The Centers for Medicare and Medicaid Services (CMS) has proposed a 2.4% payment increase for acute care hospitals in its Fiscal Year (FY) 2026 Hospital Inpatient Prospective Payment System (IPPS) rule—a move met with concern from the American Hospital Association (AHA).

The proposed rate reflects a 3.2% projected rise in the hospital market basket, offset by a 0.8% productivity adjustment. According to CMS, the adjustment accounts for anticipated efficiency gains and incorporates updated data on hospital operating costs, labor, and services.

In comparison, CMS proposed a 2.6% increase for FY 2025—a figure the AHA previously described as “woefully inadequate.” This year’s proposal has again drawn criticism, particularly over the productivity cut.

“We are very concerned that this update will hurt our ability to care for our communities,” said Ashley Thompson, AHA’s Senior Vice President of Public Policy Analysis and Development. “Many hospitals, especially in rural and underserved areas, are already grappling with unsustainable financial pressures, including negative margins.”

The AHA has urged CMS to reconsider the productivity adjustment and revise the payment update in its final rule.

Estimated Financial Impact

CMS estimates the proposed changes would result in a $4 billion overall increase in hospital payments. This includes:

• A projected $1.5 billion rise in Medicare uncompensated care payments to disproportionate share hospitals.
• Approximately $234 million in additional new technology add-on payments.
• An estimated $500 million in payments for Medicare-Dependent Hospitals and low-volume hospitals—pending legislative extension of temporary provisions set to expire on September 30.

Long-Term Care Hospitals: 2.6% Update Draws Scrutiny

For long-term care hospitals (LTCHs), CMS is proposing a 2.6% increase in the standard payment rate. This figure is based on a projected 3.4% market basket increase, offset by the same 0.8% productivity cut. Total LTCH payments are expected to increase by 2.2%, or approximately $52 million—driven mainly by the annual update and a small projected decrease in high-cost outlier payments.

Notably, CMS is also proposing a $14,199 hike to the LTCH outlier threshold, continuing a multi-year trend. The AHA cautions that such increases intensify financial strain on providers treating Medicare’s most complex patients.

“Outlier thresholds have skyrocketed, forcing LTCHs to absorb substantial costs before receiving support for extremely ill patients,” Thompson noted. “CMS’ proposal could jeopardize care for vulnerable populations and put more pressure on acute care partners.”

Next Steps

The FY 2026 IPPS and LTCH payment rule is open for public comment for 60 days. Stakeholders are encouraged to provide feedback before CMS finalizes the policy later this year.