CMS has finalized a 2.6% payment increase for inpatient services, boosted DSH payments, established new interoperability rules for prior authorization, and confirmed the launch of a controversial mandatory bundled payment model.
CMS has released its 2026 Inpatient Prospective Payment System (IPPS) Final Rule, solidifying a 2.6% payment increase, which accounts for a 3.3% market basket update and a -0.7% productivity adjustment.
The final rate is a slight improvement over the 2.4% increase in the proposed rule, but CMS still plans to move forward with other policies that will likely be received as a mixed bag by revenue cycle leaders.
DSH Payments and Quality Program Updates
Included in the final rule is a $2 billion increase in disproportionate share hospital (DSH) payments and a $192 million increase in new medical technology payments. Overall, hospital payments will increase by $5 billion in 2026 vs. 2025.
The rule also makes significant changes to quality reporting and value programs, removing the Health Equity Adjustment from the Hospital Value-based Purchasing program and eliminating four measures from the inpatient quality reporting program.
CMS also indicated it is moving forward with plans to incorporate Medicare Advantage patient data into calculations for the Hospital Readmission Reduction Program (HRRP). These changes will require close collaboration between revenue cycle and quality reporting teams to ensure accurate data collection across all patient populations.
Interoperability and Prior Authorization Rule Finalized
CMS has adopted three new certification criteria to support electronic prior authorization (PA) in the Health Data, Technology, and Interoperability: Electronic Prescribing, Real-time Prescription Benefit and Electronic Prior Authorization final rule, issued as a component of the IPPS final rule.
These criteria lay the groundwork for payers to meet a January 1, 2027 deadline for implementing standardized electronic PA processes using FHIR APIs. A new electronic PA measure will also go into effect for the MIPS Promoting Interoperability performance category in 2027.
TEAM Model Launch Confirmed
The final rule confirms that the mandatory Transforming Episode Accountability Model (TEAM) will launch on January 1, 2026. The model will issue bundled payments for certain surgical procedures to hospitals in selected regions. Revenue cycle leaders at impacted hospitals will need to prepare for the complexities associated with bundled payments.
The American Hospital Association (AHA) said suggested updates unveiled in the final rule are inadequate, particularly for hospitals in rural and underserved communities. The industry group also had specific criticism for the mandatory TEAM model.
"The AHA has long supported widespread adoption of meaningful, value-based and alternative payment models to deliver high-quality care at lower costs," AHA Senior Vice President of Public Policy Analysis and Development Ashley Thompson said in a statement.
"We remain worried that the Transforming Episode Accountability Model (TEAM) will not advance these objectives and puts at particular risk hospitals that are not of a large enough size or in a position to support the investments needed. This is why we continue to urge the agency to make TEAM voluntary."
Luke Gale is the revenue cycle editor for HealthLeaders.
KEY TAKEAWAYS
The AHA suggested that the payment increase is inadequate, but offered muted support for additional payments for disproportionate share hospitals.
The mandatory Transforming Episode Accountability Model is officially launching on Jan. 1, 2026, requiring affected hospitals to prep for the complexities of bundled payments.
The final rule includes new interoperability criteria that lay the groundwork for payers to meet a January 1, 2027, deadline for standardized electronic prior authorization.