Insights^

On April 9 and 10, the Medicare Payment Advisory Commission (MedPAC) met for their April meeting, the last meeting in the 2026 Cycle. Commissioners discussed several topics including, how to improve payment incentives, the impact of Medicare Advantage (MA) on hospitals’ and post-acute care (PAC) providers’ finances, and institutional special needs plans (I-SNPs). Commissioners all expressed concerns with the current system and voiced numerous solutions.

IMPROVING PAYMENT INCENTIVES IN MEDICARE

MedPAC staff began this session discussing the drivers of Medicare’s spending growth, payment incentives within fee-for-service (FFS), alternative payment models (APMs) and MA, as well as recommendations to improve Medicare’s incentives. These recommendations can be viewed on slides 29-38 in the Improving Payment Incentives” slideshow found here. MedPAC staff shared that its presentation, along with the Commissioners’ discussion, will be included in the MedPAC June 2026 report to Congress.

Overall, Commissioners agreed on the shortcomings of FFS, APMs, and MA, saying that they each have their strengths and weaknesses when it comes to payment incentives. Commissioners expressed that FFS is foundational, in that it serves as a guardrail to ensure MA provides a variety of services, yet it leads to high inflation. Commissioners shared that APMs are an incentive layered on top of FFS and have tools to avoid unnecessary plan expenses but do not have sufficient funding to support the infrastructure needed. In terms of MA, a few Commissioners said that it is effective at controlling costs, but the incentive is currently centered around coding care rather than quality of care. Commissioners concluded that each of these services play a core role and are vital but agreed that there needs to be stronger tools to provide better incentives to providers.

Additionally, Commissioners emphasized the need to ensure beneficiaries know they are being enrolled in Medicare, MA, or APMs so they can best understand the benefits available to them. There was also concern regarding the rise of costs as people age and are diagnosed with additional chronic illnesses. Commissioners recommended payment mechanisms that encourage specialist-led services with more focus on patients and increased specialist engagement with APMs to combat the rising costs. A few Commissioners mentioned rising drug costs and expressed concern over the focus on price and quantity impacts, rather than innovation impacts. A few Commissioners noted that there are tools in place to manage every cost except for drug costs and recommended the utilization component as an incentive to control when drugs are used in a managed environment.

MA ENROLLMENT AND HOSPITALS’ AND POST-ACUTE CARE (PAC) PROVIDERS’ FINANCES

MedPAC staff began this session giving a brief background on MA enrollment and plan incentives, then discussed how MA enrollment affects hospital finances and PAC providers’ finances. The staff explained the elements of the study they conducted as there was no pre-existing literature that included all of the information they needed. Their research showed that there is no significant association between MA penetration and hospitals’ and PAC providers’ finances, despite complaints that providers are experiencing difficulties navigating the space. This chapter will be included in the June 2026 Report to Congress.

A number of Commissioners voiced concerns on the subjectivity of what is medically necessary, specifically in terms of referrals and denials. One Commissioner detailed that providers have different resources they use to evaluate medical necessity than health plans do, which contributes to different decisions. One Commissioner explained that an MA plan can decide a procedure is not necessary if it’s nonemergent, which leads to increased time-to-placement, which increases costs. While the overturn rate of these denials is very high, providers then lose money and time appealing the decision. Other Commissioners echoed concerns about this. One Commissioner questioned if the reason data is not reflecting the issue is due to the way providers and hospitals have adjusted to MA market penetration in order to combat the rising costs.

Commissioners also spent time discussing heterogeneity between MA plans, and between home health agencies (HHAs), skilled nursing facilities (SNFs), and inpatient rehabilitation facilities (IRFs). Commissioners explored how MA plans vary in how they approach situations depending on the geography and relationships with providers in the areas they are operating in. Commissioners noted that each facility varies in size, coverage, and care level and that these differences impact the solutions they need. For example, one commissioner detailed that smaller SNFs operate better than larger SNFs, while smaller HHAs are not as effective as larger HHAs. Commissioners continuously raised this concern and there was agreement about the need to look into the structural failures currently in place that are either positively or negatively impacting each player.

INSTITUTIONAL SPECIAL NEEDS PLANS (I-SNPS): PROVISION OF SERVICES, NETWORK-ADEQUACY REQUIREMENTS, AND STAR RATINGS

MedPAC staff began this session reviewing their work last year on I-SNPs. Staff also emphasized that this work will not be included in the June 2026 Report to Congress, but if there were commissioner interest, they would conduct additional work in the next cycle and include this as a chapter in the June 2027 Report.

A number of Commissioners voiced concerns about the interaction between Medicare and Medicaid plans within I-SNPs as it is the only model that can apply to long-stay older adults on Medicaid that are getting care in nursing homes from Medicare. One Commissioner specifically raised the issue of conflicting incentives in terms of nursing homes electing to send patients to the hospital due to higher reimbursement rates from Medicare versus I-SNPs focus on keeping care within the nursing home. Additionally, Commissioners expressed the need to better understand what nurse practitioners are doing and how they interact with the rest of the nursing home staff.

Other Commissioners also asked questions regarding the functionality of I-SNPs and the data collected on them. One Commissioner asked if there was a way to identify incident to billing in nurse practitioner visits, to which the staff explained that they are salaried employees, so it is unclear if they are cataloging every visit. Another Commissioner asked why insurer sponsored I-SNPs are getting higher star ratings over those that are provider sponsored. Staff explained that insurer sponsored I-SNPs are simply larger, so they have more enrollees and therefore get more data. Additionally, one Commissioner proposed having CMS require SNP beneficiaries, or their proxy, be educated about the choice of FFS, MA, or I-SNP coverage within the nursing home.

Today’s sessions concluded with a public comment period. Shannan Wu, the Director of Payment Policy at the American Hospital Association urged MedPAC to continue carefully examining the role MA plays in access to care and spending. Wu explained that the major high-cost drivers in Medicare can be found in MA, despite the greater administrative burdens, and believes the Commission should look towards combatting that.

On April 9 and 10, 2026, the Medicaid and CHIP Payment and Access Commission (MACPAC) met for their April meeting. The Commissioners held sessions on implementing community engagement requirements in Medicaid and on Medicaid program integrity. Commissioners also voted in favor of 2 recommendations related to Medicaid managed care to be included in the June 2026 report to Congress.

IMPLEMENTING COMMUNITY ENGAGEMENT REQUIREMENTS IN MEDICAID

MACPAC staff began the session by providing an overview of the previous research completed on the community engagement requirements, including expert panel and stakeholder interviews that were conducted in the summer of 2025. Staff then presented the draft recommendation that will be voted on during the May 2026 meeting, for inclusion in the June 2026 report to Congress. The draft recommendation reads: “The Secretary of the US Department of Health and Human Services should direct the Centers for Medicare & Medicaid Services (CMS) to develop a transparent plan for monitoring and evaluating community engagement requirements in Medicaid that provides insight into how such policies affect eligibility and enrollment, health status, employment, state and federal administrative spending, and the attainment of other identified policy goals. CMS should identify new metrics for state reporting, as needed, and build upon existing data collection activities to minimize administrative burden. Additionally, CMS should ensure timely publication of monitoring and evaluation results to inform policy and operational decision making.”

Commissioners appreciated the content and tone of the draft chapter, noting that the topic requires considerable detail. In general, the Commissioners indicated support for the draft recommendation but had some concerns about implementation. For example, Commissioners raised concerns about the additional administrative burden that could be placed on states due to monitoring and evaluation requirements. Commissioners commented that state Medicaid agencies lack the ability to track health insurance enrollment and health status once a beneficiary leaves the program. Commissioners did note that it is easier to track the health and insurance status of beneficiaries who continually enter and exit the program because data such as their use of preventive care, emergency department care, and health insurance coverage is often available from the time they were not enrolled in Medicaid. Overall, Commissioners felt it was important for the recommendation to be realistic about what data can be captured and not recommend beyond what is possible.

Many Commissioners also felt it would be important to evaluate the cost-effectiveness of community engagement requirement implementation, specifically understanding how much states are spending versus saving. Commissioners highlighted costs associated with the accelerated implementation timeline and the likely increase in uncompensated care, especially in rural communities that serve a higher percentage of Medicaid beneficiaries.

Commissioners also discussed a few other topics. One Commissioner highlighted the need to track the reason an individual becomes disenrolled after the work requirements are implemented, especially to understand if it is an administrative error and the individual is still eligible. Another Commissioner questioned whether there were platforms that could evaluate participation in nontraditional employment, such as gig work, as Equifax, one of the highlighted platforms, does not have that capability. MACPAC staff shared that beneficiaries could use an income verification service but that they are not currently aware of additional platforms to recommend. Commissioners and MACPAC staff agreed that new platforms may have become available since data was collected, and so additional research would be beneficial. Lastly, a Commissioner requested that staff include more literature on the effects of increased administrative burden on patients, specifically how it leads to higher rates of health insurance disenrollment. MACPAC staff agreed that including literature about the topic could be beneficial and said they would review possible inclusions.

INTRODUCTION TO MEDICAID PROGRAM INTEGRITY

This session began with MACPAC staff providing an overview of program integrity and fraud, waste, and abuse within Medicaid. Staff then discussed the roles and responsibility of federal and state departments in program integrity and outlined the current issues in Medicaid program integrity. Key takeaways from the presentation included:

• Known fraud, waste, and abuse accounts for a small portion of program spending and its scale and impact are difficult to measure.

• Federal government, states, and health plans have a significant number of statutory and regulatory program integrity responsibilities.

• Key issues in program integrity include federal-state collaboration and program integrity in managed care.

Staff requested that the Commissioners provide feedback on the policy scan findings and further areas for exploration during stakeholder interviews.

Commissioners widely praised the material presented and appreciated the clear definitions and examples of fraud, waste, and abuse. Multiple Commissioners expressed the view that often the terms are inaccurately used, pointing out that disagreeing with a policy or statute does not constitute fraudulent or wasteful spending.

Commissioners had a wide variety of topics of interest for further exploration. A few Commissioners were interested in understanding how CMS and states decide where to invest money and time to best prevent program integrity issues and recover improper payments. One Commissioner specifically requested a return on investment analysis to understand where to invest to produce the best results. There was also widespread interest in understanding best practices for preventing fraud, recovering payments, and working with state Medicaid agencies.

Some other areas of interest included measuring the quality of State Medicaid Fraud Control Units, understanding how prior authorization is useful for program integrity, the impact of delays in convictions during fraud investigations for states, and ways to improve collaboration between CMS and states.

VOTE ON RECOMMENDATIONS FOR JUNE REPORT TO CONGRESS

Commissioners voted on 2 recommendations related to ensuring accountability of Medicaid managed care plans for inclusion in the June 2026 report to Congress.

The first recommendation reads, “The Secretary of the US Department of Health and Human Services should direct the Centers for Medicare and Medicaid Services to provide guidance on the types of accountability actions, such as liquidated damages, informal interventions, and other accountability actions, taken in response to plan noncompliance, in the sanctions section of the Managed Care Program Annual Report pursuant to 42 CFR 438.66(e)(2)(viii).” This recommendation passed by a vote of 17 to 0.

The second recommendation reads, “The Secretary of the US Department of Health and Human Services should direct the Centers for Medicare and Medicaid Services to develop a publicly available database on managed care plan performance that links federally mandated reported data together to facilitate analysis. CMS should also issue guidance and toolkits to help states effectively use these data to assess past performance, improve beneficiary experience, and oversee managed care plans.” This recommendation passed by a vote of 17 to 0.

There was no discussion about either of the recommendations.

On April 10, 2026, the Centers for Medicare and Medicaid Services (CMS) released the Fiscal Year 2027 Medicare Hospital Inpatient Prospective Payment System (IPPS) Proposed Rule. A fact sheet from CMS is available here. Complete text of the proposal is available here. Comments on the rule are due June 9, 2026.

UPDATES TO IPPS PAYMENT RATES

As part of the proposed rule, CMS would increase payment rates by 2.4% for general acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting (IQR) Program and are meaningful users of electronic health records (EHRs) under the Medicare Promoting Interoperability Program. This proposed update reflects a projected FY 2027 hospital market basket increase of 3.2%, reduced by a 0.8% productivity adjustment. Overall, CMS estimates that the proposed changes in IPPS payment rates, together with other policy changes, would increase hospital payments by approximately $1.4 billion in FY 2027.

CMS also proposes setting the FY 2027 outlier fixed-loss threshold at $51,704, which would target outlier payments at approximately 5.14% of total operating DRG payments and capital payments, after incorporating an estimate of outlier reconciliation. In its impact analysis, CMS estimates that overall IPPS payments would increase by 1.2% relative to FY 2026, reflecting the combined effects of the proposed update, outlier policies, uncompensated care payments, and wage index changes.

MEDICARE-DEPENDENT HOSPITALS (MDHS) AND LOW-VOLUME HOSPITALS

The MDH program provides enhanced payments to small rural hospitals (≤100 beds, not Sole Community Hospitals) where at least 60% of inpatient days or discharges are attributable to Medicare patients, using a blended rate that includes 75% of the federal rate plus 25% of the hospital-specific rate based on historical costs. The low-volume hospital adjustment offers percentage add-ons to IPPS payments for rural hospitals with low annual discharges to offset higher per-case costs, currently on a sliding scale up to 25% for facilities with fewer than 3,800 discharges and more than 15 road miles from another subsection (d) hospital.

In the FY 2027 proposed rule, CMS does not propose substantive policy changes to either the MDH program or the low-volume hospital adjustment. Rather, the agency proposes conforming regulatory changes to reflect current law, under which both policies have been extended through December 31, 2026. As a result, absent further congressional action, the MDH program would expire, and the temporary low-volume hospital policy would revert to permanent law beginning January 1, 2027.

Accordingly, the central issue is less the substance of CMS’s proposal than the current appropriations and extender status of these programs. Congress first provided a short-term extension in the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026, and subsequently extended both policies through December 31, 2026, in the Consolidated Appropriations Act, 2026. CMS states that it will revise the regulatory language in the final rule if Congress again extends the programs before the rule is finalized. In practical terms, unless lawmakers enact another extender later this year, both policies will lapse beginning January 1, 2027.

CMS estimates that, if Congress were to extend the MDH and low-volume hospital policies through the end of FY 2027, affected hospitals would receive approximately $0.4 billion in additional payments. Conversely, under current law, CMS estimates that expiration of the MDH status would reduce payments by approximately $110 million for roughly 80 affected hospitals, while expiration of the temporary low-volume policy would reduce aggregate payments by approximately $258 million in FY 2027, with approximately 589 hospitals expected to lose qualification under the stricter post-January 1 criteria.

DISCONTINUATION OF THE LOW-WAGE INDEX HOSPITAL POLICY

The low-wage index hospital policy was established in the FY2020 IPPS final rule as a temporary, budget-neutral initiative to address wage index disparities, benefiting rural hospitals by raising their wage indices to mitigate the impacts of lower payments. This policy adjusted the wage index for hospitals in the bottom quartile, setting a floor at the 25th percentile value, which was offset by a corresponding reduction for higher-wage hospitals. However, in July 2024, the U.S. Court of Appeals for the D.C. Circuit in Bridgeport Hosp. v. Becerra ruled that CMS lacked the statutory authority under sections 1886(d)(3)(E) or 1886(d)(5)(I) of the Social Security Act (SSA) to implement this policy, vacating both the policy and its budget neutrality adjustment.

In the FY 2026 final rule, CMS formally discontinued the low-wage index hospital policy and its associated budget-neutrality adjustment for FY 2026 and subsequent fiscal years. At the same time, CMS finalized a narrow, budget-neutral transitional payment exception for FY 2026 for certain hospitals experiencing significant decreases in their wage index resulting from the policy’s discontinuation. Under that transition, eligible hospitals could receive additional FY 2026 payments if their wage index otherwise would have fallen by more than 9.75% from their FY 2024 wage index, with payments calculated as if the hospital’s FY 2026 wage index were equal to 90.25% of its FY 2024 wage index.

For FY 2027, CMS does not propose to reinstate the low-wage index hospital policy. Instead, it proposes continuing the same transition approach for hospitals that are still significantly affected by the policy’s discontinuation. Specifically, CMS proposes a narrow transitional payment exception for hospitals whose FY 2027 wage index would be more than 14.2625% below their FY 2024 wage index, with those hospitals receiving FY 2027 payments as if their wage index were equal to 85.7375% of their FY 2024 wage index. CMS proposes implementing this transition in a budget-neutral manner after applying the 5% cap on wage index decreases.

HOSPITAL INPATIENT QUALITY REPORTING (IQR) PROGRAM

In the FY 2027 proposed rule, CMS proposes a fairly broad set of updates to the Hospital IQR Program. Most notably, CMS would adopt three new measures: the Excess Days in Acute Care After Hospitalization for Diabetes measure beginning with the FY 2029 payment determination, and the Hospital Harm–Postoperative Venous Thromboembolism eCQM and Advance Care Planning eCQM beginning with the FY 2030 payment determination. CMS also proposes to adopt modified versions of five mortality measures beginning with the FY 2028 payment determination – acute myocardial infarction, heart failure, pneumonia, COPD, and CABG mortality – by adding Medicare Advantage patients and shortening the applicable performance period from three years to two years. In addition, CMS proposes similar modifications to three Excess Days in Acute Care measures (for AMI, heart failure, and pneumonia), also beginning with the FY 2028 payment determination.

CMS also proposes to remove three eCQMs beginning with the FY 2030 payment determination: VTE-1, VTE-2, and STK-02. On reporting requirements, CMS proposes to make reporting of the Malnutrition Care Score eCQM mandatory beginning with the FY 2030 payment determination and to establish a policy under which Hospital Harm eCQMs would become mandatory after two years of self-selected reporting. CMS also proposes to update the Maternal Morbidity Structural Measure, beginning with the FY 2028 payment determination, so that hospitals identify which perinatal quality collaborative program they participate in. The proposed rule explains that these reporting changes are intended to continue CMS’s move toward a more digital measure set and to standardize hospital quality reporting in several areas.

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

In the FY 2027 proposed rule, CMS proposes a series of changes to the Medicare Promoting Interoperability Program, largely focused on streamlining the program’s certification and attestation requirements and shifting hospitals toward newer interoperability functions.

• Most notably, CMS would update the definition of certified electronic health record technology (CEHRT) to align with changes proposed by Office of the National Coordinator for Health Information Technology (ONC), including removing references to several certification criteria from the program’s CEHRT definition.

• CMS also proposes to remove the ONC Direct Review and ONC-Authorized Certification Body surveillance attestations beginning with the CY 2026 EHR reporting period, which the agency describes as a burden-reduction step.

• In addition, CMS proposes to remove the Support Electronic Referral Loops by Sending Health Information and Support Electronic Referral Loops by Receiving and Reconciling Health Information measures beginning with the CY 2028 EHR reporting period, on the view that newer network-based exchange measures better reflect meaningful health information exchange

CMS also proposes several more targeted policy updates.

• The agency would modify the Electronic Prior Authorization measure, including revising the measure language to require that prior authorization be requested electronically using CEHRT and changing the reference from “discharge” to “encounter.”

• CMS further proposes to make that measure optional and worth 10 bonus points for CY 2027, before requiring hospitals to attest “Yes” beginning with the CY 2028 EHR reporting period. CMS indicates the measure would remain unscored in CY 2028 and subsequent years for purposes of point allocation.

• Separately, CMS proposes to add a new Unique Device Identifiers for Implantable Medical Devices measure under the Public Health and Clinical Data Exchange objective beginning with the CY 2027 EHR reporting period.

• Finally, in alignment with the Hospital IQR Program, CMS proposes to adopt two new eCQMs (the Hospital Harm-Postoperative Venous Thromboembolism eCQM and the Advance Care Planning eCQM) beginning with the FY 2030 payment determination, and to remove three eCQMs (VTE-1, VTE-2, and STK-02), also beginning with the FY 2030 payment determination.

HOSPITAL READMISSIONS REDUCTION PROGRAM

In the FY 2027 proposed rule, CMS proposes one substantive change to the Hospital Readmissions Reduction Program (HRRP): adoption of the Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis Hospitalization measure. CMS would provide hospitals with an early look at performance for the FY 2028 program year and then begin using the measure for payment adjustment purposes in FY 2029. CMS states that it proposes moving the measure directly into HRRP, rather than phasing it in first through a reporting-only program, because sepsis readmissions are associated with significant morbidity. Under the proposal, the FY 2028 early look would be based on an applicable period of July 1, 2024, through June 30, 2026. The measure would first be used for FY 2029 payment adjustments.

HOSPITAL VALUE-BASED PURCHASING (VBP) PROGRAM

In the FY 2027 proposed rule, CMS does not propose changes to the current Hospital Value-Based Purchasing (VBP) measure set for the FY 2027 program year. CMS instead proposes substantive updates to five existing mortality measures in the Clinical Outcomes domain, beginning with the FY 2032 program year: the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Myocardial Infarction (AMI) Hospitalization, Heart Failure Hospitalization, Pneumonia Hospitalization, Chronic Obstructive Pulmonary Disease (COPD) Hospitalization, and Coronary Artery Bypass Graft (CABG) Surgery measures.

For these five measures, CMS proposes adding MA beneficiaries to the measure population and shortening the performance period from three years to two years. The proposed rule also includes a related technical update to the risk adjustment methodology for these measures, replacing the current use of hierarchical condition categories with individual ICD-10 codes. CMS states that these VBP changes would be contingent on first adopting the same refined measures in the Hospital Inpatient Quality Reporting (IQR) Program, consistent with the statutory requirement that measures be publicly reported before being used in the VBP Program.

REQUESTS FOR INFORMATION (RFIS)

CMS includes several RFIs aimed at shaping potential future quality program and model design decisions.

• Measuring Emergency Care Access and Timeliness in the Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing Programs: CMS seeks feedback on whether and how the Emergency Care Access & Timeliness eCQM could be used in the inpatient quality programs, including barriers to improving bed availability and ED boarding, whether the outpatient-developed measure specifications fit the inpatient setting, and whether any numerator, denominator, exclusion, or accountability changes would be needed before future adoption.

• Potential Future Use of the Adult Community-Onset Sepsis Standardized Mortality Ratio Measure in the Hospital Inpatient Quality Reporting Program: CMS seeks comment on the possible future use of this sepsis mortality measure in IQR, including operational feasibility, workflow and data challenges, how claims and EHR/FHIR data would be reconciled, and what implementation issues hospitals (particularly rural hospitals) might face.

• Birthing-Friendly Hospital Designation Modification to Expand Designation Criteria: CMS seeks feedback on expanding the Birthing-Friendly Hospital designation to incorporate the Cesarean Birth eCQM and Severe Obstetric Complications eCQM, as well as on a revised scoring methodology, peer grouping, tiered designation icons, and how the designation should be displayed for consumers.

• Ambulatory Surgical Center (ASC) Episode Request for Information: In the TEAM section, CMS seeks comment on whether and how ASCs could be incorporated into the model in future years, including questions about model structure, participant roles, financial accountability, episode design, target pricing, quality measurement, and whether adding ASCs would require a separate model test.

• Hospital with Physician Ownership Request for Information: Also in the TEAM section, CMS seeks feedback on whether physician-owned hospitals should be allowed to opt into TEAM voluntarily in future years, and, if so, what eligibility criteria, guardrails, and participation requirements should apply to protect model integrity and Medicare savings.

On April 6, 2026, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2027 Medicare Advantage (MA) and Part D Rate Announcement. The text of the regulation can be found here. A CMS fact sheet is available here. A CMS press release is available here. The regulation is effective June 1, 2026, and will apply to MA and Part D coverage beginning January 1, 2027.

MA: PAYMENT UPDATES

CMS stated that the final policies are projected to increase MA payments by 2.48%, or more than $13 billion, in CY 2027. When CMS’s estimated MA risk score trend, attributable to factors such as population changes and coding practices, is included, CMS stated that the increase is 4.98%. This marks a substantial change from the CY 2027 Advance Notice, in which CMS projected a 0.09% increase, or more than $700 million, and a 2.54% increase when the estimated MA risk score trend was included.

In the Advance Notice, the effective growth rate was 4.97%. In the final Rate Announcement, CMS increased that figure to 5.33%. Rebasing and re-pricing, which had been listed as “TBD” in the Advance Notice because the average geographic adjustment index had not yet been finalized, is reflected as -0.17%. The estimated impact of changes in Star Ratings remained -0.03% in both the proposed and final rules, and the estimated impact of diagnosis source changes likewise remained -1.53%. By contrast, the “risk model revision and normalization” line changed from -3.32% in the Advance Notice to -1.12% in the final announcement, reflecting CMS’s decision not to move forward with the proposed updated MA risk model for CY 2027 (discussed below).

CMS stated that the increase in the effective growth rate was primarily due to additional data and updated assumptions. CMS explained that the update reflected additional Original Medicare program experience and incurred dates through the fourth quarter of 2025. The Rate Announcement further explains that the final non-ESRD fee-for-service United States per capita costs for both Part A and Part B reflect experience and incurred dates through the fourth quarter of 2025. In contrast, the Advance Notice relied on experience through the second quarter of 2025 for Part A and the third quarter of 2025 for Part B.

CMS also finalized the statutory minimum MA coding pattern difference adjustment of 5.90% for CY 2027. This was proposed in the Advance Notice and finalized without change. Because CMS used the same 5.90% factor for CY 2026, there is technically no year-over-year payment impact associated with that item.

MA: RISK ADJUSTMENT

The most significant difference between the Advance Notice and the final Rate Announcement is CMS’s decision not to implement the proposed updated 2027 CMS-HCC risk adjustment model for non-PACE MA organizations.

In the Advance Notice, CMS had proposed a new CMS-HCC model calibrated on 2023 diagnoses and 2024 expenditures. In the final Rate Announcement, however, CMS stated that it will continue to use the 2024 CMS-HCC risk adjustment model for CY 2027. CMS explained that it continues to believe it is important to update the MA risk adjustment model regularly, but that it is retaining the 2024 model for CY 2027 to provide the MA market with additional time to adjust to the completed phase-in of the 2024 CMS-HCC model.

That decision also altered the normalization approach reflected in the final announcement. In the Advance Notice, CMS proposed normalization factors for the proposed 2027 CMS-HCC model using a multiple linear regression methodology and average historical fee-for-service risk scores from 2021 through 2025. Under that proposal, CMS stated that the proposed 2027 CMS-HCC model normalization factor would be 1.058 and that the 2017 CMS-HCC model normalization factor used for PACE would be 1.207.

In the final Rate Announcement, CMS instead stated that, for all CMS-HCC risk adjustment models, it calculated normalization factors using a four-year simple linear regression methodology and average historical fee-for-service risk scores from 2022 through 2025. CMS listed the final normalization factors as 1.079 for the 2024 CMS-HCC model, 1.202 for the 2017 CMS-HCC model, 1.072 for the 2023 ESRD Dialysis model, 1.145 for the 2019 ESRD Dialysis model, 1.119 for the 2023 ESRD Functioning Graft model, and 1.209 for the 2019 ESRD Functioning Graft model.

In the final Rate Announcement, CMS finalized the exclusion of diagnoses from audio-only encounters and from unlinked chart review records but added an exception for beneficiaries who switch from one MA organization to another from one year to the next. CMS stated that, under the 2024 MA model, the impact of excluding diagnoses from unlinked chart review records, except switchers, is -1.53%. CMS also stated that, without the switcher exception, the impact would have been -1.78%. In addition, CMS stated that the isolated average impact of excluding diagnoses from audio-only services is 0.00%. CMS separately stated that the exclusion of diagnoses from unlinked chart review records does not apply to PACE organizations for CY 2027. For PACE, CMS said it will continue the transition to encounter-data-based payment but will do so through blended models and without applying the unlinked chart review record exclusion to the portion of payment that still depends on pooled RAPS, encounter, and fee-for- service diagnoses.

MA: MISCELLANEOUS

• PACE: The Advance Notice proposed that CY 2027 PACE risk scores would be calculated using a 50/50 blend of the 2017 CMS-HCC model and the proposed 2027 CMS-HCC model. In the final Rate Announcement, CMS instead stated that CY 2027 PACE risk scores will be calculated using a 50/50 blend of the 2017 and 2024 CMS-HCC models. CMS similarly finalized PACE frailty scores using a 50/50 blend of frailty factors associated with the 2017 and 2024 CMS-HCC models, rather than the 2017 and proposed 2027 models described in the Advance Notice.
• SNPs: For CY 2027, CMS will continue to use the frailty factors associated with the 2024 CMS-HCC risk adjustment model to calculate frailty scores for FIDE SNPs. In the Advance Notice, CMS had proposed updating the frailty factors to align with the proposed 2027 CMS-HCC model, but CMS did not finalize that model in the Rate Announcement.
• ESRD: For ESRD, CMS stated that it will continue to use the 2023 ESRD CMS-HCC models for non-PACE organizations in CY 2027. For PACE organizations, CMS stated that it will calculate ESRD risk scores as a 50/50 blend of the 2023 and 2019 ESRD CMS-HCC models. CMS also stated that it will continue to set MA ESRD rates on a state basis.
• Puerto Rico: CMS finalized its Puerto Rico rate-setting policies for CY 2027, including the continued use of rates based on the relatively higher costs of Original Medicare beneficiaries with both Parts A and B, as well as a zero-claims adjustment. Using updated 2020–2024 data, CMS found that 13.9% of Puerto Rico fee-for-service beneficiaries with both Part A and Part B had no Medicare claim reimbursements in a given year, compared with 6.1% nationwide outside the territories, and applied a 4.4% adjustment to the pre-standardized Puerto Rico fee-for-service rates for the CY 2027 ratebook. This is more definitive than the Advance Notice, which stated only that CMS was considering whether to continue the adjustment while the updated study was being completed.

PART D: BENEFIT PARAMETERS

CMS finalized the CY 2027 Part D defined standard benefit parameters as described in the Advance Notice. The final Rate Announcement states that the deductible and annual out-of-pocket threshold are updated by applying the CY 2027 annual percentage increase to the CY 2026 values and rounding as required by statute. CMS’s final tables show an annual percentage increase of 13.65% and a September CPI increase of 3.00%.

CMS finalized a standard deductible of $700 for CY 2027, up from $615 in CY 2026, and a standard annual out-of-pocket threshold of $2,400, up from $2,100 in CY 2026. CMS also reiterated that the CY 2027 standard Part D benefit continues to operate as a three-phase benefit consisting of the deductible, initial coverage, and catastrophic coverage phases, because the coverage gap phase was eliminated beginning in CY 2025.

PART D: PREMIUM STABILIZATION

In the Advance Notice, CMS discussed the statutory IRA premium stabilization framework and stated that the CY 2027 base beneficiary premium could not exceed the CY 2026 base beneficiary premium of $38.99, increased by 6%, or $41.33. CMS also noted, however, that individual plan premiums may increase by more than 6%. CMS further stated that direct subsidy amounts would continue to reflect the effect of premium stabilization on the base beneficiary premium and on basic Part D beneficiary premiums.

In the final Rate Announcement, CMS did not pre-announce additional voluntary premium stabilization support for CY 2027 participating PDPs. Instead, CMS stated that it cannot determine whether additional premium stabilization may be necessary until CY 2027 bids are received and analyzed. CMS further stated that, if any additional premium stabilization is provided for CY 2027 participating PDPs, it will announce that support no later than the annual summer 2026 release of the national average monthly bid amount, the Part D base beneficiary premium, and related Part D bid information.

PART D: RISK ADJUSTMENT

CMS finalized the updated RxHCC model for non-PACE Part D sponsors largely as proposed. CMS stated that the final model reflects IRA-related changes to the Part D benefit that will take effect in CY 2027, including an increased manufacturer discount for specified small manufacturers, phased in over time. CMS also stated that the model is calibrated to more recent data, specifically 2023 diagnoses and 2024 costs.

In the final Rate Announcement, CMS also stated that it will continue to adjust gross drug costs to account for maximum fair prices for selected drugs for which a maximum fair price is in effect for the initial price-applicability year, 2026. CMS further stated that the final model distinguishes the MA-PD and PDP populations through separate continuing-enrollee segments, which CMS said improves predictive accuracy.

CMS also finalized the Part D source-of-diagnosis policies and normalization policies substantially as proposed. For non-PACE organizations, CMS stated that CY 2027 Part D risk scores will be calculated using diagnoses from encounter data and fee-for-service claims, excluding diagnoses from audio-only services and unlinked chart review records, with an exception for beneficiaries who switch between MA organizations from one year to the next. CMS also finalized separate normalization factors for MA-PD plans and PDPs, calculated using the multiple linear regression methodology, and listed the final values as 1.109 for MA-PD plans and 1.005 for PDPs. CMS stated that it is finalizing separate normalization factors for PDPs and MA-PD plans as proposed, without an adjustment for demographic or other differences between the sectors.

MA & PART D: STAR RATINGS

CMS stated that the CY 2027 Rate Announcement includes the list of eligible disasters for adjustment, non-substantive measure specification updates, and the list of measures included in the Part C and D improvement measures and the Categorical Adjustment Index for the 2027 Star Ratings.

The final Rate Announcement also includes detailed content on 2027 Star Ratings. CMS stated that four new or updated measures are being added beginning with the 2027 Star Ratings: Colorectal Cancer Screening; Care for Older Adults – Functional Status Assessment; Concurrent Use of Opioids and Benzodiazepines; and Polypharmacy: Use of Multiple Anticholinergic Medications in Older Adults.

CMS also stated that three measures are being removed beginning with the 2027 Star Ratings: Care for Older Adults – Pain Assessment; Medication Reconciliation Post-Discharge; and Medication Therapy Management Program Completion Rate for Comprehensive Medication Review. CMS further stated that the respecified Colorectal Cancer Screening measure is being treated as a new measure and that Care for Older Adults – Functional Status Assessment is returning to the Star Ratings after a substantive specification change and is likewise being treated as a new measure.

In addition, CMS stated that the updated Statin Therapy for Patients with Cardiovascular Disease measure will be removed from the Star Ratings and remain on the display page. CMS also stated that the Medication Therapy Management Program Completion Rate for Comprehensive Medication Review measure will remain on the display page for measurement years 2025 and 2026 before returning to the Star Ratings as a new measure beginning with the 2029 Star Ratings.

CMS further stated that, beginning with the 2027 Star Ratings, it will use data from Part C reporting requirements to confirm the completeness of the Independent Review Entity data used in the two appeals measures and will apply scaled reductions if data integrity issues are identified. CMS also stated that, beginning with the 2027 Star Ratings, it will change the method for calculating the Categorical Adjustment Index when there is a contract consolidation. Finally, CMS stated that Table VI-1 no longer includes measures that had been considered for the Excellent Health Outcomes for All reward because CMS will not implement that reward and will instead retain the historical reward factor.

On April 3, 2026, the White House released its fiscal year 2027 (FY 27) budget request for the Department of Health and Human Services (HHS) and the HHS budget in brief. The budget requests $111.1 billion in discretionary budget authority for HHS for 2027, a $15.8 billion, or 12.5 percent decrease, from the 2026 enacted level. This memo focuses on discretionary budget authority rather than program-level funding to distinguish between the president’s request and mandatory funding sources.

The next step in the budget process is for Congress to consider the request. This will involve HHS Secretary Kennedy coming to Congress to testify before the House and Senate Appropriations Committees as well as committees with jurisdiction over health care policy, such as the House Energy and Commerce Committee, the House Ways and Means Committee, the House Education and Workforce Committee, the Senate Finance Committee, and the Senate Committee on Health, Education, Labor, and Pensions. Congress had significant difficulty passing FY 26 appropriations bills. We foresee similar problems in passing FY 27 funding as well.

OVERVIEW

Like the president’s FY 26 budget request, this budget request calls for a reorganization of HHS by establishing the Administration for a Healthy America (AHA). This new agency would combine the General Departmental Management (GDM), Office of the Assistant Secretary for Health (OASH), the Health Resources and Services Administration (HRSA), the Substance Abuse and Mental Health Services Administration (SAMHSA), and several centers and programs from the Centers for Disease Control and Prevention (CDC). The administration argues that the creation of this new agency will help prioritize programs to improve nutrition and food and drug quality and safety, prevent chronic disease, and save approximately $5 billion.

The budget request calls for reductions in discretionary budget authority for the following agencies: the Administration for Children, Families, and Communities (ACFC) (-$6.8 billion), the Administration for Strategic Preparedness and Response (ASPR) (-$365 million), Advanced Research Projects Agency for Health (ARPA-H) (-$555 million), the Food and Drug Administration (FDA) (-$48 million), the CDC (-$484 million), the National Institutes of Health (NIH) (-$3.4 billion), and the Office of Inspector General (OIG) (-$20 million).

In contrast, the administration calls for an increase in funding for the Centers for Medicare and Medicaid Services (CMS) program integrity measures (+$35 million) and for the Indian Health Services (IHS) (+$1.1 billion). Please see the table below, which provides an agency-by-agency comparison of the FY 27 budget request compared to the FY 26 budget request, along with links to relevant congressional justification documents.

[1] The President’s FY 26 budget requested $14,058,000,000, which was not enacted.

[2] The proposed budget includes a net increase of $232 million, which is due to an increase in user fees, not the total discretionary budget authority.

[3] As of April 6, the NIH has yet to publish its congressional justification document, but this link goes to the NIH Office of Budget.

ADMINISTRATION FOR A HEALTHY AMERICA (AHA)

The AHA is a proposed new agency that would combine GDM, OASH, HRSA, SAMHSA, and several CDC centers and programs. The organization would include the following components: Primary Care, Maternal and Child Health, Mental and Behavioral Health, HIV/AIDS, Health Workforce, Policy, and Research and Oversight, which includes the Surgeon General. The budget request eliminates several existing programs within each agency that would be incorporated into the AHA. These include the following:

From HRSA: Healthy Start, Early Hearing Detection and Intervention, Emergency Medical Services for Children, Ryan White Part F, Ryan White Special Projects of National Significance, Rural Hospital Flexibility Grants, State Offices of Rural Health, Rural Hospital Stabilization, Rural Hospital Provider Assistance Program, Family Planning, Congressionally directed spending projects, and 14 workforce programs, including some nursing workforce programs and Medical Student Education.

From CDC: All Chronic Disease Prevention and Health Promotion activities except for Cancer Prevention and Control programs and Alzheimer’s Disease, and the following Injury Prevention and Control programs: Youth Violence Prevention, Adverse Childhood Experiences, Firearm Injury and Mortality Prevention Research, Elderly Falls, Drowning, Other Injury Prevention Activities, and Injury Control Research Centers.

From SAMHSA: Mental Health Awareness Training; Healthy Transitions; Infant and Early Childhood Mental Health; Mental Health Children and Family Programs; Consumer and Family Network Grants; Mental Health System Transformation; 5cProject LAUNCH; Primary and Behavioral Health Care Integration Programs; Mental Health Crisis Response Partnership Program; Homelessness Prevention; Mental Health Criminal and Juvenile Justice Programs; Assertive Community Treatment for Individuals with Serious Mental Health Illness; Homelessness Technical Assistance; Minority AIDS; Seclusion and Restraint; Minority Fellowship Program; Tribal Behavioral Health Grants; Interagency Task Force on Trauma-Informed Care; Eating Disorder Identification, Treatment, and Recovery; Children and Family Programs; Strategic Prevention Framework; Sober Truth on Preventing Underage Drinking; Drug Abuse Warning Network, and Congressionally-directed spending projects.

From GDM and OASH: Office of Population Affairs, Teen Pregnancy Prevention, Secretary’s Minority HIV/AIDS Fund, Kidney X, Stillbirth Task Force, and Sexual Risk Avoidance.

The budget also includes investments across AHA to align with Secretary Kennedy’s Make America Healthy Again Initiative. These include:

• $316 million for rural-focused grant programs and technical assistance, including $145 million for the Rural Communities Opioid Response Program
• $19 million for the Prevention Innovation Program for Tribal Communities to support tribes, tribal organizations, and urban Indian health organizations
• $20 million for the Chronic Care Telehealth Centers for Excellence Program and $8 million for the Telehealth Nutrition Services Network Grant Program
• $6.8 billion in discretionary funding to provide substance abuse prevention, treatment, and recovery services, as well as support for mental health services
• $4.6 billion for a new Behavioral Health Innovation Block Grant, which consolidates the Community Mental Health Services Block Grant, Substance Use Prevention, Treatment, and Recovery Services Block Grant, and the State Opioid Response program
• $80 million for the Behavioral Health and Substance Disorder Resources for Native Americans Grant Program
• $788 million in discretionary funding for health workforce programs focused on strengthening the workforce in rural and underserved areas and supporting behavioral health training, including $130 million in discretionary funding for the National Health Service Corps
• $923 million in discretionary funding for maternal and child health programs formerly managed by HRSA

ADMINISTRATION FOR CHILDREN, FAMILIES, AND COMMUNITIES (ACFC)

The FY 27 budget request recommends combining the Administration for Children and Families (ACF) and the Administration for Community Living (ACL) into one agency: the ACFC. The FY 27 budget request calls for the elimination of the following programs: Community Services Block Grant programs, Chronic Disease Self-Management Education, Senior Medicare Patrol Program, University Centers for Excellence in Developmental Disabilities, Developmental Disabilities Projects of National Significance, Limb Loss Resource Center, the Paralysis Resource Center, Area Agencies on Aging, the National Center for Benefits Outreach Enrollment, and the White House Conference on Aging. It includes the following funding for programs administered through ACFC:

• $54 million to support tribal elders through nutrition and caregiver support programs formerly administered by the ACL
• $414 million for the Home and Community-Based Supportive Services program
• $55 million for the State Health Insurance Assistance Program

ADMINISTRATION FOR STRATEGIC PREPAREDNESS AND RESPONSE (ASPR)

The FY 27 budget request for ASPR aims to streamline and simplify federal and state funding tools, protect against natural and man-made health threats, and promote domestic manufacturing of critical medicines. The FY 27 budget request provides the following to ASPR:

• $1.8 billion for medical countermeasure research and development through programs administered by the Biomedical Advanced Research and Development Authority (BARDA)
• $327 million, an increase of +$325 million above FY 26, in no-year funding to support procurement, storage, and annual operational costs of the Strategic Active Pharmaceutical Ingredient Reserve
• $1 billion in flat funding for the Strategic National Stockpile

ADVANCED RESEARCH PROJECTS AGENCY FOR HEALTH (ARPA-H)

The FY 27 budget request is organized around five themes: 1) Addressing Chronic Disease; 2) America-Made Manufacturing and Rural Access; 3) Proactive Approaches to Healthy WellBeing; 4) Healthcare Security, Efficiency, and Transparency; and 5) American Leadership in Frontier Health Technologies. Specifically, the FY 27 budget request includes several goals within these categories, including:

• To create the Treating Hereditary Rare Diseases with in Vivo Precision Genetic Medicines (THRIVE) program to develop integrated platform technologies to accelerate precision treatments for diseases at the genetic level
• To transform manufacturing technologies, processes, and business models for domestic medical products and ensure scalable manufacturing for personalized therapies and critical medical supplies
• To continue investing in Artificial Intelligence (AI)/Machine Learning (ML) to track and remediate toxins and AI and longitudinal data approaches to determine root causes of chronic diseases
• To develop biohybrid systems to restore full function to damaged or diseased tissues, real-time identification and visualization of neural circuits, and quantum imaging technologies

CENTERS FOR MEDICARE AND MEDICAID SERVICES (CMS)

Program Integrity

The FY 27 budget request includes a number of requests and initiatives intended to strengthen efforts to ensure program integrity within CMS. These include the following:

• $976 million for the Health Care Fraud and Abuse Control (HCFAC) Program, which includes $740 million for the CMS, $138 million for the U.S. Department of Justice, and $98 million for the HHS OIG
• A planned ramp-up of oversight of Medicaid programs through expanded audits and investigations, and establishing new processes to support law enforcement and recover the overpayment of funds

Program Management

The FY 27 budget request also includes funding for CMS program management, which administers programs such as Medicare and Medicaid. This includes the following:

• $811 million to carry out operational needs and beneficiary rights guaranteed by Original Medicare (Parts A & B)
• $385 million for the National Medicare Education Program
• $112 million for Medicare Parts C & D administrative needs to support rulemaking, information technology systems, and timely appeals
• $155 million for Medicaid and CHIP administrative operations, including $25 million for CMS to explore investing in a scalable and modernized Medicaid system and tools to support state systems with the goal of improving transparency in and access to Medicaid data
• $487 million for the Survey and Certification program to improve oversight frequency of health care facilities
• $21 million for the 340B program, +$8 million above FY 26, to increase oversight of the program. As in the FY 26 budget request, the FY 27 budget request recommends moving the 340B program from HRSA to CMS
• Calls to re-platform Original Medicare claims processing using a commercial claims processing system
• Calls to invest in core digital infrastructure to modernize Medicare.gov, strengthen and validate
• CMS-managed provider identity and directory services, and improve CMS’s internal data processing, security, and information-sharing capabilities

FOOD AND DRUG ADMINISTRATION (FDA)

The FY 27 budget request seeks to advance the Make America Healthy Again (MAHA) agenda by supporting food and medical product safety, strengthening foreign and domestic inspection capacities, reducing tobacco-related harm, and maintaining facilities and infrastructure. The budget proposes the reorganization of the National Center of Toxicology Research to the CDC’s National Center for Chemicals and Toxins. Additionally, the FY 27 includes the following for the FDA:

• $2 million to upgrade centralized process systems with AI/ML capabilities
• $466 million and $632 million for reviews of medical devices and human drugs, respectively
• $9 million to establish the FDA PreCheck Program to strengthen domestic pharmaceutical manufacturing

Although the FY 27 budget request proposes a decrease in discretionary spending, there is a proposed net increase in total FDA spending due to higher user fees, which support product reviews and regulatory oversight.

CENTERS FOR DISEASE CONTROL AND PREVENTION (CDC)

The budget request for FY 27 aims to refocus CDC on its core mission and foundational capacities, including data, surveillance, laboratory science, and global preparedness. The budget includes flexibility to move funding between CDC accounts through the Secretary’s transfer authority. The reasoning for this is to allow the CDC to address emerging issues or emergencies. The budget prioritizes funding for the Infection and Prevention Control Initiative and the Healthy and Safe Food Initiative.

• $1 billion to establish the National Center for Chemicals and Toxins
• $107 million (+$33 million) for the Health and Safe Food Initiative
• $219 million (+22 million) for the Infection Prevention Control Initiative
• $45 million to support an innovative biothreat detection system
• $260 million for a Public Health Infrastructure and Capacity grant to address gaps in core public health capacity and infrastructure at the state, tribal, territorial, and local levels
• $963 million for the discretionary immunization and respiratory diseases program

The budget also includes two legislative proposals: 1) to authorize CDC to set data reporting requirements to public health entities to improve capacity to detect and respond to public health threats, monitor and evaluate distribution of medical countermeasures and critical supplies, and connect communities with resources and services; and 2) to allow non-competitive conversion of fellows to employees to retain a highly skilled workforce.

HHS OFFICE OF THE INSPECTOR GENERAL (OIG)

The HHS OIG is currently focused on large-scale financial recoveries and addressing vulnerabilities in Medicaid and Medicare. The budget request proposes a 3% decrease for HHS-OIG from FY 26, reflecting a government-wide Inspector General budget reduction. The FY 27 budget request includes the following:

• $84 million in discretionary funding for Public Health and Human Services Oversight
• $98 million in discretionary funding for Health Care Fraud and Abuse Control

INDIAN HEALTH SERVICE (IHS)

In the FY 27 budget request, the administration aims to strengthen its commitment to improving tribal health and well-being through strategic investment. Specifically, the FY 27 budget request calls for the following at IHS:

• $5.5 billion for direct health care services
• $84 million to fund staffing and operating costs for 5 newly constructed health care facilities
• $287 million to continue the transition to a new electronic health record system
• $191 million to construct facilities on the IHS Healthcare Facilities Construction Priority List
• $538 million for maintenance and improvement, medical equipment, and Facilities and Environmental Health Support programs

NATIONAL INSTITUTES OF HEALTH

The budget request for FY 27 focuses on 2 research priorities: ending the chronic disease epidemic and understanding the biomarkers for aging and disease. The budget proposes to consolidate the National Institute of Drug Abuse and the National Institute on Alcohol Abuse and Alcoholism into the National Institute of Substance Use and Addiction Research. The budget also proposes the elimination of the following:

• National Center for Complementary and Integrative Health
• Fogarty International Center
• National Institute on Minority Health and Health Disparities

The budget will continue the 15% cap on indirect costs. Budget priorities are laid out below:

• $60 million in integrative chronic disease research
• $25 million to advance the understanding of causal biomarkers of aging and disease
• $60 million to scale and further operationalize the Real-World Data Platform
• $515 million in the Office of the Director’s Common Fund to support new program concepts related to cutting-edge research to cure diseases