The proposed 3.1% overall payment increase for hospitals in fiscal year 2027 includes a 2.4% update to operating payment rates for general acute-care hospitals paid under the Inpatient Prospective Payment System, officials said. This net update is based on a projected 3.2% hospital market basket increase, reduced by a 0.8 percentage point productivity adjustment, according to the Centers for Medicare & Medicaid Services.

CMS estimates the proposed changes would increase total IPPS payments by about $1.9 billion compared with fiscal year 2026.

Hospitals that meet quality reporting requirements under the Hospital Inpatient Quality Reporting Program and demonstrate meaningful use of electronic health records would be eligible for the full update, CMS officials said. Those that do not successfully report quality data or fail to meet meaningful EHR use criteria would receive a reduced update consistent with existing IPPS policy, although the penalty structure follows prior rules rather than a new methodology specific to FY 2027.

However, the effective increase for some hospitals could be lower than the 2.4% headline rate after CMS factors in reductions in uncompensated care and outlier payments. The agency projects that Medicare Disproportionate Share Hospital and uncompensated care payments will decrease by approximately $564 million in FY 2027 compared with FY 2026, totaling $7.563 billion—a 3.3% decline from the previous year. This decrease is projected despite an expected rise in the national uninsured rate from 8.7% in FY 2026 to 9.1% in FY 2027, according to CMS estimates.

For hospitals meeting quality and EHR reporting requirements, CMS proposes a standardized amount of $6,967.87 for FY 2027, reflecting a 3.19% increase over FY 2026. The payment updates apply to general acute-care hospitals under IPPS that satisfy the Inpatient Quality Reporting and Promoting Interoperability program requirements, officials said.

The proposed rule, published in the Federal Register under docket number 2026-07203, also includes updates for long-term care hospitals, but the central acute-care payment increase remains the 2.4% operating rate update. CMS will accept public comments on the proposed rule and associated quality reporting policies through June 9, 2026, at 5 p.m. Eastern time. After reviewing comments, CMS plans to issue a final FY 2027 IPPS rule later in the year, with policies effective for discharges occurring between Oct. 1, 2026, and Sept. 30, 2027.

CMS is also proposing expansions to the Hospital Inpatient Quality Reporting Program, including the addition of three new measures. The agency plans to adopt the Excess Days in Acute Care After Hospitalization for Diabetes measure, which is claims-based, beginning with the FY 2029 IQR program year. Two new electronic clinical quality measures—the Hospital Harm Postoperative Venous Thromboembolism eCQM and the Advance Care Planning eCQM—would begin reporting for FY 2030. Additionally, CMS proposes to adopt five modified mortality measures incorporating both fee-for-service and Medicare Advantage patients into IQR starting in FY 2028, with plans to add these measures to the Hospital Value-Based Purchasing Program in FY 2032.

In the Hospital Readmissions Reduction Program, CMS proposes adding a new measure for the 30-day all-cause risk-standardized readmission rate following sepsis hospitalization, effective FY 2029. There are no proposed changes to the Hospital-Acquired Condition Reduction Program for FY 2027 beyond previously adopted policies. CMS also plans to update the definition of certified electronic health record technology for the Promoting Interoperability Program, aligning it with updates from the Office of the National Coordinator for Health Information Technology. Several updates to electronic clinical quality measures used in the Promoting Interoperability Program are proposed, including modifications to measure specifications and reporting requirements.

CMS is moving toward broader value-based accountability by proposing the establishment of CJR-X, a new mandatory nationwide episode-based payment model for lower extremity joint replacement beginning Oct. 1, 2027. Under CJR-X, acute-care hospitals would be financially accountable for spending and quality for hip, knee, and ankle joint replacement procedures during the inpatient stay and for 90 days post-discharge. Participation would be mandatory for all acute-care hospitals nationwide, except those in Maryland and those participating in the Transforming Episode Accountability Model, according to CMS. The agency also proposes updates to the TEAM model, including expanding eligible spinal fusion episodes, aligning attribution and quality measures with other CMS programs, and refining pricing methodologies.

Additional proposals include eliminating the alternate pathway for new technology add-on payments under IPPS and the transitional pass-through under the Outpatient Prospective Payment System, requiring breakthrough device designation technologies to meet the same criteria as non-breakthrough devices. For FY 2027, CMS proposes a maximum new technology add-on payment of $10,205 per case for the CARA System. The agency is also introducing new anti-discrimination requirements for graduate medical education payments, conditioning funding on residency and training programs not discriminating based on race, color, national origin, sex, age, disability, or religion. Similar standards would apply to nursing and allied health education programs and their accreditors.

CMS continues to develop the Birthing-Friendly Hospital designation introduced in the 2023 IPPS final rule and seeks public comment on expanding the designation using a more robust set of maternal quality care measures from the IQR program, including specific electronic clinical quality measures. The agency also proposes revisions to requirements for off-campus provider-based departments, clarifying criteria for demonstrating that such facilities serve the same patient population as the main provider and modifying rules for off-campus inpatient hospital services that do not serve patients in the same ZIP code as the main provider.

The FY 2027 IPPS proposed rule and supporting materials are available on the CMS website, and public comments are being accepted through June 9, 2026. CMS will finalize the rule later this year, with payment and quality reporting policies effective for discharges during the 2027 federal fiscal year.

The shift toward outpatient care is largely driven by value-based care reimbursement models that prioritize quality and outcomes over service volume, officials said. Oracle, a technology research firm, summarized the transition as reimbursement tied to quality metrics, with incentives for prevention, screenings, and reducing readmission rates.

The Centers for Medicare & Medicaid Services defines value-based care as an approach focused on provider performance, patient experience, and quality of care rather than fee-for-service payments.

Industry experts note that value-based contracts reward hospitals for reducing unnecessary utilization. The American College of Surgeons explained that these contracts move payments away from the quantity of services rendered and toward the value delivered to patient populations. Oracle stated that providers receive bonuses for high-quality, collaborative care measured by outcomes such as mortality, readmissions, and preventive care use. CMS emphasized that value-based care supports managing patients’ overall health and coordinating care across providers to keep patients out of the hospital when safe. The Commonwealth Fund highlighted that efficiency is a key goal, encouraging providers to avoid using unnecessary resources.

Formal payment programs from Medicare and other payers increasingly favor quality and outcomes, further encouraging outpatient migration. Oracle cited CMS’s Hospital Value-Based Purchasing Program, which rewards acute care hospitals that improve inpatient care across mortality, complications, safety, patient experience, and infection rates. The ESRD Quality Incentive Program links dialysis facility payments to quality-of-care measures, according to Pressbooks at the University of West Florida. The Physicians Advocacy Institute noted that value-based contracts often include predetermined quality, financial, and patient-experience targets. Examples include pay-for-performance, shared savings, bundled pricing, capitation, and global budget contracts, which incentivize health systems to redesign care delivery, often by shifting services to outpatient settings where total episode costs can be lower.

Specialists are increasingly integrated into outpatient episode-based models tied to value-based care contracts. The Health Care Transformation Task Force specialty integration report detailed how payers like Blue Cross Blue Shield of Michigan use episode-based payments for procedures such as hip and knee replacements through programs like Orthopedics Episodes. BCBSM’s Value-Based Reimbursement for Specialists program offers performance-based incentives across multiple quality metrics. The report described these efforts as aiming to improve quality and increase specialists’ accountability for the total cost of care. Outpatient migration aligns with orthopedic, procedural, and post-acute episodes that can be managed outside the hospital when clinically appropriate.

Contract designs are evolving to link payments directly to measurable outpatient performance. The Physicians Advocacy Institute said value-based contracts provide incentives based on provider performance relative to efficiency and quality measures and are moving toward full-risk revenue models, including two-sided risk, direct-to-employer contracts, capitated models, and bundled payments. Quality metrics often include medication adherence, chronic condition control, and patient experience scores. The USC Schaeffer Center for Health Policy & Economics argued that value-based contracts must incentivize clinical decision-makers, typically physicians, to allocate treatment based on price and value. This structure encourages health systems to invest in outpatient pathways that improve metrics while controlling costs.

The broader goals of value-based care align with outpatient migration, according to CMS, which said the model focuses on what individuals value most and supports care teams managing overall health collaboratively. The Commonwealth Fund described value-based care as emphasizing effectiveness, efficiency, equity, patient-centeredness, safety, and timeliness. Oracle highlighted the importance of unified patient data shared across care teams to support better outcomes and seamless coordination. A scoping review published in PubMed Central noted that value-based health care aims to maximize health outcomes relative to cost using digital tools, multidisciplinary collaboration, and leadership. Moving care to outpatient settings can improve timeliness and patient-centeredness by reducing hospital exposure, provided health systems maintain quality and coordination.

However, implementation challenges may limit the pace of outpatient migration. The PMC scoping review identified barriers such as insufficient funding, the persistence of fee-for-service models, and resistance from healthcare professionals. The review also noted variability in outcomes across value-based care studies and concerns about insufficient reimbursements for providers. Successful adoption requires government support, appropriate reimbursement models, and organizational restructuring. The Physicians Advocacy Institute warned that contract methodologies for measuring quality and efficiency vary significantly by health plan, employer group, and region. For hospital systems, the sustainability of outpatient migration under value-based contracts depends on whether payments, staffing, data systems, and referral patterns can support the shift effectively.