$8.049 billion. That is what CMS is distributing in uncompensated care payments in FY 2027 - a 2.9% increase from the $7.821 billion paid out in FY 2026.
That number tells you something important about the structural weight hospitals are already carrying before a single new mandate kicks in. And on July 31, 2026, CMS added several new mandates.
The FY 2027 Inpatient Prospective Payment System final rule - officially CMS-1849-F - was published in the Federal Register on August 4, 2026. It is effective October 1, 2026. If your organization has not worked through every major provision, here is the breakdown that matters.
1. The Rate Increase: 2.3% With a Catch
The headline number is a 2.3% net payment rate increase for hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful users of electronic health records.
That rate reflects a 3.2% market basket update, reduced by a 0.9 percentage point productivity adjustment. In total dollar terms, CMS projects the IPPS rate changes will increase hospital payments by approximately $2.1 billion in FY 2027.
On top of that, additional payments for inpatient cases involving new medical technologies are estimated to add approximately $779 million, driven primarily by new approvals for new technology add-on payments (NTAP). Combined, the estimated payment increase is roughly $2.9 billion across all IPPS-covered hospitals.
The catch is important. That 2.3% only applies if you are participating in IQR and demonstrating meaningful EHR use. Hospitals that are not will receive a smaller update. Quality program participation is no longer optional math.
📊 A 2.3% increase sounds strong. After accounting for the 9.1% projected uninsured rate in FY 2027 (up from 8.7% in FY 2026) and a $564 million decrease in total Medicare DSH payments year-over-year, the net picture for safety-net hospitals is far more complicated.
For long-term care hospitals (LTCHs), CMS finalized the same 2.3% net rate increase under the LTCH Prospective Payment System, aligning the two systems on market basket methodology.
2. The NTAP Fast Lane Is Closed
This is the provision most organizations are underestimating.
New Technology Add-on Payments (NTAP) have long had two pathways to qualification. The standard pathway requires applicants to meet three criteria: the technology must be new, the existing DRG payment must be inadequate, and the technology must demonstrate substantial clinical improvement over existing treatments.
The alternative pathway - established years ago to encourage innovation - allowed devices with FDA Breakthrough Device Designation or Qualified Infectious Disease Product (QIDP) status to skip the substantial clinical improvement requirement. FDA breakthrough designation, in effect, substituted for that third criterion.
CMS has now eliminated this alternative pathway for applications submitted on or after October 1, 2026, meaning the FY 2028 NTAP cycle and all subsequent cycles. All applicants - regardless of FDA breakthrough designation or QIDP status - must now demonstrate that their technology meets all three eligibility criteria.
Forty-one technologies already approved for NTAP will continue to receive add-on payments under the prior rules for FY 2027. Nineteen new NTAP applications were approved for FY 2027 under the existing framework. But the pipeline shifts immediately. Any device company planning to use FDA breakthrough designation as a payment shortcut after October 2026 will be denied that path.
This has significant downstream implications for health systems evaluating technology acquisitions. Devices that previously had a clear Medicare reimbursement path through NTAP will now face longer and less certain timelines. Hospital value analysis committees should revisit any vendor commitments that assumed a fast-track NTAP pathway.
The change also matters for investors and medical device companies building go-to-market strategies around breakthrough designation. The FDA designation remains clinically meaningful and speeds regulatory review. But it no longer guarantees Medicare payment momentum.
3. CJR-X: The Mandatory Episode Payment That Starts January 2028
The Comprehensive Care for Joint Replacement model - now called CJR-X - has been nationalized. CMS finalized mandatory participation beginning January 1, 2028.
This makes CJR-X the first nationwide mandatory episode-based payment model for most IPPS-paid acute care hospitals. The model covers lower-extremity joint replacement procedures, including hip, knee, and ankle replacements, performed in both inpatient and hospital outpatient settings.
The scope of each episode includes the anchor hospitalization or outpatient procedure, plus all related Medicare Parts A and B services during the following 90-day post-discharge period. That is 90 days of care - skilled nursing, physical therapy, readmissions, follow-up imaging - all bundled under one target price.
Hospitals in the Transforming Episode Accountability Model (TEAM), those in Maryland under the state's all-payer model, and those not paid under both IPPS and OPPS may be exempt. But for most community hospitals and health systems performing joint replacements, CJR-X is mandatory in 17 months.
📊 The predecessor CJR model - which ran from April 2016 through December 2024 - saved Medicare more than $100 million while holding quality steady. CMS is building on that track record with a mandatory national program.
The implementation timeline matters. January 1, 2028 is not far away. Hospitals need to establish episode cost tracking now, understand their post-acute network performance, and start building the internal infrastructure to succeed under a bundled payment structure. Organizations that waited to see if CJR-X became mandatory have run out of time.
4. The DSH Paradox: More Uninsured, Less Money
Here is the number that should be getting more attention.
CMS projects the national uninsured rate will increase from 8.7% in FY 2026 to 9.1% in FY 2027. More Americans will be uninsured. More patients will arrive at safety-net hospitals unable to pay. And yet CMS estimates that total Medicare DSH and uncompensated care payments will decrease by approximately $564 million compared with FY 2026.
This is not a rounding error. It is a structural outcome of how the uncompensated care payment methodology works. The $8.049 billion in uncompensated care payments is distributed based on hospital-specific data from prior fiscal years, and the formula does not automatically scale with real-time increases in the uninsured population.
For safety-net hospitals and academic medical centers with high DSH percentages, this is a meaningful squeeze. You are absorbing more uninsured patients in FY 2027 while receiving less DSH support on a total-system basis than the prior year.
The CMS uncompensated care Factor 2 for FY 2027 was finalized at 67.14%, an increase from the proposed 65.00%. That upward revision from the proposed rule shows CMS responded to some stakeholder pressure. But the aggregate $564 million decline in DSH-related payments still lands.
📊 FY 2027 uncompensated care fund: $8.049 billion. FY 2026: $7.821 billion. Net increase in that fund: $228 million. Decrease in total Medicare DSH-related payments overall: $564 million. Those two numbers are not in conflict - they reflect different components of the same broader DSH framework.
5. TEAM Model Expansion, New MS-DRGs, and LTCH Updates
Beyond the headline provisions, FY 2027 includes significant technical changes that affect specific service lines.
TEAM Model Updates
The Transforming Episode Accountability Model (TEAM) is a mandatory, five-year, episode-based payment model running from January 1, 2026 through December 31, 2030. It covers five surgical procedures at selected hospitals: lower extremity joint replacement, surgical hip femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedures.
The FY 2027 final rule expands TEAM's eligible spinal fusion episodes, better aligns attribution and quality measures with other CMS programs, and refines pricing methodologies. For hospitals already in TEAM's spinal fusion track, this means broader episode scope and - in some cases - different target prices.
New MS-DRGs
CMS finalized three groups of new Medicare Severity Diagnosis-Related Groups (MS-DRGs) in this rule:
Extensive and complex spinal fusion: MS-DRGs 523 through 525, capturing high-acuity spinal fusion cases that were previously bundled into lower-weighted DRGs
Hip and knee procedures with principal diagnosis of periprosthetic joint infection: MS-DRGs 403 and 404, recognizing the higher resource use of treating infected joint implants
Cardiac pacemaker revision and device replacement: MS-DRGs 210 and 211, separating pacemaker revision from initial implant procedures
Each of these DRG changes carries payment implications. Hospitals performing high volumes of complex spinal fusion or managing periprosthetic joint infections should model the case-level payment impact before October 1.
LTCH Updates
Long-term care hospitals receive the same 2.3% net market basket update. CMS also finalized policies for low-volume hospital payment adjustments and Medicare-dependent hospital programs through December 31, 2026, with separate policies applying after January 1, 2027, reflecting the congressional extension timelines.
Deep Dive
The Three Financial Pressure Points Every Hospital CFO Needs to Model
The FY 2027 IPPS final rule creates three distinct financial pressure points depending on hospital type. Here is how to model each one.
Scenario A: High-Volume Joint Replacement Hospital
If your hospital performs 300 or more lower-extremity joint replacement cases annually, CJR-X mandatory participation beginning January 1, 2028 is your most urgent priority. You have 17 months.
Start with a 90-day episode cost analysis. Pull your average episode spend - including post-acute care - for hip, knee, and ankle replacements from the past two fiscal years. Compare that against what CMS's target price will likely look like, based on the predecessor CJR model's historical benchmarks.
Key variables to model: skilled nursing facility utilization rates (post-acute care is typically 30-40% of total episode cost), readmission rates within 90 days, and whether your post-acute partners are capable of managing within a bundled cost structure.
Hospitals that ran the CJR pilot well - and that achieved shared savings - did so by shifting patients away from high-cost SNF stays toward home health and outpatient PT. That network infrastructure takes 12 to 18 months to build and validate.
Scenario B: Safety-Net Hospital With High DSH Percentage
The $564 million system-wide decrease in total Medicare DSH-related payments, combined with the projected 9.1% uninsured rate in FY 2027, creates a margin compression scenario that does not show up in the 2.3% rate headline.
Model your hospital's specific DSH adjustment under the new Factor 2 value of 67.14%. If your uncompensated care share dropped relative to peer institutions, your FY 2027 uncompensated care distribution will decline even if your actual uninsured volume increased.
Combine this with any OBBBA or Medicaid enrollment changes affecting your patient population. For hospitals in states with high Medicaid-to-uninsured conversion risk (patients losing Medicaid coverage and becoming uninsured rather than privately insured), FY 2027 and FY 2028 will test financial resilience in ways the IPPS rate increase does not offset.
Scenario C: Health System Evaluating Breakthrough Device Acquisitions
The NTAP alternative pathway closure is not an abstract policy change. It directly affects the payment infrastructure for devices that were cleared through FDA's breakthrough device program and were relying on NTAP reimbursement to drive hospital adoption.
Your value analysis committee should pull a list of every device under active evaluation that has FDA breakthrough designation. For each one, ask: what is the documented evidence of substantial clinical improvement? If the company's Medicare reimbursement strategy relied on the alternative NTAP pathway, that strategy is no longer viable for applications submitted after October 1, 2026.
This does not mean the devices are not valuable. It means the hospital payment timeline just got longer and less certain for an entire category of technology. Factor that into your acquisition decisions and vendor negotiation leverage.
What This Means For You
FQHC executives and community health center leaders: The $8.049 billion uncompensated care fund and the $564 million DSH decrease matter to you indirectly. When safety-net hospitals face tighter margins, they reduce outreach, close service lines, and pull back from the populations FQHCs serve. Model your referral network stability. The hospital closures and service-line cuts that follow margin pressure usually land on your patients first.
Health system administrators and CFOs: Start CJR-X episode modeling today. You have 17 months. Hospitals that built post-acute network infrastructure during the voluntary CJR pilot outperformed on shared savings. The mandatory model uses similar methodology. If you did not participate in voluntary CJR, you have no baseline data and no network - that is your most urgent gap to close.
Radiologists and pulmonologists: The new MS-DRGs for complex spinal fusion (MS-DRGs 523-525) and periprosthetic joint infection (MS-DRGs 403-404) have imaging implications. More accurately paid high-acuity cases create more demand for diagnostic workups. Understand how your facility is billing and crediting radiology and pulmonology services within these newly finalized DRG structures.
Healthcare investors and founders: The NTAP pathway closure is a market signal. Companies that were building go-to-market strategies around FDA breakthrough designation as a payment accelerator need to rebuild those strategies. Clinical evidence packages for NTAP applications now need to include robust substantial clinical improvement data - not just regulatory clearance. Fund accordingly.
Policy advocates: The DSH paradox - more uninsured patients, less total DSH support system-wide - is worth surfacing in comment letters and legislative advocacy. The FY 2027 comment period is closed, but the FY 2028 proposed rule will follow in spring 2027. That is your next window.
The rule is already in effect
The FY 2027 IPPS final rule is not a proposal. It is finalized and effective October 1, 2026. That means the payment rates, the NTAP pathway change, the new MS-DRGs, and the CJR-X nationalization timeline are all locked in.
What is not locked in is whether your organization is prepared. The CJR-X mandatory start is January 1, 2028. That date will arrive faster than your Q4 planning cycle expects.
The hospitals that succeed under these new rules will be the ones that modeled the episode costs, built the post-acute networks, audited their NTAP device portfolios, and verified their IQR participation status before October 1 - not after. The rule rewards preparation. It does not wait for it.
What is your organization's biggest compliance gap from this rule? Reply and let me know.
About the Author
Jonathan Govette is the Co-Founder and CEO of Oatmeal Health, an AI lung cancer diagnostic company catching cancers earlier in the communities that need it most. Oatmeal uses AI to identify unscreened high-risk patients, navigate them to care, and score every lung CT for malignancy risk - billed under CPT 0721T. Stage I survival is 77%. Stage IV is 9%. We work in FQHCs because that gap is largest there.
Jonathan writes daily about radiology, pulmonology, AI diagnostics, health policy, hospital operations, and healthcare startups.
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Key References
CMS FY 2027 IPPS Final Rule Fact Sheet (CMS-1849-F), July 31, 2026 - https://www.cms.gov/newsroom/fact-sheets/fy-2027-hospital-inpatient-prospective-payment-system-long-term-care-hospital-prospective-payment
National Law Review: "CMS Releases FY 2027 IPPS Final Rule," August 5, 2026 - https://natlawreview.com/article/cms-releases-fy-2027-ipps-final-rule
Holland & Knight: "CMS Releases Fiscal Year 2027 IPPS and LTCH Final Rule," August 2026 - https://www.hklaw.com/en/insights/publications/2026/08/cms-releases-fiscal-year-2027-ipps-and-ltch-final-rule
Federal Register: CMS-1849-F, published August 4, 2026 - https://www.federalregister.gov/documents/2026/08/04/2026-15833/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-ipps-and
McDermott+: "CMS Releases FY 2027 IPPS Final Rule," August 2026 - https://www.mcdermottplus.com/insights/cms-releases-fy-2027-ipps-final-rule/