CMS Finalizes 2.3% Hospital Pay Bump and Mandatory Joint Replacement Model: 9 Things to Know

Federal health regulators have finalized a 2.3% payment update for acute care and long-term care hospitals alongside a mandatory nationwide episode-based payment model for joint replacements, altering financial and clinical operations across the healthcare sector.

Inpatient Payment Updates and Financial Projections for Fiscal 2027

Acute care and long-term care hospitals will receive a 2.3% standard payment rate update under the finalized Inpatient Prospective Payment System and Long-Term Care Hospital Prospective Payment System rule published by the Centers for Medicare & Medicaid Services. According to the federal rule released on July 31, the updated rate rests on a 3.2% market basket increase offset by a 0.9 percentage point productivity adjustment. This figure sits just below the 2.4% adjustment initially floated by the agency in April, which included a smaller 0.8 percentage point productivity cut. To secure the full update, hospitals must satisfy Hospital Inpatient Quality Reporting requirements and demonstrate meaningful use of electronic health records. Overall, CMS estimates that these combined adjustments will increase total inpatient payments by approximately $2.1 billion for fiscal 2027, exceeding the $1.4 billion projection outlined in the proposed rule.

Mandatory Joint Replacement Model Expansion

The federal agency locked in the Comprehensive Care for Joint Replacement Expanded model, known as CJR-X, marking the first mandatory, nationwide test of episode-based payment. The implementation date is set for January 1, 2028, after being delayed from the October 1, 2027 start date initially proposed. Under this model, most Inpatient Prospective Payment System hospitals will be held accountable for total Medicare spending associated with hip, knee, and ankle replacements. The financial accountability window covers the surgical procedure, the hospitalization period, and the first 90 days of post-acute recovery. This structure builds upon the predecessor Comprehensive Care for Joint Replacement model, which operated from April 2016 through December 2024 and saved Medicare more than $100 million while maintaining clinical quality standards. Exemptions apply to hospitals participating in the Transforming Episode Accountability Model, facilities operating in Maryland, and institutions not paid under both the inpatient and outpatient prospective payment systems.

“Knee, hip, and ankle replacements are important for helping seniors preserve their mobility and overall well-being,” CMS Administrator Mehmet Oz, MD, stated in a news release. “Expanding the joint replacement pilot program to support more of our seniors will help match financial incentives in Medicare with improved health outcomes, safeguard taxpayer resources and ensure patients experience a positive, comprehensive care journey throughout the surgical process.”

Integration of Medicare Advantage Data and Quality Metrics

Federal regulators are altering quality and payment programs by integrating Medicare Advantage claims data and shortening performance periods from three years to two years. This shift affects programs such as Inpatient Quality Reporting, Value-Based Purchasing, and the Hospital Readmissions Reduction Program. The agency attributed the modification to the growing market share of Medicare Advantage, which now covers more than half of all Medicare beneficiaries, totaling approximately 35 million individuals. The adjustment directly impacts risk-standardized mortality measures for clinical conditions including heart attacks, heart failure, pneumonia, chronic obstructive pulmonary disease, and coronary artery bypass graft surgery. Additionally, CMS finalized a 30-day, risk-standardized sepsis readmission measure, which will undergo two years of confidential early-look reporting in fiscal years 2028 and 2029 before factoring into payment reductions starting in fiscal year 2030.

Technology Add-On Payments and Regulatory Deadlines

Financial provisions for specialized hospital operations face a looming cliff as add-on payments for Medicare-dependent hospitals and the temporary low-volume hospital adjustment are scheduled to expire on December 31, 2026. While Congress has previously extended these protections, failure to act would withdraw approximately $300 million in fiscal 2027 funding from rural and small community hospitals already experiencing financial strain. Conversely, add-on payments for new medical technologies are projected to climb significantly to $779 million in fiscal 2027, up from the $464 million estimated in the proposed rule, driven by recent product approvals.

On the administrative front, the Medicare Promoting Interoperability Program introduces electronic prior authorization as an optional bonus in 2027 before making it mandatory in 2028. CMS also incorporated a unique device identifier measure for implantable technologies and aligned certification criteria with Office of the National Coordinator for Health IT standards. Finally, approved medical residency, nursing, and allied health education programs face newly finalized nondiscrimination requirements that bar selection criteria based on race, color, national origin, sex, age, disability, or religion.

*Disclaimer: The information provided in this article is for educational and scientific communication purposes only and does not constitute medical advice. Always consult with a qualified healthcare provider regarding any medical condition, diagnosis, or treatment plan.*