Fiscal Year 2027 Medicare Inpatient Psychiatric Facility Prospective Payment System Proposed Rule (CMS-1847-P)

Fiscal Year 2027 Medicare Inpatient Psychiatric Facility Prospective Payment System Proposed Rule (CMS-1847-P)

On April 2, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a proposal to update Medicare payment policies and rates for Inpatient Psychiatric Facilities (IPF) under the IPF Prospective Payment System (PPS) (CMS-1847-P) for fiscal year (FY) 2027. CMS is publishing this proposed rule consistent with its statutory authority to update Medicare payment policies for IPFs annually.

This fact sheet discusses the provisions of the proposed rule, including proposed annual updates to the prospective payment rates, the outlier threshold, the wage index, and associated impact analysis. In addition, the rule includes a proposal to limit outlier payments at the facility-level to no more than 20% of an IPF's total IPF PPS payments in a year. For the IPF Quality Reporting Program, CMS is proposing to remove two measures from the program, as well as to implement a standardized IPF patient assessment instrument.

Proposed Changes to Payments Under the IPF PPS

Proposed Updates to IPF Payment Rates

For FY 2027, CMS is proposing to update the IPF PPS payment rates by 2.3%, based on the proposed 2021-based IPF market basket increase of 3.1% less a proposed 0.8 percentage point productivity adjustment. CMS is proposing that if more recent data become available (for example, a more recent estimate of the market basket update or productivity adjustment), CMS would use this data, if appropriate, to determine the FY 2027 market basket update percentage increase and the productivity adjustment in the final rule. Additionally, CMS proposes to update the outlier threshold so that estimated outlier payments remain at 2.0% of total IPF PPS payments. Total estimated payments to IPFs would increase by 2.1%, or $50 million, in FY 2027, relative to IPF payments in FY 2026.

Proposed Reform of IPF PPS Outlier Payment Policy

The IPF PPS includes an outlier adjustment to promote access to IPF care for those patients who require expensive care and to limit the financial risk of IPFs treating unusually costly patients. Providing additional payments to IPFs for extremely costly cases strongly improves the accuracy of the IPF PPS in determining resource costs at the patient- and facility-level. Outlier payments are determined by comparing the estimated cost of an IPF stay to a threshold value. The outlier fixed dollar loss threshold is set each year so that estimated outlier payments equal 2% of total IPF PPS payments. In recent years, the outlier threshold has increased significantly, and commenters have expressed concerns that it is increasingly difficult to receive outlier payments for costly IPF stays.

Our analysis of IPF PPS outlier payments has shown that there are certain IPFs with exceptionally high reported costs that receive outlier payments on a large number of their claims. We note that these providers' high overall costs are primarily driven by high routine costs (for example labor, real estate, or overhead), which are fixed at the provider level and do not vary from one patient to another. Therefore, for FY 2027, we are proposing to cap outlier payments at the provider level to minimize the impact of these high-cost facilities on the outlier pool. We are also soliciting comments from providers about the drivers of cost for these facilities and whether it would be appropriate to consider structural changes to the IPF PPS facility adjustments or outlier policy. We are additionally soliciting comments from patients about whether they value the care at higher-cost facilities more highly than the care at lower-cost facilities.

Proposed Updates to the IPF Quality Reporting Program

The IPF Quality Reporting Program requires that all IPFs paid under the IPF PPS submit certain specified quality data to CMS, in a form and manner and within the timeframes that CMS prescribes. IPFs that do not submit the specified data on quality measures as required by the IPF Quality Reporting Program receive a 2.0 percentage point reduction to their annual payment update. The IPF Quality Reporting Program aims to assess and foster improvement in the quality of care provided to patients in IPFs. By requiring IPFs to submit quality data to CMS and by CMS publicly reporting these data under the IPF Quality Reporting Program, CMS ensures that patients can make more informed decisions about their healthcare options.

In this proposed rule, CMS is proposing to make changes to quality measures in the IPF Quality Reporting Program. CMS is proposing to remove two measures beginning with the CY 2026 reporting period/FY 2028 payment determination: the Alcohol Use Brief Intervention Provided or Offered (SUB-2) and subset Alcohol Use Brief Intervention (SUB-2a) measure and the Tobacco Use Treatment Provided or Offered at Discharge (TOB-3) and subset Tobacco Use Treatment at Discharge (TOB-3a) measure.

CMS is also proposing to implement a standardized IPF patient assessment instrument (IPF-PAI), as mandated by section 4125(b)(1) of the Consolidated Appropriations Act of 2023 (CAA, 2023). IPFs will have the option to submit IPF-PAI data through a CMS-developed web application or using Application Programming Interfaces (APIs) CMS has built from the Health Level Seven (HL7) Fast Healthcare Interoperability Resources (FHIR)® specification. This would be the first CMS statutory quality reporting program to use the FHIR® standard to support patient assessment data submission.

The proposed rule can be viewed at the Federal Register at: https://www.federalregister.gov/d/2026-06675.

Information on the Inpatient Psychiatric Facility PPS is available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility.

Information on the Inpatient Psychiatric Facility Quality Reporting Program is available at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/inpatient-psychiatric-facility-quality-reporting-ipfqr-program.

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