Last Friday, the Centers for Medicare & Medicaid Services (CMS) officially launched the health policy community into reg season, releasing in one fell swoop all the fiscal year (FY) 2026 Medicare proposed regulations for different provider types: hospices, inpatient psychiatric facilities, inpatient rehabilitation facilities, skilled nursing facilities (SNFs), and, most notably, hospitals (inpatient services). With respect to hospitals, my colleague Leigh Feldman and I provided a preview a few weeks ago of what could be included in the FY 2026 Medicare Inpatient Prospective Payment system (IPPS) proposed reg, and we are back to report on whether our predictions came to fruition.
It turns out we were right about everything! Well, no, we aren’t that good at predicting the unknown – but, all joking aside, the FY 2026 IPPS proposed reg did wind up including a lot of what we expected, with one notable exception. We had raised the possibility that CMS might propose new conditions of participation (CoPs) related to gender-affirming care, but that proposal was not included in the proposed reg. However, as we predicted, there were proposals related to the Transforming Episode Accountability Model (TEAM), the wage-index calculation, and quality measures included in various inpatient quality reporting programs. CMS also released a separate request for information (RFI) on deregulation, asking for comments from the public on ways to streamline regulations and reduce administrative burdens across the Medicare program. Comments on the reg are due on June 10, 2025.
Here is an overview of some of the major topics in the FY 2026 IPPS proposed reg:
TEAM
Going into the reg, one major question was whether CMS would keep TEAM, the mandatory five-year episode-based payment model, intact. CMS answered that question clearly: yes. The model will start as scheduled on January 1, 2026 – and it will be a mandatory model that requires certain hospitals to participate.
However, CMS did propose several updates to TEAM that, if finalized, would alter some features of the model prior to the start date. Proposed changes include a limited deferment for certain hospitals, addition of a quality measure, neutral scoring on quality for hospitals with insufficient quality data, tweaks to the payment and risk adjustment methodologies, and an expansion of the SNF three-day rule waiver to allow hospitals to discharge beneficiaries to hospital and critical access hospital swing beds. As we anticipated, CMS also proposed to remove the requirement that participating hospitals submit health equity plans and data on health-related social needs, as well as the option to voluntarily report to the Decarbonization and Resilience Initiative.
Despite these proposed tweaks, CMS’s estimate of the model’s savings to the Medicare program – $481 million over the five performance years (2026 through 2030) – remains unchanged.
Quality Reporting Programs
CMS monitors, rewards, and penalizes quality performance in the inpatient setting through several quality incentive programs, including the Hospital Inpatient Quality Reporting Program, Hospital Readmissions Reduction Program, Hospital Value-Based Purchasing Program, Hospital Acquired Condition Reduction Program, Medicare and Medicaid Promoting Interoperability Programs, and Prospective-Payment-System-Exempt Cancer Hospital Quality Reporting Program.
In the IPPS proposed rule, CMS proposes several changes, including shortening performance periods; updating risk adjustment methods; and removing measures related to health equity, social determinants of health, and COVID-19 vaccination. When providing a rationale for its changes to the quality measures, CMS states, “Our priority is a re-focus on measurable clinical outcomes as well as identifying quality measures on topics of prevention and well-being.” We expected CMS to carefully review all the measures and eliminate those that potentially implicated President Trump’s position on diversity, equity, and inclusion (DEI), as expressed in the “Ending Radical and Wasteful Government DEI Programs and Preferencing” executive order (EO). CMS states that the costs associated with the social determinants of health measures outweigh the benefit of their continued use. CMS has heard from “some hospitals that were concerned with the costs and resources” associated with screening patients for social determinates of health “via manual processes, manually storing such data, training hospital staff, and altering workflows for these measures.”
CMS proposed many other technical changes to quality measures to better align the hospital quality programs with its new strategic priorities. To that end, CMS seeks comments regarding measure concepts related to well-being and nutrition for future consideration. Specifically, CMS seeks input on the applicability of tools and constructs that assess for the integration of complementary and integrative health, skill building, and self-care, along with comments on tools and measures that assess optimal nutrition and preventive care.
Request for Information on Deregulation
In line with President Trump’s EO 14192, “Unleashing Prosperity Through Deregulation,” CMS included an RFI in the proposed rule (as well as in all the other fiscal year proposed rules) to solicit input on potential changes to Medicare regulations, with the “goal of reducing the costly private healthcare expenditures required to comply with Federal regulations.”
The RFI acknowledges that healthcare providers face many regulatory requirements that “often result in duplicative efforts and unnecessary administrative burdens.” CMS specifically references CoPs and conditions of coverage, which can “create redundancy with existing state requirements or have no measurable impact on improving the quality of patient care.” The mention of CoPs is notable given our expectation for new CoPs related to gender-affirming care, which were not included in the IPPS reg. How CMS squares its deregulatory priorities with its interest in addressing gender-affirming care through federal rulemaking (see Section 5 of President Trump’s gender-affirming care EO) is something we’ll be watching closely.
The RFI states that “reporting and documentation requirements for quality, value-based purchasing programs, and payment policies can necessitate significant additional administrative resources from providers and duplicate private insurance requirements.” The RFI includes a range of questions that cover three overarching topics:
- Streamlining regulatory requirements.
- Identifying opportunities to reduce the administrative burden of reporting and documentation.
- Identifying duplicative requirements.
Beyond these topics, CMS asks the public to submit any additional recommendations to reduce burden in the Medicare program. Responses to the RFI are to be submitted through a web-based form here, separate from other comments on all the fiscal year proposed rules.
This RFI comes on the heels of a slew of deregulatory actions from the administration that all occurred on April 9, 2025:
- The White House’s Office of Management and Budget (OMB) issued an RFI on deregulation. This RFI asks for suggestions for rules and regulations that can be rescinded, that are unnecessary, unlawful, or unduly burdensome, along with reasons to support their rescission. The RFI follows two EOs: “Unleashing Prosperity Through Deregulation,” which states that the Trump administration will repeal 10 regulations for every new regulation issued, and “Unleashing Lawful Governance and Implementing the President’s Deregulatory Initiative,” which directs agencies to submit to OMB a list of regulations that are not authorized by statute or which impose undue burdens. Comments are due May 12, 2025.
Now there are two open RFIs on deregulation: one that is more general with a shorter-turnaround time, and one that is specific to Medicare that closes on June 10, 2025. This means that stakeholders may be able to use some of their Medicare-related responses to the OMB RFI to help inform their responses to the CMS RFI.
- President Trump issued an EO called “Reducing Anti-Competitive Regulatory Barriers.” This EO directs agencies to identify regulations that create monopolies, impose unnecessary barriers to market entry, or limit competition, and to recommend recission or modification. Agencies must send their findings to the attorney general and the Federal Trade Commission (FTC) within 70 days. The EO also directs the FTC to issue an RFI within 10 days seeking public input on anticompetitive regulations and, within 90 days, to create a list of anticompetitive regulations to be rescinded or modified. The proposed recissions or modifications could be incorporated into the Unified Regulatory Agenda.
- President Trump issued a memo to federal agencies on “directing the repeal of unlawful regulations.” This memo is in follow-up to the February EO “Ensuring Lawful Governance and Implementing the President’s Deregulatory Initiative,” which directed agencies, by mid-April, to identify unlawful and potentially unlawful regulations and begin efforts to repeal them. This memo directs federal agencies to prioritize repealing regulations that do not comply with various US Supreme Court decisions, including Loper Bright. It is notable that the memo directs agencies to take such actions without going through notice and comment where doing so is in line with the “good cause” exception of the Administrative Procedure Act. That effectively means that rules could begin being rescinded, without any public input, as soon as April 19, 2025.
All in all, it is clear that deregulation and removing “unnecessary” regulations quickly is one of the administration’s top priorities.
There is a lot more in the reg, and McDermott+ has drafted a comprehensive summary that is available to our clients. Reach out for more details!
Stakeholders are now reviewing the reg and identifying areas for potential comments. McDermott+ has developed an interactive dashboard that shows total Medicare fee-for-service volume and the average cost per inpatient stay by Medicare Severity-Diagnosis Related Group (MS-DRG), as calculated by CMS for the 2026 IPPS proposed rule. This information can be used to see trends in inpatient volume and payments and identify the resource costs to hospitals for providing care for individual MS-DRGs. Reach out to us for more details!
Until next week, this is Jeffrey (and Leigh) saying, enjoy reading regs with your eggs.
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