Medicare on Friday proposed to increase net payment rates for inpatient hospital services by 2.4% next year.
Still, the payment increase for the 2027 fiscal year falls to 1.2% after factoring in declines to payments for uncompensated care and outlier payments for cases that incur very high costs, according to the CMS.
Hospitals groups said the pay rates, which will send approximately $1.4 billion more to acute care hospitals, were inadequate in the face of mounting financial challenges, including a rising uninsured rate.
“CMS’s proposed update is a step in the right direction, but it does not negate the compounding effects of rising inflation, record levels of uncompensated care and a growing uninsured population,” Charlene MacDonald, president and CEO of the Federation of American Hospitals, a for-profit hospital advocacy group, said in a statement Friday.
Proposed rates irk hospitals
The 2.4% payment bump includes a hospital market basket percentage of 3.2%, offset by a 0.8 percentage point productivity adjustment.
For-profit hospitals are expected to receive a 1.0% payment increase, while nonprofits and rural hospitals will receive a 1.2% and 0.8% increase, respectively.
Several cuts could lead to lower hospital payments. For example, regulators are proposing to reduce uncompensated care payments to disproportionate share hospitals by approximately $250 million in 2027, versus a $2 billion increase regulators finalized for 2026.
The DSH payments should have a “relatively immaterial” impact to large for-profit hospital operators like HCA Healthcare, Universal Health Services and Tenet, according to a Sunday note from TD Cowen analyst Ryan Langston.
Regulators are also proposing to reduce outlier payments, or those sent to hospitals for cases that incur “extraordinarily high costs,” according to the CMS.
The cuts represent an additional payment headwind for hospitals, as regulators attempt to claw back money after outlier payments were higher than expected in 2026, according to Langston.
Payments could rise by $400 million in 2027 if Congress elects to extend the Medicare-Dependent Small Rural Hospital program, which was formed almost 40 years ago to send extra money to rural facilities with a significant percentage of Medicare patients. The program is scheduled to expire on Jan. 1 if not extended by lawmakers.
Provider and hospital groups immediately pushed back on the rule, arguing the decline in uncompensated care payments comes amid rising costs from more Americans going uninsured. The national uninsurance rate is expected to rise to 9.1% in 2027 from roughly 7.6% in 2025, according to federal estimates.
Despite “mounting financial pressures,” regulators have proposed “another inadequate update to inpatient payment rates, another extremely high productivity cut, and reductions to disproportionate share payments — in the face of rising need for care and higher uninsured rates,” Ashley Thompson, the American Hosiptal Association’s senior vice president for public policy analysis and development, said in a statement.
Regulators typically approve final payment rates in the late summer that recently have been higher than those initially proposed. Last year, regulators approved a 2.6% net payment increase to acute care hospitals after proposing an increase of 2.4% — the lowest rate since 2019.
Regulators propose mandatory joint replacement model
The CMS is proposing to expand a payment experiment, called Comprehensive Care for Joint Replacement, into a mandatory nationwide model covering knee, hip and ankle replacements in inpatient and hospital outpatient settings starting in October 2027.
The model, which ran from 2016 to 2024, gave providers one bundled payment to cover surgery and recovery for a joint replacement covered by Medicare. Hospitals that kept the cost of care low got to keep a portion of the savings, while those that exceed the bundled payment were required to pay Medicare back.
Regulators say the program has achieved “significant Medicare savings while maintaining quality of care for beneficiaries.”
Now, regulators want to expand the program, arguing it would reduce costs for pricey procedures and save Medicare approximately $725 million over five years.
The mandatory model could “modestly increase pressure on orthopedic-heavy hospitals, while favoring systems with strong care coordination and post-acute management,” Langston said.
Hospitals pushed back on the mandatory nature of the program, arguing that the requirements could challenge hospitals that lack the scale of financial means to make the investments.
AHA’s Thompson said that, while the lobby appreciated CMS’ efforts to “expand the reach of value-based models,” a “phased or voluntary approach would better support success, allowing organizations to build the infrastructure and partnerships needed to achieve shared savings and improved outcomes.”
