Insights^

On July 31, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Fiscal Year 2026 Skilled Nursing Facility Prospective Payment System (SNF PPS) Final Rule. A fact sheet from CMS can be found here.  The final rule takes effect on October 1, 2025.

UPDATES TO SNF PAYMENT RATES

As part of the rule, CMS will update SNF rates by 3.2%.  This update is based on a final SNF market basket of 3.3%, increased by a 0.6% market basket forecast error adjustment, and reduced by a 0.7% productivity adjustment.  The rule is projected to increase SNF payments by $1.16 billion compared to payments in FY25.

A forecasting error occurs when the projected SNF market basket increase differs from the actual increase, with CMS applying an adjustment if the difference exceeds 0.5%. For FY24, the SNF market basket was projected at 3.0% but increased by 3.6%, triggering a 0.6% forecast error adjustment. CMS attributes this error to underestimating the impact of higher-than-expected labor cost growth, particularly in wages and benefits for SNF staff, which drove the actual market basket increase above projections.

The FY26 final rule’s net market basket update of 3.2% is 0.4% higher than the 2.8% update in the proposed rule. Specifically, the market basket update rose from 3.0% to 3.3% (due to updated forecasts using more recent cost/claims data through the first quarter of 2025 and reflecting ongoing price pressures), while the productivity adjustment decreased from 0.8% to 0.7% based on revised projections of lower economic growth.

SNF QUALITY REPORTING PROGRAM (QRP)

CMS finalized amendments to the SNF QRP reconsideration policy for FY26, allowing SNFs to request extensions for filing reconsideration requests due to extraordinary circumstances. Requests must be submitted via email within 30 days of noncompliance notification, including the SNF’s CCN, business details, contact information, reason for delay, and supporting evidence like photos or media reports. For this change, CMS estimates an incremental administrative burden of 51 hours annually across 202 requests at $2,391.90.

For FY27, CMS finalized the removal of four SDOH standardized patient assessment data elements from the Minimum Data Set (MDS), effective for residents admitted on or after October 1, 2025. The removed items consist of one living situation element (R0310), two food elements (R0320A and R0320B), and one utilities element (R0330). This change reduces the SNF annual reporting burden by 31,791.20 hours and $2,228,563.12 in costs across 15,253 SNFs, based on a $70.10 hourly composite wage rate for RNs and LPNs.

CMS received varied feedback on future QRP enhancements through three RFIs, including measure concepts for delirium, interoperability, nutrition, and well-being. On a potential delirium measure, supporters noted its value for care, but opponents raised concerns over underreporting, feasibility, and added burden for rural SNFs. For shortening data submission deadlines to 45 days post-quarter, some commenters worried about error rates and advocated for 60 days or phased implementation with technical support. Regarding digital quality measurement via FHIR, stakeholders urged a minimum 12-month transition, voluntary pilots, grants for IT adoption, and safeguards for facilities with limited connectivity. Input generally stressed stakeholder engagement to minimize disparities and administrative load.

SNF VALUE-BASED PURCHASING (VBP) PROGRAM

CMS finalized the scoring methodology for the SNF Within-Stay Potentially Preventable Readmission (WS PPR) measure beginning FY28, replacing the Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM) and using a hierarchical logistic regression model for risk adjustment. The measure assesses readmissions during SNF stays with a 2-year data period to enhance reportability for lowvolume SNFs. Codified at §§ 413.338(e)(1) and (e)(3), it aims to improve performance evaluation accuracy. Commenters supported adoption but raised concerns for low-volume rural SNFs, citing their historically better performance. Suggestions to avoid score inversion for clarity and add bonuses for Tribal facilities were not adopted. This adjustment encourages SNFs to focus on preventing readmissions mid-stay, which could lower overall healthcare expenditures and enhance care continuity.

CMS finalized performance standards for FY28 measures, including SNF HAI (achievement threshold 0.92183, benchmark 0.94491), Total Nurse Staffing Hours (3.29119, 5.87448), Total Nursing Staff Turnover, Falls with Major Injury (Long-Stay), Hospitalizations per 1,000 Long-Stay Resident Days, and DC Function, with minor differences from proposed values. For FY29, standards cover DTC PAC SNF (0.43478, 0.68049) and SNF WS PPR (0.86219, 0.92400). Standards follow the FY17 methodology, with other FY29 measure estimates slated for the FY27 proposed rule. No baseline or performance periods were specified. No specific feedback was provided on these standards. Establishing these thresholds helps facilities prioritize specific metrics to boost their VBP scores and secure better payment adjustments.

CMS finalized the elimination of the Health Equity Adjustment (HEA) bonus points from SNF VBP scoring. Adopted in FY24, the HEA awarded extra points to SNFs serving at least 20% dual-eligible residents while excelling in quality measures like preventing readmissions or reducing falls. It was created to address health disparities, encouraging SNFs to prioritize quality for low-income patients who often face worse outcomes. As part of the HEA, the VBP payback percentage (the portion of the 2% withhold returned as incentives based on performance scores) was adjusted. By raising this payback from 60% to ~66%, the HEA would have redistributed an additional $50–60 million annually in bonuses without cutting other SNF payments.  This would have supported facilities in underserved areas without penalizing others in the program. CMS had previously projected ~15% of SNFs (~2,250 facilities) would have qualified for the enhanced HEA bonus payments.

ICD-10 MAPPING

The ICD-10 mapping in the SNF PPS refers to the system used under the Patient-Driven Payment Model (PDPM) to assign primary diagnoses from Medicare Part A claims to clinical categories for the physical therapy, occupational therapy, speech-language pathology, and non-therapy ancillary components, determining case-mix adjustments and payment rates, with mappings updated annually to reflect new codes and clinical accuracy.

In the FY26 final rule, CMS finalized technical revisions to these PDPM ICD-10 code mappings effective October 1, 2025, through September 30, 2026, specifically changing assignments for 34 new ICD10 codes effective October 1, 2024: 33 codes (covering conditions like Type 1 diabetes mellitus, hypoglycemia, obesity, anorexia nervosa, bulimia nervosa, binge eating disorder, pica, and rumination disorder) were reassigned to the “Return to Provider” category to prevent their use as primary diagnoses for SNF stays, while one code (G90.81 for serotonin syndrome) was shifted from “Acute Neurologic” to “Medical Management.”

According to CMS, these shifts ensure mappings align with current clinical guidelines and coding practices, reducing inappropriate categorizations that could affect reimbursement. No updates were made to Hierarchical Condition Category versions for the SNF Value-Based Purchasing Program or the Within-Stay Potentially Preventable Readmission measure.

REQUESTS FOR INFORMATION (RFIS)

As part of the final rule, CMS does not issue any new requests for information (RFIs).  However, it references a standalone RFI on streamlining regulations and reducing administrative burdens, issued separately on January 31, 2025, in response to Executive Order (EO) 14192.  To that end, the final rule encourages interested stakeholders to submit feedback on that matter by September 15, 2025.

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On July 31, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Fiscal Year 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) Final Rule. A fact sheet from CMS can be found here. The final rule takes effect on October 1, 2025.

UPDATES TO IPPS PAYMENT RATES

As part of the final rule, CMS finalized a 2.8% increase in payment rates for FY26 under the IPPS for acute care hospitals that meet the Hospital Inpatient Quality Reporting Program and meaningful EHR use requirements, effective for discharges on or after October 1, 2025. This update reflects a projected FY26 hospital market basket increase of 3.3%, reduced by a 0.5% productivity adjustment. The final rule also sets a fixed loss threshold for outlier payments at $43,663 (slightly lower than the FY25 threshold of $46,217) to maintain outlier payments at 5.1% of total IPPS payments. Total IPPS payments are projected to increase by approximately $4 billion, including $1.5 billion in uncompensated care payments to disproportionate share hospitals.

Compared to the proposed rule’s 2.4% payment rate increase (based on a 3.2% market basket increase minus a 0.8% productivity adjustment), the final rule’s 2.8% update reflects a higher market basket projection of 3.3% and a lower productivity adjustment of 0.5%, incorporating more recent 2024 data. The fixed loss outlier threshold decreased from the proposed $44,305 to $43,663, driven by updated cost and charge data. The $4 billion total payment increase aligns with the proposed rule’s estimate, but the uncompensated care payment rise reflects a refined projection of an 8.5% uninsured rate for CY26

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.

Both programs are set to expire at the end of FY25 (September 30, 2025). In the FY26 final rule, CMS notes that if Congress does not extend the Medicare-Dependent Hospital (MDH) program, approximately 150-160 hospitals will lose their MDH payment adjustment. Similarly, failure to renew the low-volume hospital payment adjustment would cause around 600 hospitals to miss out on additional payments in FY26. The combined loss in funding would total approximately $500 million in FY26. At this stage, we anticipate Congress will extend both programs as part of “extenders” legislation addressing expired or soon-to-expire healthcare policies (as Congress has done on a bipartisan basis for both the MDH and low-volume add-ons for several years now). However, there will be some uncertainty around this given the partisan dynamics of the appropriations process and the fact that lawmakers are likely to enact at least one (if not more) continuing resolutions before full-year FY26 appropriations legislation (to which extenders would likely be attached) will be enacted into law.

DISCONTINUATION OF THE LOW-WAGE INDEX HOSPITAL POLICY

The low wage index hospital policy was established in the FY20 IPPS final rule as a temporary, budgetneutral initiative to address wage index disparities, which benefited rural hospitals by raising their wage indices to mitigate lower payment impacts. 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.

For FY26, CMS finalized the discontinuation of the low wage index hospital policy. To cushion the abrupt payment reductions for affected low-wage hospitals, CMS adopted a budget-neutral narrow transitional payment exception specifically for FY26 IPPS calculations. This exception replicates the interim transitional policy from the FY25 interim final rule with comment period (i.e., if the hospital’s FY26 wage index is decreasing by more than 9.75% from the hospital’s FY24 wage index, then the transitional payment exception for FY26 for that hospital is equal to the additional FY26 amount the hospital would be paid under the IPPS if its FY26 wage index were equal to 90.25% of its FY24 wage index).

UPDATE TO THE IPPS LABOR-RELATED SHARE

In the IPPS final rule, CMS finalized a reduction in the labor-related share from 67.6% to 66.6% for hospitals with a wage index greater than 1.0 and from 62% to 60.9% for those with a wage index of 1.0 or less, based on a rebased and revised 2023-based IPPS market basket. This adjustment aligns payments more closely with updated labor cost data. Still, it reduces the portion of payments adjusted by the wage index, likely lowering reimbursements for hospitals in high-wage areas.

HOSPITAL INPATIENT QUALITY REPORTING (IQR) PROGRAM

CMS finalized modifications to several existing measures in the Hospital IQR Program:

• For the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke Hospitalization (MORT-30-STK) measure, changes include incorporating Medicare Advantage patients, shortening the performance period to two years (July 1, 2023–June 30, 2025), transitioning to ICD-10 risk adjustment, and removing COVID-19 exclusions, effective for FY27 payment determinations
• The Hospital-Level, Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (COMP-HIP-KNEE) measure was updated similarly with Medicare Advantage inclusion, a two-year performance period (April 1, 2023–March 31, 2025), ICD10 risk adjustment, and COVID-19 exclusion removal, also effective FY27.
• For the Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures, submission thresholds were lowered to 70% for core clinical data elements and linking variables, allowing up to two missing lab results or vital signs, effective for FY28 payment determinations (July 1, 2025–June 30, 2026).

CMS also finalized the elimination of multiple measures from the Hospital IQR Program. The Hospital Commitment to Health Equity (HCHE), COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP), Screening for Social Drivers of Health, and Screen Positive Rate for Social Drivers of Health measures were removed effective for the CY24 reporting period and FY26 payment determination.

As part of the final rule, CMS finalized enhancements to the Extraordinary Circumstances Exception (ECE) policy in the Hospital IQR Program to provide greater flexibility and reduce penalties during disruptions. The ECE request submission deadline was extended from 90 to 180 days, and partial exceptions for individual measures were allowed rather than requiring all-or-nothing requests, effective immediately upon f inal rule publication. Hospitals can now receive ECEs for up to three consecutive years, with exceptions due to public health emergencies and data submission delays. The post-event request deadline was extended to 60 days, and full cost reporting period exceptions were permitted for widespread impacts.

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

As part of the final rule, CMS made several modifications to the Medicare Promoting Interoperability Program:

• CMS finalized the definition of the EHR reporting period for CY26 and subsequent years as a minimum of any continuous 180-day period within the calendar year for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program. This change, codified at 42 CFR 495.4, provides greater flexibility in selecting reporting windows to accommodate operational needs. It maintains consistency with CY25 requirements while supporting EHR vendors in certification processes.
• CMS modified the Security Risk Analysis measure to require eligible hospitals and CAHs to attest “Yes” to both conducting a security risk analysis and performing security risk management activities, in accordance with 45 CFR 164.308(a)(1)(ii)(A) and (B), starting with the EHR reporting period in CY26. This includes addressing the security of data created or maintained by CEHRT, such as encryption under 45 CFR 164.312(a)(2)(iv) and 164.306(d)(3). Attesting “No” to either component results in failing the measure and potential downward payment adjustments. The update enhances cybersecurity practices without adding economic impacts beyond existing requirements.
• CMS updated the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure, mandating eligible hospitals and CAHs to attest “Yes” to completing an annual self-assessment using all eight 2025 SAFER Guides at any point during the calendar year, effective for the EHR reporting period in CY26 and beyond. The 2025 Guides are streamlined to address high-risk issues through technology or practice changes, focusing on foundational, infrastructure, and clinical processes. No specific implementation status is required, and the change does not increase burden estimates. This promotes proactive EHR safety assessments to mitigate common vulnerabilities.
• CMS introduced an optional bonus measure under the Public Health and Clinical Data Exchange objective, allowing eligible hospitals and CAHs to earn five bonus points for exchanging health information with a public health agency using the Trusted Exchange Framework and Common Agreement (TEFCA), beginning with the EHR reporting period in CY26. Requirements include being a signatory to a Framework Agreement, not suspended, submitting data consistent with exchange measures, achieving active engagement under Option 2, and using CEHRT functions. No exclusions were proposed, and attestation is voluntary with no additional burden for those already using TEFCA. This incentivizes advanced interoperability while accommodating varying hospital capabilities.

Separately, CMS reflected on the comments it received in response to three requests for information (RFIs) relating to potential future policy changes regarding the interoperability program:

• Commenters supported transitioning the Query of PDMP measure to a performance-based format for better accountability in tracking queries and preventing opioid misuse and expanding the measure to include additional drug types. However, opponents highlighted increased administrative burdens, especially for rural hospitals, along with concerns over privacy, legal barriers, data accuracy, and interoperability issues with state PDMP systems. Suggestions included phased implementation, technical assistance, EHR integration, federal funding, and pilot testing to ensure smoother adoption.
• Many commenters endorsed moving the Medicare Promoting Interoperability Program’s objectives and measures toward performance-based reporting to align with value-based care, reduce administrative burdens, and provide real-time metrics that benefit low-volume hospitals. Opponents raised issues about heightened reporting complexity, resource strains on smaller practices, data reliability, and potential unfair penalties due to readiness disparities. Recommendations focused on phased rollouts, technical support, risk adjustments, clear thresholds, and pilot testing.
• Stakeholders advocated for improvements in health information exchange quality and completeness through standardized APIs, real-time data sharing, and updated standards like USCDI Version 3 and FHIR, which would enhance care coordination, public health reporting, and address technology disparities. Concerns centered on implementation costs, data security/privacy risks, survey fatigue, and the immaturity of certain standards. Suggestions included provider education, incentives for early adopters, robust security measures, phased approaches, and the collection of disaggregated data.

HOSPITAL READMISSIONS REDUCTION PROGRAM

In the final rule, CMS finalized updates to the Hospital Readmissions Reduction Program by modifying all six condition-specific readmission measures (AMI, HF, PN, COPD, THA/TKA, CABG) to include Medicare Advantage (MA) beneficiaries in performance calculations starting FY27, using a shortened twoyear applicable period (July 1, 2023–June 30, 2025), while removing COVID-19 diagnosis exclusions and updating risk adjustment to individual ICD-10 codes. Due to concerns about data reliability from commenters, CMS did not finalize including MA data in aggregate payment calculations for excess readmissions. The rule extends the Extraordinary Circumstances Exception (ECE) submission deadline from 30 to 60 days, allowing CMS discretion to grant extensions or exceptions proactively for systemic issues.

HOSPITAL ACQUIRED CONDITION (HAC) REDUCTION PROGRAM

For FY26, CMS will maintain the 1% payment reduction for hospitals in the worst-performing quartile based on measures including CMS PSI 90 and CDC NHSN HAI indicators such as CAUTI, CLABSI, SSI, MRSA Bacteremia, and CDI. The rule updates the Extraordinary Circumstances Exception (ECE) policy by extending the submission deadline from 30 to 60 days after public comments, allowing CMS to grant extensions or ECEs proactively for systemic issues, and clarifying notification processes. It also provides notice of rebasing NHSN HAI measures using CY22 data (effective for FY28 program year scoring with CY24-25 performance periods) and removes COVID-19 diagnosis exclusions from PSI 90 and other measures starting FY27. Scoring methodology remains unchanged, with equal weighting of domains and public reporting on Hospital Compare.

HOSPITAL VALUE-BASED PURCHASING (VBP) PROGRAM

CMS finalized modifications to several retained measures in the Hospital VBP Program:

• The Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA/TKA (COMPHIP-KNEE) was updated to include Medicare Advantage beneficiaries, shorten the performance period to two years (April 1, 2023–March 31, 2025), transition to ICD-10 risk adjustment, and remove COVID-19 exclusions, effective for the FY33 program year.
• Similarly, the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke (MORT-30-STK) incorporated Medicare Advantage patients aged 65+, reduced the performance period to two years (July 1, 2023–June 30, 2025), updated risk adjustment to ICD-10 codes, and eliminated COVID-19 exclusions, starting FY27.
• For the Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures, submission thresholds for core clinical data elements and linking variables were lowered to 70%, allowing up to two missing lab values or vital signs, effective FY28 with performance periods from July 1, 2025–June 30, 2026.

CMS eliminated several measures from the Hospital VBP Program:

• The Health Equity Adjustment (HEA) was removed effective FY26 to simplify scoring, as its impact on payment adjustments was minimal (0.168% vs. 0.170%).
• The Health Equity Adjustment (HEA) was removed effective FY26 to simplify scoring, as its impact on payment adjustments was minimal (0.168% vs. 0.170%).
• The Medicare Spending Per Beneficiary (MSPB) Hospital measure and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA/TKA were eliminated effective FY28 to minimize overlap and address low case volumes with limited scoring impact.

TRANSFORMING EPISODE ACCOUNTABILITY MODEL (TEAM)

In the FY26 IPPS final rule, CMS finalized multiple updates to the Transforming Episode Accountability Model (TEAM), effective January 1, 2026, for five-episode categories (CABG, THA/TKA, spinal fusion, major bowel procedure, acute myocardial infarction), including:

• To support hospital participation, CMS introduced a limited deferment period for certain hospitals, excluded Indian Health Service hospitals, and eliminated downside financial risk for low-volume hospitals with fewer than 31 episodes.
• For quality and performance measurement, CMS added the Information Transfer Patient Reported Outcome-based Performance Measure, assigned neutral scores for participants with insufficient quality data, and removed health equity plans and social needs data reporting, alongside eliminating the Decarbonization and Resilience Initiative to streamline reporting.
• Risk adjustment and pricing were refined by adopting a 180-day lookback period with HCC version 28, replacing the Area Deprivation Index with the Community Deprivation Index, reconstructing normalization trend factors, and establishing a methodology for target pricing during coding changes.
• The SNF 3-day rule waiver was broadened to allow TEAM participants to bypass the 3-day inpatient hospital stay requirement for SNF admissions across all episode categories, modifying the primary care services referral requirement, and aligning episode attribution date ranges.

REQUESTS FOR INFORMATION (RFIS)

As part of the final rule, CMS includes an RFI on streamlining regulations and reducing administrative burdens for those participating in the Medicare program (a response to Executive Order (EO) 14192). To that end, CMS encourages interested stakeholders to submit feedback on that matter by September 15, 2025.

On July 31, 2025, the Senate Health, Education, Labor, and Pension (HELP) Committee held a hearing titled making health care affordable to lower costs and empower patients. Members of the committee heard testimony regarding the impact of health care costs on patient care. There was bipartisan agreement that the cost of health care is too high and there must be a solution to lower the costs.

OPENING STATEMENTS

• Chairman Bill Cassidy (R-LA)

WITNESS TESTIMONY

• Ms. Chris Deacon, Principal and Founder at VerSan Consulting – Testimony
• Dr. Benedic Ippolito, Senior Fellow at American Enterprise Institute – Testimony
• Dr. Brian Miller, Associate Professor of Medicine, Practicing Hospital Medicine Physician – Testimony
• Mr. Wendell Potter, Center for Health and Democracy – Testimony
• Dr. Adam Gaffney, Assistant Professor of Medicine at Harvard Medical School – Testimony

MEMBER DISCUSSION

Health Care Transparency

Chairman Bill Cassidy (R-LA) opened the discussion by asking how price transparency could reduce the cost of care. Ms. Deacon explained that while employers pay premiums on behalf of employees, they often lack the ability to control hospital costs. Transparency would allow insurers and patients to compare prices, identify the best deals, and better understand what is being paid for.

Sen. John Hickenlooper (D-CO) highlighted the importance of maintaining broad health coverage, noting that Medicare and Medicaid remain major revenue sources for providers. He characterized transparency as a central issue and inquired whether future legislation could expand it. Ms. Deacon expressed strong support, emphasizing that giving patients access to clear “price tags” could be transformative.

Sen. Roger Marshall (R-KS) further advocated for the concept, referencing his bipartisan Patients Deserve Price Tag Act with Sen. Hickenlooper, and asked how greater transparency could influence consumer decisions and overall health care costs. Ms. Deacon responded that patients would evaluate both cost and value when making choices. She added that if all members had access to this information, it would drive down costs and potentially lower insurance premiums.

Other witnesses echoed support for greater transparency. Dr. Miller stated that withholding price information is unethical, and Dr. Ippolito agreed that transparency would assist in making informed decisions. Mr. Potter added that transparency would be broadly helpful, while Dr. Gaffney cautioned that transparency alone would not prevent some individuals from becoming uninsured.

PBM Reform

Sen. Marshall raised concerns about pharmacy benefit managers (PBMs), referencing his bill to delink PBM’s and noting that PBMs often create formularies that can prevent patients from accessing generic drugs, emphasizing the importance of legislative oversight. Mr. Potter added that PBMs “suck so much money from the pharmacy supply chain,” highlighting their significant financial impact. Sen. Marshall then asked what value PBMs provide to patients. Dr. Miller explained that PBMs primarily serve as the constructor of formularies.

Sen. Andy Kim (D-NJ) shifted the discussion to retrospective reviews, asking Dr. Miller to elaborate. Miller responded that while the Federal Trade Commission (FTC) previously blocked some hospital mergers, PBM mergers were approved under the assumption that they would lower drug prices. In retrospect, Dr. Miller argued, this analysis was flawed, as PBM consolidation has not delivered the expected price reductions.

340B Drug Pricing Program

Sen. Jon Husted (R-OH) raised concerns about the effectiveness of the 340B drug pricing program, stating, that “340B is not working,” and asked for recommendations to improve it. Dr. Ippolito explained that the program’s original goal is to help hospitals afford care for vulnerable populations. He suggested that tying 340B subsidies more directly to patient care could better align the program with its intended purpose.

On July 15, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Calendar Year 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Proposed Rule. The CMS press release can be found here. A fact sheet from CMS can be found here. The 60-day comment period under the Administrative Procedure Act (APA) for the CY26 PFS proposed rule ends on September 15, 2025.

UPDATES TO OPPS & ASC PAYMENT RATES

As part of the rule, CMS proposes updating both OPPS and ASC payment rates for hospitals that meet applicable quality reporting requirements by 2.4%. This update is based on the projected hospital market basket increase of 3.2%, reduced by a -0.8% productivity adjustment.

Notably, CMS has opted to once again extend the use of the hospital market basket for setting ASC rates. In 2019, CMS initiated a five-year “test” of calculating the ASC conversion factor update using the hospital market basket instead of the CPI-U, with the intention of assessing whether this change would prompt a further migration of procedures from the hospital setting to ASCs. That test was initially set to run through CY23, but CMS has since opted to extend it on two occasions (most recently, in this proposed rule) through CY26, due to pandemic-era anomalies in volume that created difficulties in assessing the effect of the shift. Though CPI-U has been running higher than the hospital market basket in recent years (due to the pandemic and the higher-than-usual rates of inflation), the continued use of the hospital market basket would be a positive for ASCs over the long term, given that it has historically been higher than CPI-U (i.e., if/when inflation cools, using CPI-U would be a negative for ASCs relative to the updates experienced during this test).

PROSPECTIVE ADJUSTMENT TO PAYMENTS FOR NON-DRUG ITEMS AND SERVICES

During President Trump’s first term, beginning in CY18, CMS implemented a -28.5% cut to payments for most drugs purchased through the 340B Program and paid under OPPS, lowering the reimbursement amounts from average sales price (ASP) plus 6% to ASP minus 22.5%. The payment reduction was budgetneutral, meaning that savings from the 340B reductions were used to increase payments on other items and services paid under OPPS. Hospitals challenged this policy in federal court and prevailed before the Supreme Court. In 2023, CMS announced it would recoup those increased payments through a -0.5% annual reduction in the OPPS conversion factor beginning in CY26 and running through CY41 (totaling ~$7.8 billion in overpayment recoupments).

As part of the CY26 proposed rule, CMS has announced that it intends to accelerate the recoupment process, implementing a -2% reduction to the OPPS conversion factor through CY31. In practice, for OPPS only, this adjustment would result in an effective payment update for CY26 that is closer to 0.9%. There are, however, outstanding legal questions as to whether the recoupment is allowable on a retroactive basis.

MEDICARE OPPS DRUGS ACQUISITION COST SURVEY

As noted above, in CY18, the Trump administration instituted cuts to Medicare Part B payments for drugs acquired under the 340B program. Those, however, were deemed unlawful by the Supreme Court in the 2022 case American Hospital Association v. Becerra. The court’s decision, reversing a D.C. Circuit ruling that had upheld the cuts, centered on CMS exceeding its statutory authority under 42 U.S.C. §1395l(t)(14) (A)(iii), which outlines two reimbursement methodologies: one permitting rate variation by hospital group only if HHS conducts a survey of hospitals’ average acquisition costs, and a default method requiring uniform ASP-based rates without such variation if no survey is performed. Since HHS did not conduct the requisite acquisition cost survey, the agency lacked the authority to impose differential rates on 340B providers.

As part of the CY26 OPPS proposed rule – and in response to President Trump’s April 2025 drug pricing executive order (EO) – CMS has announced it intends to conduct a comprehensive survey by early calendar year 2026 to collect data on hospital acquisition costs for each separately payable drug acquired by all hospitals paid under the OPPS, with the results aimed at informing policymaking and potential payment rate adjustments beginning with the CY27 OPPS/ASC proposed rule. Although it is not stated in the proposed rule, this effort is likely an attempt by CMS to revisit 340B payment adjustments in a manner compliant with statutory requirements and prior court rulings.

SITE-NEUTRAL PAYMENTS FOR DRUG ADMINISTRATION

The Bipartisan Budget Act of 2015 established the existing site-neutral policies in effect today, aiming to eliminate payment differentials based on the site of service for certain outpatient services. That law stipulated that new off-campus outpatient departments would be paid lower PFS rates for certain services. However, many facilities were exempted from that law (i.e., ASCs, on-campus outpatient departments, off-campus departments that existed before November 2015). Because of these exemptions, the trend has been for hospitals to create new on-campus outpatient departments, purchase pre-2015 off-campus outpatient departments when they want to expand, or build or buy ASCs.

Congress has repeatedly failed to enact broader site-neutral payment reforms beyond the BBA of 2015, often due to opposition from hospital groups concerned about reduced access in underserved areas and the unique costs of hospital-based care. In recent years, bipartisan efforts have included proposals to expand site-neutrality to additional services, such as diagnostic imaging, ambulatory surgery, and drug administration, as well as eliminating grandfathering for existing off-campus PBDs and applying these policies to on-campus facilities. Most recently, as part of the recently enacted One Big Beautiful Bill Act (OBBBA) in 2025, Republican lawmakers debated incorporating comprehensive site-neutral provisions (i.e., eliminating grandfathering, applying site-neutral payments to on-campus departments). The House ultimately passed a proposal to apply site-neutral payments only in the context of drug administration, but that provision was stripped from the bill during Senate consideration.

In the CY26 OPPS proposed rule, CMS proposes to expand site-neutral payments specifically to drug administration services furnished in excepted off-campus outpatient departments, applying a PFSequivalent rate (approximately 40% of the OPPS rate) for services in APCs 5691 through 5694, which include 61 HCPCS codes such as those for chemotherapy infusions and injections. Exceptions include rural sole community hospitals, which will continue to receive 107.1% of OPPS rates for these services, as well as on-campus and non-excepted off-campus locations that are already subject to PFS rates. The agency estimates that this change would yield $280 million in federal savings for CY26, comprising $210 million in reduced Medicare expenditures and $70 million in lower beneficiary copayments.

INPATIENT-ONLY LIST (IPO) & ASC COVERED PROCEDURES LIST (CPL)

The IPO List, established in 2000 under the OPPS, comprises ~1,731 procedures that Medicare reimburses solely when performed in an inpatient setting due to their invasiveness, the need for extended postoperative recovery, and/or patient health risks. For CY26, CMS proposes a three-year phased elimination of the IPO list, entirely removing it by 2029, beginning with the removal of 285 procedures – primarily musculoskeletal services such as hip and knee revisions, osteotomies, amputations, and spinal fusions, along with 16 non-musculoskeletal procedures like cardiovascular interventions, lymphatic excisions, and digestive system repairs.

Relatedly, the ASC CPL outlines surgical procedures and ancillary services eligible for Medicare payment in ASCs – typically HCPCS codes for Category I and III CPT, Level II HCPCS, and items like brachytherapy sources, implantable devices, drugs, and radiology services that are separately payable under OPPS, not on the IPO list, and not unlisted or excluded under regulatory criteria emphasizing safety and minimal risk. For CY26, CMS proposes adding 276 surgery-like codes not currently on the IPO list and an additional 271 codes proposed for IPO removal, expanding the CPL to include spinal procedures (i.e., disc arthroplasty like 0095T and vertebral tethering like 0656T), orthopedic interventions (i.e., hip/knee revisions and osteotomies), general surgery (i.e., amputations like 20816 and tumor resections like 23200), and specialties such as cardiovascular, gynecological, and endovascular.

In practice, these proposals would encourage the migration of procedures to the outpatient setting, potentially lowering Medicare expenditures, reducing beneficiary copayments, and alleviating pressure on hospital inpatient capacity. However, as evidenced in recent years, such adjustments to the IPO and CPL are subject to administrative shifts and thus cannot be presumed to be permanent (i.e., during his f irst term, Trump pursued similar policy changes regarding the IPO and CPL, but those were rescinded through regulation by the Biden administration, with CMS citing safety concerns).

SKIN SUBSTITUTES

Currently, under the OPPS and ASC payment systems, skin substitute products are treated as surgical supplies and are bundled into the payment for the associated wound care procedures, such as application codes 15271-15278 for high-cost groups and C5271-C5278 for low-cost groups. This results in no separate reimbursement for the skin substitutes themselves unless a product has transitional passthrough payment status or qualifies under the Average Sales Price (ASP) + 6% methodology for certain biologicals with pass-through or non-pass-through status. According to CMS, a potential problem with this high-cost/low-cost construct is that it can incentivize manufacturers to set arbitrarily high launch prices to qualify for the more favorable high-cost group reimbursement, and providers may develop a bias toward products falling into that group.

For CY 2026, CMS proposes to unpackage skin substitutes from procedures and pay them separately as incident-to supplies in OPPS and ASCs (excluding Biologics License Application products, which continue under ASP rules). Under this proposal, CMS would group such products into three new Ambulatory Payment Classifications (APCs) based on FDA regulatory pathways – APC 6000 for Premarket Approval (PMA) products, APC 6001 for 510(k) or De Novo cleared items, and APC 6002 for 361 Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) – with new codes (QXXX1-QXXX3) for reporting.

The codes would receive an initial uniform payment rate of $125.38 per unit across all groups, derived from the highest volume-weighted ASP or Manufacturer’s Unadjusted Charge (MUC), updated annually (with fallbacks to Wholesale Acquisition Cost (WAC) or 89.6% of Average Wholesale Price (AWP) if ASP data is unavailable).

INTENSIVE OUTPATIENT PROGRAM (IOP) & PARTIAL HOSPITALIZATION PROGRAM (PHP)

IOPs are structured behavioral health treatment services designed for individuals with acute mental health disorders that provide at least nine hours of therapeutic services per week without requiring overnight stays or inpatient admission. These programs serve as an intermediate level of care between standard outpatient therapy and partial hospitalization. PHPs, in contrast, are intensive outpatient psychiatric services serving as an alternative to inpatient hospitalization for individuals with acute mental illnesses or substance use disorders, requiring at least 20 hours per week of structured therapeutic interventions such as group therapy, individual counseling, occupational therapy, and medication management.

For CY26, CMS proposes to maintain payment rates for hospital-based IOPs ($340.90 for three-service days (APC 5861) and $424.60 for four or more service days (APC 5862)). For Community Mental Health Center-based (CMHC) IOPs, CMS proposes applying a 40% PFS relativity adjuster to hospital rates to resolve cost inversions and stabilize payments, resulting in $136.36 for three-service days (APC 5851) and $169.84 for four or more service days (APC 5852). For CMHC-based PHPs, CMS proposes applying a 40% PFS relativity adjuster to hospital rates to address cost inversions and stabilize payments. This adjustment would result in APC 5853 being reimbursed at $136.36 for three or more service days and APC 5854 at $169.84 for four or more days.

HOSPITAL PRICE TRANSPARENCY

As part of the CY26 rule, CMS proposes a variety of changes to hospital price transparency requirements, including:

• Replacing the affirmation with an attestation in the machine-readable file (MRF) stating that all standard charge information is true, accurate, and complete, encoded with the name of the CEO or senior official, effective December 31, 2025.
• Offering a 35% reduction in civil monetary penalties (CMPs) for hospitals waiving an Administrative Law Judge hearing within 30 days, excluding core violations like failing to post the MRF or shoppable services list, with payment due within 60 days.
• Adding definitions for the 10th percentile, median (50th percentile), and 90th percentile allowed amounts based on historical reimbursements from electronic remittance advice (ERA) data over a lookback period of up to 12 months.
• Requiring disclosure of the 10th percentile, median, and 90th percentile allowed amounts, plus the count of allowed amounts, for percentage- or algorithm-based charges using EDI 835 ERA data, including info to derive dollar amounts.
• Mandating the encoding of the organizational (Type 2) National Provider Identifier (NPI) in the MRF using taxonomy codes starting with ‘28’ or ‘27’ to enhance data comparability.

HOSPITAL QUALITY STAR RATING PROGRAM

CMS proposes updates to the Hospital Quality Star Rating methodology to address concerns that some hospitals can achieve high star ratings despite their poor performance in the Safety of Care measure group. The changes would add a final adjustment step after initial rating calculation (applying only to hospitals with at least three Safety of Care measures) and would be implemented in two stages.

•  Stage 1 (CY 2026): Hospitals in the lowest quartile of Safety of Care performance that would otherwise receive five stars will be capped at four stars, preventing top ratings for those with subpar safety.
• Stage 2 (beginning CY 2027, replacing Stage 1): Hospitals in the lowest quartile of Safety of Care will receive a blanket 1-star reduction, broadly penalizing poor safety across all rating levels.

HOSPITAL OUTPATIENT QUALITY REPORTING (OQR) PROGRAM

CMS proposes the following changes to the OQR Program:

• Adding the Emergency Care Access & Timeliness eCQM, with voluntary reporting in CY 2027 and mandatory starting in CY 2028 (for CY 2030 payment determination).
• Adding the Information Transfer PRO-PM, with voluntary reporting in CY 2027 and CY 2028, and mandatory starting in CY 2029 (for CY 2031 payment determination).
• Modifying the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic CT in Adults eCQM to voluntary reporting beginning in CY 2027 (for CY 2029 payment determination).
• Removing several measures, including COVID-19 Vaccination Coverage Among Healthcare Personnel (effective CY 2024 reporting/CY 2026 payment); Hospital Commitment to Health Equity (effective CY 2025 reporting/CY 2027 payment); Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health (effective CY 2025 reporting); and Median Time from ED Arrival to ED Departure for Discharged ED Patients plus Left Without Being Seen (effective CY 2028 reporting/CY 2030 payment, contingent on Emergency Care Access & Timeliness eCQM adoption).

AMBULATORY SURGICAL CENTER QUALITY REPORTING (ASCQR) PROGRAM

CMS proposes the following changes to the ASCQR Program:

• Adding the Patient Understanding of Key Information Related to Recovery After a Facility-Based Outpatient Procedure or Surgery, Patient Reported Outcome-Based Performance Measure (Information Transfer PRO-PM), with voluntary reporting in CY 2027 and CY 2028, and mandatory starting in CY 2029 (for CY 2031 payment determination); ASCs must use the Hospital Quality Reporting (HQR) system for PRO-PM data submission.
• Removing several measures, including COVID-19 Vaccination Coverage Among Healthcare Personnel (effective CY 2024 reporting/CY 2026 payment); Facility Commitment to Health Equity (effective CY 2025 reporting/CY 2027 payment); Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health (both effective CY 2025 reporting).

REQUESTS FOR INFORMATION (RFIS)

As part of the proposal, CMS issued several RFIs, seeking stakeholder feedback on issues including:

• Ways to streamline Medicare regulations to reduce provider burdens and align those regulations with Executive Order 14192 (“Unleashing Prosperity Through Deregulation”)
• Whether CMS should expand its site-neutral policies to include on-campus outpatient departments
• Whether well-being and nutrition measures should be integrated into the OQR and ASCQR Programs

On July 14, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) Proposed Rule. The CMS press release can be found here. A fact sheet from CMS can be found here. The 60-day comment period ends on September 12, 2025.

CONVERSION FACTOR

As part of the rule, CMS proposes implementing two separate conversion factors (CFs). For Alternative Payment Model (APM) participants, known as Qualifying Participants (QPs), the aggregate conversion factor is set at $33.59, a 3.83% increase ($1.24) from the CY25 CF of $32.35. For non-qualifying participants (non-QPs), the aggregate proposed CF is $33.42, reflecting a 3.62% increase ($1.17) from the previous year. A summary of the various components of those aggregate payment updates is below

• The primary reason for the bifurcation of the CFs is the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, which reformed Medicare physician payments by replacing the outdated Sustainable Growth Rate (SGR) formula with the Quality Payment Program (QPP). Under MACRA, starting in CY26, a statutory update of 0.75% is provided for QPs (that meet thresholds for significant participation in Advanced APMs that emphasize quality and cost accountability) and 0.25% for nonQPs. This differential aims to incentivize clinicians to shift toward value-based care delivery models.
• In addition to the MACRA updates, the proposed rule includes a one-year increase of 2.50% applicable to both QPs and non-QPs, as included in the recently enacted One Big Beautiful Bill Act (OBBBA). Enacted to address concerns over physician payment adequacy, the OBBBA’s 2.50% adjustment helps offset inflation and other economic factors while Congress considers longer-term/systemic reforms to the PFS (which were considered during the development of the OBBBA but were ultimately dropped from the bill due to a combination of cost concerns and a lack of broad Republican consensus).
• Finally, the CF updates account for shifts in relative value units (RVUs), which are used to determine payment rates based on the resources required for services. CMS proposes an estimated 0.55% adjustment to accommodate two broad-based changes in work and practice expense (PE) RVUs. As discussed below in greater detail, the RVU modifications proposed by CMS as part of the CY26 rule will (if finalized) have the practical effect of somewhat offsetting (in some instances, substantially) the positive CF update for certain specialties/services, particularly those delivered in the facility setting.

EFFICIENCY ADJUSTMENT

As noted above, CMS is proposing broad-based adjustments to RVUs as part of the CY26 rule. The first, described as an efficiency adjustment, would have the practical effect of reducing the work component of the aggregate RVU calculations. The work RVU quantifies the physician’s professional effort in providing a service, encompassing factors such as time, technical skill, physical effort, mental effort and judgment, and psychological stress due to potential risks to the patient. It constitutes approximately 51% of the total RVUs for a service, alongside practice expense (PE) and malpractice RVUs.

As part of the proposed rule, CMS notes that it has long depended on survey data from the American Medical Association’s Relative Value Scale Update Committee (AMA-RUC) to determine work RVUs. However, the agency raises concerns over the limited number of codes that undergo annual reevaluation and highlights third-party research suggesting time assumptions in many PFS valuations are significantly overstated.

The efficiency adjustment involves a broad-based -2.5% reduction applied to the intraservice physician time component of the work RVUs. The -2.5% is calculated as the sum of the Medicare Economic Index (MEI) productivity adjustments from the prior five years (CY21 through CY25). In the view of CMS, the use of MEI – which measures economy-wide productivity gains and is used here to proxy efficiency improvements in medical practices – for calculating broad-based work RVU adjustments provides a more accurate picture of shifts in efficiency as compared to “low-response rate” and “conflicted” industry surveys. Notably, the adjustment does not apply to time-based codes, such as evaluation and management (E/M) services, care management services, behavioral health services, services on the telehealth list, and specific maternity codes.

Specialties most directly impacted by this proposal include interventional radiology (-1% cut to work RVUs), neurosurgery (-1%), nuclear medicine (-1%), pathology (-1%), plastic surgery (-1%), radiation oncology (-1%), and thoracic surgery (-1%).

PRACTICE EXPENSE

As part of the CY26 proposed rule, CMS intends to pursue a second broad-based adjustment to the RVUs, this time targeting the PE RVU. The PE RVU quantifies the non-physician costs associated with providing a medical service, including clinical staff time, supplies, equipment, and indirect expenses like office rent and administrative overhead.

According to CMS, the PE RVU adjustment is necessary to address distortions in payment allocation resulting from evolving site-of-service trends and to promote payment stability amid healthcare consolidation. As noted by CMS, in recent years, there has been a significant shift in physician practices from independent, non-facility settings to hospital-based or facility settings, with private practice ownership decreasing from 72% to 35.4% over the past three decades. This consolidation into larger health systems means that many physicians no longer bear the full indirect costs in facility settings, where hospitals often cover these expenses, distorting payment incentives and contributing to higher Medicare expenditures without reflecting actual resource use.

The mechanics of the PE RVU shift involve adjusting the indirect PE allocation methodology by reducing the facility indirect PE to half of the non-facility indirect PE for applicable services, calculated using a revised formula that scales down the indirect PE allocator for facility settings based on work RVUs or clinical labor inputs. This adjustment applies broadly to PFS services, excluding those without dual settings and those with specific exemptions, such as certain radiation oncology codes (which instead use Outpatient Prospective Payment System (OPPS) relative weights for PE valuation).

Specialties most directly impacted by this proposal include cardiac surgery (-3% cut to aggregate PE RVUs), colon/rectal surgery (-2%), critical care (-5%), emergency medicine (-3%), gastroenterology (-3%), infectious disease (-7%), neurosurgery (-4%), plastic surgery (-3%), and thoracic surgery (-3%). Facility-based PE RVU cuts are, in some instances, much more dramatic (i.e., -10% or higher for many specialties).

SKIN SUBSTITUTES

Skin substitutes are currently reimbursed under the Medicare PFS in non-facility settings as separately payable items using the Average Sales Price (ASP) plus 6% methodology, with each product assigned a unique HCPCS Level II code and manufacturers required to report ASP data quarterly. Synthetic skin substitutes have been paid separately in physician offices since CY 2022, distinct from the application procedure codes (i.e., CPT 15271-15278). In contrast, under the Outpatient Prospective Payment System (OPPS), skin substitutes have been packaged into the payment for application procedures since CY 2014. CMS has significant concerns with the PFS approach, noting the dramatic increase in Medicare Part B spending on skin substitutes from $250 million in CY19 to $10 billion in CY24, while the number of beneficiaries treated has only doubled.

To address concerns about the potential overuse of skin substitute products, CMS proposes reclassifying skin substitutes as “incident-to” supplies rather than treating them as separately payable under the ASP + 6% methodology. In practice, “incident-to” classification means skin substitutes are considered integral but incidental components of the physician’s professional service during wound care. In place of the separate payment, the cost of such products would be “packaged” into the physicians’ PE RVU. Under this new construct, the PE RVU for such procedures would be adjusted to reflect a uniform OPPS-based rate of $125.38 per cm² for skin substitute products for CY26, representing up to a -90% reduction in aggregate per-service costs, yielding a projected $9.4 billion in savings for CY26. In the out-years, CMS intends to trifurcate the payment rates for skin substitute products in a manner consistent with their FDA regulatory status (i.e., resulting in distinct rates for products depending on whether they are approved under the Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/P), Pre-Market Approvals (PMAs), or 510(k) pathways).

Notably, for CY26, CMS is asserting that this change, which, in practice, shifts what was ordinarily a separately payable supply into the PE RVU of the underlying procedure, will not carry broader budget neutrality implications for RVUs or the CF. However, the agency notes that once this change is reflected in the CY26 claims data, there may be potential budget neutrality impacts in CY27 and beyond (i.e., future downward pressure on RVUs and/or the CF more broadly to account for the increase in PE RVUs for skin substitutes).

CHRONIC ILLNESS AND BEHAVIORAL HEALTH G-CODES

As part of the CY25 PFS final rule, CMS finalized three new G-codes for Advanced Primary Care Management (APCM) services. These codes – G0556 for non-complex APCM (requiring at least one serious condition and clinical staff time thresholds), G0557 for complex APCM (involving multiple conditions with significant staff involvement), and G0558 for APCM with direct physician or non-physician practitioner time thresholds – bundle elements from existing Chronic Care Management (CCM), Principal Care Management (PCM), and Communication Technology-Based Services (CTBS) into a single monthly payment structure. The intent was to reduce administrative burdens associated with fragmented billing requirements and increase access to coordinated care for beneficiaries with chronic or high-risk conditions.

In the CY26 PFS proposed rule, CMS is building on that framework by introducing three new add-on G-codes – GPCM1 (initial psychiatric Collaborative Care Model or CoCM, mirroring CPT 99492 for the first month of outreach, assessment, and treatment planning), GPCM2 (subsequent CoCM months, mirroring CPT 99493 for ongoing monitoring and adjustments), and GPCM3 (general Behavioral Health Integration or BHI services, mirroring CPT 99484 for at least 20 minutes of monthly care coordination) – which (if finalized) will be billed monthly alongside the base APCM codes. The intent is to further alleviate documentation burdens by eliminating time-tracking requirements, improve access to behavioral health in primary care environments (especially for underserved populations), and encourage holistic care management without duplicative billing.

While this policy change (if finalized) provides incremental reimbursement for primary care management, in CY27 and beyond, higher-than-anticipated utilization of these add-ons – reflected in CY 2026 claims data – could create downward pressure on PE RVUs for other PFS services or lead to reductions in the CF (as CMS redistributes resources to offset any net spending increases while maintaining aggregate PFS.

TELEHEALTH

CMS is proposing several updates to its PFS telehealth policies for CY26, including:

• CMS plans to streamline additions to the telehealth services list by eliminating the “provisional” versus “permanent” categories and concentrating evaluations only on whether the service can be adequately provided through interactive two-way audio-video technology.
• The agency intends to permanently lift limitations on the frequency of telehealth use for follow-up inpatient visits, subsequent nursing facility encounters, and critical care consultations.
• For procedures needing direct oversight, CMS proposes allowing permanent virtual supervision via real-time interactive audio-video communications (excluding audio-only). This would cover “incidentto” billing, diagnostic testing, pulmonary rehab, and cardiac or intensive cardiac rehab services.
• CMS does not plan to extend the pandemic-era flexibility permitting teaching physicians to supervise residents virtually for billing purposes. Instead, it proposes returning to the original mandate for physical presence during key parts of resident-delivered services in urban Metropolitan Statistical Areas (MSAs), while preserving the exemption for rural areas.

AMBULATORY SPECIALTY MODEL

CMS proposes launching the Ambulatory Specialty Model (ASM) as a mandatory alternative payment model through the Innovation Center (CMMI), targeting beneficiaries with heart failure and low back pain. Starting January 1, 2027 (performance period through 2031, with payments tied from 2029 to 2023), the model holds specialists individually accountable through a two-sided risk payment adjustment on Medicare Part B fees, ranging roughly between –9% and +9% in the first payment year. Performance is evaluated across four domains: quality (e.g., BP control, functional improvement), cost reduction, careimprovement activities (like patient engagement and social needs screening), and interoperability via certified EHRs. Specialists must treat at least 20 Medicare patients per condition annually and operate within selected Core-Based Statistical Areas (CBSA).

QUALITY PAYMENT PROGRAM

CMS proposes several refinements to the Quality Payment Program (QPP), including maintaining the Merit-based Incentive Payment System (MIPS) performance threshold at 75 points for the 2028-2030 payment years, adding five new quality measures (i.e., transplant waitlist ratios) while removing 10 others (i.e., social drivers of health), and introducing six new Value Pathways (MVPs) for specialties like diagnostic radiology and podiatry.

MEDICARE SHARED SAVINGS PROGRAM (MSSP)

The CY26 PFS proposed rule includes several updates to the MSSP, including:

• Limiting participation in the BASIC track’s one-sided risk level to a maximum of five performance years (down from seven), requiring ACOs to transition more quickly to two-sided risk models
• Renaming the health equity adjustment to “population adjustment” and removing it from scoring.
• Updating the APM Performance Pathway Plus measure set, including removing the social determinants of health screening measure and expanding CAHPS survey modes to web-mail-phone in 2027.
• Extending Extreme and Uncontrollable Circumstances (EUC) protections to include cybersecurity events for quality and financial evaluations from performance year 2025 onward.

REQUESTS FOR INFORMATION

As part of the proposed rule, CMS issued several Requests for Information (RFIs), seeking stakeholder feedback on issues including:

• Ways to streamline Medicare regulations to reduce provider burdens and align those regulations with Executive Order 14192 (“Unleashing Prosperity Through Deregulation”)
• How to enhance payment accuracy for global surgical packages
• How to handle cost-sharing for APCM services, and whether waiving or adjusting cost-sharing requirements for APCM services could enhance access and utilization
• Whether and how to standardize “core elements” within the MVP reporting requirements
• How to integrate Prescription Drug Monitoring Program (PDMP) data into Medicare workflows to enhance opioid prescribing safety and reduce misuse
• Input on transitioning to digital quality measurement within the QPP and MSSP
• The timeline for implementing Fast Healthcare Interoperability Resources (FHIR)
• Whether and how CMS can enhance its support for prevention and management of chronic disease through new “well-being” and “nutrition” service lines or quality metrics