 calendar days but after public comments that 30 days deadline may not be enough time for a hospital to assess impact and complete paperwork, CMS is finalizing 60 calendar days to request ECE.
• CMS retains the authority to grant an ECE as a form of relief at any time after the extraordinary circumstance has occurred;
• CMS will notify the requestor with a decision, in writing, via email. If granted an ECE, the written decision will state if the hospital is exempted from, or granted an extension to comply with, one or more reporting requirements.

CMS FINALIZES NEW TECHNOLOGY ADD-ON PAYMENTS FOR 54 TECHNOLOGIES FOR FY 2026 AND PROVIDES CLARIFICATIONS ON NTAP POLICIES FOR FY 2027

Pages 322-707

The new technology add-on payment (NTAP) program allows for an additional payment for medical services or technologies that are found to be: (1) new; (2) disproportionately costly to the existing MS-DRG; and (3) a substantial clinical improvement.

Under the traditional NTAP pathway, CMS finalizes for FY 2026 to continue NTAPs for 27 technologies^[10] and discontinue NTAPs for 12 technologies.^[11] Regarding new applications under the traditional pathway, CMS approves 5 new applications for FY 2026. The agency approves 22 new alternative pathway NTAP applications, 20 with Breakthrough Device designation and 2 with Qualified Infectious Disease Product (QIDP) designation. CMS did not receive any applications for technologies approved through the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway.

CMS also finalizes its additional clarification regarding NTAP applications submitted beginning FY 2027:

• Specifically, in recognition of the Food and Drug Administration’s (FDA) review filing process, beginning with the NTAPs submitted for FY 2027, applicants must provide to CMS a copy of the resubmission acknowledgement letter from FDA that indicates that FDA considers the resubmission to be sufficient to restart a review clock and provides the new goal date for FDA review of the application. The agency urges applicants to provide the most up-to-date documentation that indicates FDA has determined that the application is sufficiently complete to allow for substantive review by FDA.
• In addition, to improve and streamline the NTAP evaluation process and support transparency and engagement, beginning with NTAP applications submitted for FY 2027, CMS indicates that it intends to include certain cost criterion information in its public posting of NTAP applications. Note the agency indicates that to be consistent with current policy, cost and volume information will not be publicly posted though it may still be summarized and discussed in the proposed rule as part of the summaries in the proposed and final rules. Specifically, beginning with the FY 2027 applications, the public posting of NTAPs will include the applicant’s explanation of the cost analysis methodology, including the step-by-step explanation of the columns used in the cost analysis spreadsheet attachment, any optional comments provided by the applicant, and information about the case weighted threshold and final inflated case weighted standardized charge per case., The cost analysis spreadsheet attachment and other charge values provided in the applicant’s responses would not be included in the public posting.

CMS FINALIZES 2.7% INCREASE FOR PAYMENTS TO LONG TERM CARE HOSPITALS

Page 1117

LTCHs are excluded from the IPPS and are paid under their unique payment system because of the difference in complexity, resource utilization and length of stay factors. For FY 2026, CMS finalizes an annual update of 2.7% (market basket update of 3.4% – 0.7% productivity adjustment) to the LTCH prospective payment system (PPS) Federal payment rate. CMS estimates that the aggregate LTCH PPS payments will increase by approximately 3.3% or 83 million, with projected $73 million increase for standard Federal payment rate cases and $10 million increase for site neutral payment rate cases. Additionally, CMS expects a 0.4% increase in high-cost outlier payments.

CMS disagreed with commenters that CMS should increase the market basket update or apply any special payment adjustments to the LTCH PPS for FY 2026.

CMS finalizes LTCH PPS standard Federal payment rate of $50,824.51 for FY 2026. The final rule affects 329 LTCHs nationwide, for discharges occurring on or after October 1, 2025.

CMS REMOVES SDOH DATA ELEMENTS FROM THE LTCH QUALITY REPORTING PROGRAM

Page 1294

LTCHs must submit data on quality measures and standardized patient assessment data. If an LTCH has not submitted data according to the LTCH Quality Reporting Program (QRP) requirements, the LTCH will receive a reduction of 2 percentage points to its annual payment update (o.7% for FY 2026). CMS finalizes removal of all four Social Determinants of Health (SDOH) data elements from the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (LCDS) beginning with the FY 2028 LTCH QRP (on or after October 1,2026 reporting period). These SDOH data elements were all added in FY 2025 and are collected as part of the standardized patient assessment data, including a patient’s living situation, food, and utilities.

CMS also changes reporting requirements for COVID19 Vaccine by excluding patients who have expired in the LTCH (e.g., passed away) from the Percent of Patients/Residents Who Are Up to Date measure, beginning in the FY 2028 LTCH QRP.  Additionally, CMS finalizes its proposal to amend the LTCH QRP reconsideration policy to permit LTCHs to request an extension to file a reconsideration request of noncompliance determination if the LTCH was affected by an extraordinary circumstance- within 30 calendar days from the written notification of noncompliance.

In the final rule, CMS provides a summary of responses to the RFI on the following topics with regards to the LTCH QRP:

(1) future measure concepts for the LTCH QRP.

(2) revisions to the data submission deadlines for assessment data collected for the LTCH QRP; and

(3) advancing digital quality measurement (dQM) in the LTCH QRP 

FINALIZED CHANGES TO THE TRANSFORMING EPISODE ACCOUNTABILITY MODEL

Pages 1385-1559

The Transforming Episode Accountability Team Model (TEAM) is a five-year, episode-based payment model that is mandatory for selected hospitals. The model will run from January 1, 2026-December 31, 2030, and aims to improve the patient’s experience from surgery through recovery by facilitating care coordination and transition. CMS announced hospitals selected for participation in September 2024. The proposed modifications address participation, quality measurement, target pricing, care delivery, and a new low-volume policy.^[12]

• Participation (page 1403): CMS finalizes a limited deferment period for new hospitals and hospitals that begin to meet the definition of TEAM, under which these hospitals would not need to immediately participate in the model for at least one performance year. CMS also finalizes the proposal that a hospital that no longer meets the definition of a TEAM participant would cease its TEAM participation effective on the date it no longer meets the criteria. Finally, CMS is limiting track 2 participation eligibility for hospitals with a Medicare dependent hospital (MDH) designation to the expiration of the MDH program, but CMS welcomes suggestions from TEAM participants on how they may best support them through potential classification changes.
• Quality Measurement (pages 1416-1444): CMS finalizes the proposal to add the Information Transfer Patient Reported Outcome-based Performance Measure (Information Transfer PRO-PM) to the quality measure set for the model beginning in Performance Year 2, with the goal of capturing information on the quality of care in the outpatient setting. CMS also finalizes a neutral quality measure score for model participants with insufficient data. In the proposed rule, CMS sought comments on whether the TEAM program should align the hybrid hospital-wide readmission measure to the hospital IQR program. After receiving feedback from commenters, CMS is not finalizing a change to the hybrid hospital-wide readmission measure and will maintain the policy as finalized in the FY 2025 IPPS/LTCH PPS final rule.
• Target Pricing (pages 1445-1501): CMS finalizes multiple changes related to target pricing, including replacing the Area Deprivation Index (ADI) with the Community Deprivation Index (CDI). The CDI will be a factor-weighted composite measure of 18 variables collected from the Census Bureau and is intended to better represent beneficiary-level deprivation in urban areas. Other finalized proposals related to pricing include developing a methodology to construct target prices when there are coding changes, reconstructing the normalization factor and prospective trend factor, using a 180-day lookback period and HCC version 28 for risk adjustment, and aligning the date ranged use for episode attribution.
• Care Delivery (pages 1530-1559): CMS finalizes its proposals to expand the Skilled Nursing Facility 3-Day Rule Waiver. CMS also finalizes proposals to remove health equity plans and health-related social needs reporting and the Decarbonization and Resilience Initiative, all of which were voluntary. CMS also finalizes an update to the primary care referral requirement. TEAM participants must include a referral to a primary care provider in the hospital discharge plan for beneficiaries. If the patient had an established primary care provider recorded at admission, the referral must be to that provider. If no provider was recorded at admission, the referral must be to any primary care provider.

CMS Finalizes a Low-Volume Policy for TEAM Participants

Pages 1502-1519

After considering public comments, CMS is finalizing a low-volume policy for the TEAM model that received broad support. TEAM participants with fewer than 31 episodes in a category during the 3-year baseline will be classified as low volume for that category. While CMS will still reconcile those episodes during the performance year, the participants will not face downside financial risk in that category, however, they will still be accountable for categories they are not considered low volume. All reconciled episodes will count towards calculations for CQS and stop-loss/stop-gain thresholds.

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This Applied Policy® Summary was prepared by Meghan Basler with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at mbasler@appliedpolicy.com or at (908) 752-9875.

[1] For general acute care hospitals paid under the Inpatient Prospective Payment System (IPPS) that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful electronic health record (EHR) users.

[2] The MFP adjustment is a 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity.

[3] See the Table VI.B-01 on page 921 of the unpublished rule. Does not include applicable increases for Puerto Rico IPPS hospitals.

[5] See the Table on page 1901 of the unpublished proposed rule.

[6] Hospitals also may receive outlier payments for high-cost cases that qualify under thresholds established for each fiscal year.

[7] Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2026 Rates; Requirements for Quality Programs; and Other Policy Changes; Correction. https://www.federalregister.gov/documents/2025/06/05/2025-10261/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the

[8] For a list of newly established performance standards for the FY 2029 program year, see Table VI.L.-13 on page 1064 of the unpublished final rule.

[9] Page 713 of the unpublished rule.

[10] See Table II.E-01.A and Table II.E-01.B in the final rule.

[11] See Table II.E.-02 in the final rule.

[12] Applied Policy will update its separate summary on the finalized TEAM model modifications.