Significant Changes to Medicare Payments Under CMS Proposal for 2027

A recent proposal from the Centers for Medicare & Medicaid Services (CMS) introduces significant changes to hospital payment structures, turning heads in the healthcare finance sector. The proposal for Medicare's fiscal year 2027 includes a nationwide mandate for the Comprehensive Care for Joint Replacement (CJR) Model—a shift to value-based payments extended to nearly all hospitals in the U.S.

This proposed rule also outlines a 2.4% increase in inpatient payments for hospitals, equating to approximately $1.4 billion. This increase comes from a planned 3.2% market basket update offset by a 0.8% economy-wide productivity adjustment. Hospital representatives have expressed concerns over the proposed payment update, stating it does not adequately address the pressures from inflation and rising levels of uncompensated care.

For long-term care hospitals (LTCHs), the proposal includes a 2.3% per discharge payment update while maintaining the outlier payment threshold at previous levels, which accounts for 8% of estimated total payments. The rule also projects a 1.2% average increase in Medicare inpatient payments for acute-care hospitals, subject to regional differences. Factors affecting this adjustment include a 0.7% decrease due to anticipated reductions in high-cost outlier case payments and a 0.2% decrease concerning uncompensated care payments, reflecting a rise in the uninsured population.

The introduction of the CJR-X Model, slated for 2027, would expand on the original CJR Model (2016-2024) that focused on hip and knee replacements. The new nationwide iteration would include ankle replacements and engage both inpatient and outpatient settings. CMS cites considerable cost savings from bundled payments without a negative impact on care quality as justification for this expansion.

The CJR-X Model intends to encourage more effective care coordination, minimize unnecessary services, and enhance patient outcomes. Hospital participation would be mandatory, except in specific contexts, such as the Transforming Episode Accountability Model participants and certain exempt hospital categories.

Additional elements of the proposed rule would adjust existing quality reporting programs and clinical quality measures. This includes new measures for the Inpatient Quality Reporting Program and changes to the Promoting Interoperability Program, which will streamline electronic health record (EHR) use requirements. Moreover, changes in the Medicare pay-for-performance programs include adjustments in the Hospital Readmissions Reduction Program to integrate sepsis readmission data reporting beginning in fiscal year 2029.

These proposed changes mark a significant move towards value-based healthcare models, posing challenges and opportunities for hospital systems across the United States.