Policy & oversight
CMS Finalizes 2.3 Percent Inpatient Hospital Pay Increase for FY 2027 and Makes Joint Replacement Episode Accountability Mandatory for Most Hospitals Starting in 2028
The annual inpatient payment update locks in a net 2.3 percent rate increase for qualifying hospitals and, for the first time, requires most IPPS-participating hospitals to take financial responsibility for hip, knee, and ankle replacement episodes of care.
By the Goodsurance editorial teamJuly 27, 2026
The Centers for Medicare and Medicaid Services released the fiscal year 2027 Hospital Inpatient Prospective Payment System final rule on July 31, 2026, setting a net 2.3 percent payment rate increase for most inpatient hospitals. The increase reflects a projected hospital market basket growth of 3.2 percent reduced by a 0.9 percentage point productivity adjustment. CMS projects the combined payment changes will add approximately 2.1 billion dollars in total hospital payments for the fiscal year compared with the prior year. Hospitals that participate in quality reporting programs and meet electronic health record use standards receive the full update; those that do not qualify for a reduced rate. CMS also expects new technology add-on payments to rise by about 779 million dollars. The new rates apply to fiscal year 2027, which began October 1, 2026.
The most significant policy change in the rule is the finalization of the Comprehensive Care for Joint Replacement Expanded model, known as CJR-X. Starting January 1, 2028, most hospitals paid under the inpatient prospective payment system will be held financially accountable for the total cost and quality of care for Medicare patients who undergo hip, knee, or ankle replacement surgery, covering both hospital inpatient and outpatient settings, through 90 days of post-surgery recovery. CMS describes CJR-X as the first mandatory, nationwide episode-based payment program it has ever finalized. The model builds on a voluntary predecessor program that produced documented Medicare savings. Hospital industry groups raised objections to the mandatory structure during the comment period.
The rule also folds Medicare Advantage patients into certain hospital readmission and mortality quality calculations for the first time, and makes electronic prior authorization for specified procedures a mandatory requirement beginning in 2028.
Medicare just finalized hospital pay rules for FY 2027 and introduced the first-ever mandatory nationwide bundled payment model for joint replacement care, starting in 2028.
In plain words
Medicare updated how it pays hospitals for inpatient stays in fiscal year 2027. Most hospitals will receive a payment increase of 2.3 percent. This adds about 2.1 billion dollars across all hospitals in the country.
The rule also creates a new required program called CJR-X. Starting January 2028, most hospitals must take financial responsibility for the full cost of care for Medicare patients who get hip, knee, or ankle replacement surgery. That includes the surgery and the 90 days of recovery afterward. Some hospital groups disagree with making this required instead of optional.
Understand the basics first
Source: CMS
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