Hospitals criticize proposed 2027 federal payments for inpatient care

With hospitals facing more financial headwinds, health systems aren’t exactly cheering the federal government’s 2027 payment proposal for inpatient care.

The Centers for Medicare & Medicaid Services released their proposed rule to update the 2027 Inpatient Prospective Payment System late last week.

Overall, the proposal would offer an additional $1.9 billion to hospitals for inpatient care in the 2027 fiscal year, compared to the current year.

The CMS is proposing a 2.4% net increase in Medicare payments for the 2027 fiscal year. That reflects a 3.2% increase in the hospital market basket percentage, reflecting changes in prices for healthcare goods and services, and a productivity cut of 0.8%.

Hospitals have been dealing with higher costs and are seeing more uninsured and underinsured patients. So while the government is proposing a bump in Medicare payments for inpatient care, health systems say it is insufficient.

Ashley Thompson, senior vice president of public policy analysis and development for the American Hospital Association, said that the CMS “has proposed another inadequate update to inpatient payment rates.”

Hospitals say the proposal is lacking because it comes even as the federal government itself is projecting a rise in the number of uninsured patients in the 2027 fiscal year. The government forecasts the uninsured rate rising from 8.7% in 2026 to 9.1% in 2027.

Still, the government is proposing a $564 million decrease in funding for Medicare Disproportionate Share Hospitals and uncompensated care payments.

Charlene MacDonald, president and CEO of the Federation of American Hospitals, which represents the nation’s for-profit hospitals, said the government’s proposal falls short, given the rising costs health systems are seeing.

“Patients depend on hospitals being there when they need care, and that requires payment policies that keep pace with the real cost of delivering care,” MacDonald said in a statement. “CMS’s proposed update is a step in the right direction, but it does not negate the compounding effects of rising inflation, record levels of uncompensated care and a growing uninsured population.”

The government is also planning to move forward with its shift to value-based models for paying for some joint procedures, as it aims to continue its move away from simply paying for services.

Under the proposed rule, nearly all of the nation’s hospitals would be moving into a value-based model for hip, knee and ankle joint replacements beginning Oct. 1, 2027. Hospitals would be held accountable for quality and costs for procedures, inpatient stays and a period of 90 days following discharge. The CMS has dubbed the program the Comprehensive Care for Joint Replacement (CJR) Model.

The government says that the new model will lead to lower costs for patients while maintaining high standards of care, and encourage hospitals to help patients navigate the recovery process. The CMS tested a pilot program from 2016 through 2024.

Dr. Mehmet Oz, the CMS administrator, said the program can succeed on a wider basis.

“This proposed expansion of our successful joint replacement pilot program would better align financial incentives with improved health outcomes—protecting taxpayer dollars while ensuring patients get the care they need before, during, and after surgery,” Oz said in a news release.

Hospitals bristled at the government requiring hospitals to participate in the new reimbursement model for joint procedures.

“We believe that mandatory participation presents significant challenges, particularly for hospitals that lack the scale or financial capacity to make the necessary investments in care redesign,” Thompson said. “A phased or voluntary approach would better support success, allowing organizations to build the infrastructure and partnerships needed to achieve shared savings and improved outcomes.”

Likewise, MacDonald also spoke out against the CMS approach.

“The continued use of mandatory models further destabilizes the system by interfering with clinical decision-making, failing to reflect how care is delivered across providers, and limiting providers’ ability to determine the best course of care for each patient,” she said in a statement.

Hospitals have been facing more margin pressures as they deal with higher costs for drugs and other supplies, rising labor expenses, and more outstanding debt from patients who are uninsured or underinsured.

The CMS is accepting comments on the proposed 2027 rule through June 9, 2026.