How to Achieve Reimbursement Wins Under the Fiscal Year 2026 IPPS Final Rule

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By Josh Dunaway | Aug 8, 2025

5 minute read Technology| Blog| Regulatory

With the July issue of the Fiscal Year 2026 Hospital Inpatient Prospective Payment System (IPPS) Final Rule, CMS included a 2.6% increase in Medicare IPPS rates. The rule also includes a $2 billion increase in disproportionate share hospital payments and a $192 million increase in new medical technology payments. Overall, the rule is projected to increase hospital payments by $5 billion in FY 2026 compared to FY 2025. Here’s a summary of the major topics, what they mean, and the impact the IPPS Final Rule is expected to have: 

 

How to Achieve Reimbursement Wins Under the Fiscal Year 2026 IPPS Final Rule
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FY 2026 IPPS Final Rule Highlights 
What the Rule Means
Impact of the FY 2026 IPPS Final Rule 
IPPS Operating Payment Rate 

+2.6% (3.3% market basket – 0.7% productivity cut) 

  • Operating payment rates under IPPS will increase by 2.6% for general acute-care hospitals that successfully participate in quality reporting and meaningfully use EHRs.
  • This reflects a 3.3% hospital market basket increase, offset by a 0.7% productivity adjustment (American Hospital Association).
  • CMS estimates this increase will add approximately $5 billion in Medicare hospital payments compared to FY 2025 (American Hospital Association). 

Provides modest growth for inpatient hospitals—but many stakeholders previously expressed concern that it may not keep pace with rising costs. 

 
Total IPPS Funding Increase 

~$5 billion 

 

These increases mean more resources are directed towards hospitals managing higher care burdens, especially those serving low-income and underserved communities.  

DSH Payments 

+$2 billion 

 

Support facilities that care for mostly vulnerable populations, helping to level the playing field for rural hospitals threatened by financial strain.  

New Tech Add-On Payments 

+$192 million 

Encourages adoption of advanced technology and advanced medical services.

Helps hospitals adopt and finance cutting-edge treatments and devices. The main goal is to improve patient outcomes and encourage technological advancements in healthcare regardless of geographical location. 

Labor-Related Share 

~66% national share (down from 67.6%) 

The national labor-related share is revised downward (from 67.6% to around 66%), reducing the impact of regional wage differences on payments (Holland & Knight). 

By CMS utilizing 2023 cost data for its market basket, total hospital payments will increase by approximately $5.0 billion. 

Low Wage Index Adjustment 

Discontinued; transitional exception policy adopted 

  • The temporary low wage index policy is permanently discontinued following a federal court ruling; instead, CMS has adopted a budget-neutral transitional exception policy for hospitals significantly impacted by the rollback (American Hospital Association).
  • The national labor-related share is revised downward (from 67.6% to around 66%). (Holland & Knight). 

May significantly affect rural and low wage index hospitals unless they qualify for the narrow transitional fix.

Reduces the impact of regional wage differences on payments. 

Quality & Safety Reporting Programs 

Health Equity Adjustment removed 

The Health Equity Adjustment is removed from the Hospital Value-Based Purchasing (VBP) Program (American Hospital Association). 

A composite score determines if hospitals qualify for shared savings. Measures include:

  • Complication rates
  • Readmissions
  • Patient experience (e.g., HCAHPS)
  • CMS has relaxed penalties for hospitals with insufficient quality data by applying neutral scoring instead of automatic penalties (new in final rule). 
Hospital Inpatient Quality Reporting (IQR) Program  

Measures are removed or revised 

  • CMS will include Medicare Advantage patient data in the readmission and mortality measures for readmission reduction programs 
  • CMS has not finalized inclusion of MA payment data in excess readmissions calculations (American Hospital Association). 
Stay tuned for additional announcements from CMS related to calculations 
Transforming Episode Accountability Model (TEAM) 

Mandatory start January 2026 with adjusted elements. See more information below. 

Expanded inclusion of Medicare Advantage patient data in various quality metrics. Adjustments include: 

  • Limited deferment options for eligible hospitals
  • Neutral quality scoring for hospitals with insufficient quality data
  • Updated target price methodology and risk‐adjustment
  • Expanded 3 day SNF waiver to enhance post-acute care flexibility (American Hospital Association

Marks a shift toward greater integration of MA into performance programs.

Signals a continued push by CMS toward value-based care. 

EHR and Interoperability Measures 
Final changes are not detailed in the final IPPS rule. 

The program finalizes many proposals under the broader Health Data, Technology, and Interoperability rule, including updates to: 

 

TEAM 2026 Updates

The TEAM (Transforming Episode Accountability Model) is a new mandatory bundled payment model finalized in the FY 2026 IPPS Final Rule. It reflects the ongoing push by CMS toward value-based care, especially after the phase-out of older models like BPCI-Advanced. Here’s a breakdown of TEAM’s core mechanics: 

Model Structure 
  • Mandatory participation for selected hospitals in specific geographic areas. 
  • Covers inpatient episodes of care for certain high-volume, high-cost conditions (exact list finalized by CMS; includes common surgical and medical DRGs). 
  • Episodes begin with an anchor hospitalization and continue for 90 days post-discharge. 
Payment & Reconciliation
  • Hospitals continue to receive FFS payments during the episode, but: 
    • At year-end, CMS reconciles actual spending against a pre-set target price. 
    • Hospitals may receive a payment (if below target + quality threshold) or owe a repayment to CMS (if above). 
Target Price Methodology 
  • Prices are based on:
    • Historical Medicare FFS spending
    • Regional and national benchmarks
    • Case-mix adjustment
    • Risk adjustment (including patient clinical characteristics and social risk factors) 
  • Updates in the final rule:
    • More refined risk adjustment to prevent penalizing hospitals treating complex or high-risk populations.
    • Increased weight on hospital-specific performance to incentivize improvement over time.  
What To Do Next  

1) Support Clinical Informaticists to champion regulatory compliance and reimbursement initiatives.  

With new reimbursement requirements, the workload for clinical informaticists has increased in both volume and frequency. The FY 2026 IPPS Final Rule may leave hospital leaders and informaticists stretched thin as they work to align data and workflows with evolving standards, which is critical for maximum reimbursement.  

Empowering your organization is essential for navigating these new quality measures and reporting requirements. By investing in the resources to support your informaticists, you can meet these demands effectively, ultimately improving patient outcomes and securing financial incentives. 

2) Assess your EHR for workflow and data automation opportunities.  

A common challenge for many hospitals begins with the clinical documentation entries and the resulting charge capture and reporting that results from these processes. An EHR assessment with automated testing almost always reveals quick wins that result in more complete charge capture and clinical documentation. For example: this hospital improved compliance and captured an estimated $2.1M in high value charges with just one of their findings.

Bottom line: hospitals must ensure that every claimable charge is captured and documented appropriately. That requires an investment in the EHR and ensuring that users are prepared to demonstrate best practices in system documentation. An EHR assessment is a low-cost and high return on investment opportunity that every hospital has available to them.  

3) Reduce challenges and costs of reporting by leveraging core EHR components.  

Clients we have worked with find that the most cost-effective approach to maximizing reimbursement is leveraging core EHR components, solid workflows and data review, and platforms such as SQL and PowerBI that are often already part of the hospital’s technology stack. This reduces common challenges with data coordination with other vendors and platforms, as well as reduces costs.  

CereCore’s comprehensive program includes turnkey implementation, monitoring, validation, alerting/auditing, and trend analysis on all CMS and CDC major regulatory programs, as well as a 100% success rate for on-time complete regulatory submissions. This service is both cost-effective compared with other market offerings and offloads the burden on informaticists with experts in data flow, extraction, and report formatting.  

Bottom line: It isn’t typically necessary to purchase additional platforms and toolsets for regulatory compliance. Investing in the EHR itself and expertise to extract the data, leverage reporting platforms you already own, and support your regulatory efforts with insights has a much better return on investment.  

Learn more about CereCore’s Regulatory Submissions Program on CereCore.net.

4) Ensure data integrity between now and year end.

Our recap of regulatory reporting changes is intended to help prepare hospitals for what's ahead and offer alternatives for filling gaps in resources, but it is impossible to include complete guidance in a blog post.

We strongly recommend, as with previous years, that time is utilized as a premium for Regulatory program adherence. The remainder of the year should be utilized to ensure data completeness, timely attestation, and audit documentation for the remaining 2025 Regulatory Programs (Hybrid Measures, Promoting Interoperability, MIPS, etc.). MEDITECH sites need to be focused on implementing their HTI-1/USCDIv3 top-off prior to 1/1/26. As with previous regulatory requirements, technology systems and production functionality must be in place prior to the start of any associated reporting period.

Other Industry Sources

Editor’s note: Refer to official documentation from CMS including 2025 IPPS final rule, the final rule fact sheet, the TEAM fact sheet, and the Calendar Year (CY) 2025 Medicare Physician Fee Schedule Final Rule) as well as these related resources: 

For More Information from CereCore 
About the Author:
Josh Dunaway

Assistant Vice President, Data Solutions, CereCore

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