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Costs & IRMAA

Medicare Sets a 2.3 Percent Payment Update for Long-Term Acute Care Hospitals in FY 2027

CMS finalized the fiscal year 2027 rate rule for facilities that treat Medicare patients with prolonged, complex conditions, freezing a key cost threshold while adding roughly 54 million dollars in total payments.

By the Goodsurance editorial teamJuly 31, 2026

On July 31, 2026, CMS released the final fiscal year 2027 payment rule for long-term care hospitals, known as LTCHs, as part of the broader CMS-1849-F rulemaking. LTCHs are specialized Medicare-certified facilities that admit patients with serious conditions requiring extended treatment, such as ventilator weaning, complex wound care, or intensive rehabilitation. Average stays typically exceed 25 days, and the population served differs from patients treated in short-stay inpatient hospitals.

Under the final rule, effective October 1, 2026, CMS updated the LTCH standard payment rate by 2.3 percent. That figure reflects a market basket increase of 3.2 percent reduced by a productivity adjustment of 0.9 percentage points as required by law. CMS projects the update will generate approximately 54 million dollars in additional aggregate payments to LTCHs in fiscal year 2027 compared with fiscal year 2026.

CMS finalized a 2.3 percent payment update for long-term acute care hospitals, effective October 1, 2026.

CMS also finalized a freeze of the outlier threshold at 78,936 dollars, unchanged from fiscal year 2026. That threshold determines when an especially costly patient case qualifies for supplemental payment above the standard LTCH rate. CMS estimated the frozen level will keep outlier spending at roughly 8 percent of total LTCH payments, in line with the statutory target.

For Medicare beneficiaries who require the prolonged, intensive care that only an LTCH can provide, payment stability at these facilities supports continued access to that tier of care. The rule also removed two COVID-19 vaccination quality measures from the LTCH Quality Reporting Program and made a minor adjustment to data reporting timelines.

In plain words

Some Medicare patients need care in a special kind of hospital called a long-term acute care hospital. These places treat very serious conditions. Patients may need help from a breathing machine or care for severe wounds. Stays often last more than 25 days.

Medicare is changing how much it pays these hospitals starting October 1, 2026. Payments will go up about 2.3 percent. That adds about 54 million dollars more in total payments compared to last year.

Medicare also kept a key cost rule the same as last year. That rule decides when a very expensive patient gets extra payment from Medicare. This change does not affect what patients personally pay. It changes what Medicare pays the hospital.

Understand the basics first

Source: CMS
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