CMS Finalizes 2026 Payment Bump for Hospitals, LTCs and SNFs – Strikes SDOH & Health Equity Quality Scores

Late last week, the Centers for Medicare and Medicaid Services (CMS) issued the final rule for the Medicare inpatient prospective payment system (IPPS) and long-term care hospital prospective payment system (LTCH PPS), and the final rule for skilled nursing facilities (SNF) for fiscal year (FY) 2026.

CMS pays hospitals for inpatient stays through two main systems: the Inpatient Prospective Payment System (IPPS) for acute care hospitals and the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for long-term care hospitals. Both systems pay a set rate per case, based on the patient’s diagnosis, services provided, and illness severity.

General acute care hospitals that meet Medicare quality reporting and EHR use requirements will receive a 2.6% increase in their IPPS operating payment rates. According to the CMS Fact Sheet, this is anticipated to increase hospital payments by $5 billion, including an increase in Medicare uncompensated care payments for FY 2026 of $2 billion.

According to the American Hospital Association, the rule also continues the mandatory Transforming Episode Accountability Model payment model that would provide bundled payment for certain surgical procedures beginning on Jan. 1, 2026, with limited deferment for certain hospitals.

The association said it was pleased that CMS’ payment updates support hospitals that treat a disproportionately high number of low-income patients are improved in the final rule, but added, “the 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.”

Hospital Inpatient Quality Reporting (IQR) Program Changes

The IPPS final rule also removes four measures beginning with the CY 2024 reporting period/FY 2026 payment determination:

• Hospital Commitment to Health Equity
• COVID–19 Vaccination Coverage among Health Care Personnel
• Screening for Social Drivers of Health
• Screen Positive Rate for Social Drivers of Health

For fiscal year 2026, CMS will increase the LTCH standard payment rate by 2.7%, reflecting a 3.4% market basket update minus a 0.7% productivity adjustment. LTCH PPS payments are expected to rise by about 3%, or $72 million, due to the rate increase and higher projected outlier payments. CMS is also raising the outlier threshold compared to FY 2025.

Hospital payment rate changes matter to American taxpayers. Medicare and Medicaid combined account for over two-thirds of all hospital discharges for 2023, with roughly half attributed to Medicare and over one-fifth related to Medicaid. KFF also notes that only about 4% of discharges qualified as self-pay and private insurance represented a quarter of discharges.

KFF 2025

The SNF PPS finalized a 3.2% increase, up from the proposal of 2.8% released by the agency in April. the increase represents a 3.3% market basket, 0.7% loss for productivity adjustment and then a 0.6% net adjustment for forecast error.

SNF Quality Reporting Program (QRP) Changes

The SNF QRP is a pay-for-reporting program. SNFs that do not meet reporting requirements are subject to a 2-percentage point reduction in their Annual Payment Update (APU).

In the final SNF PPS, the agency is also finalizing its proposal to remove four standardized patient assessment data elements under the Social Determinant of Health (SDOH) category from the MDS beginning with SNF residents admitted on October 1, 2025, for the FY 2027 SNF QRP. These data elements are: one item for “living situation,” two items for “food,” and one item for “utilities.”