EDITOR’S NOTE:
To view the full proposed rule or submit a comment, visit https://www.regulations.gov and search for CMS-1833-P.
The fiscal year (FY) 2026 Inpatient Prospective Payment System (IPPS) Proposed Rule outlines several updates to the Centers for Medicare & Medicaid Services (CMS) hospital quality programs including the Hospital-Acquired Condition (HAC) Reduction Program, Hospital Readmissions Reduction Program (HRRP), and Hospital Value-Based Purchasing (VBP) Program.
These proposed modifications, set to take effect as early as FY 2026 and in some cases extending through FY 2033, signal continued efforts by CMS to modernize quality measurement, reflect post-pandemic realities, and ensure programs evolve alongside changes in healthcare delivery.
Below is a summary of the most critical changes across the three programs.
The HAC Reduction Program, which adjusts payments for the worst-performing quartile of hospitals on hospital-acquired conditions, will undergo technical updates in FY 2026.
Financial Impact: CMS estimates no fiscal impact from these HAC program changes for FY 2027 or beyond, as the updates are primarily technical.
HRRP aims to reduce preventable hospital readmissions by penalizing hospitals with excess readmissions for select conditions. The proposed rule outlines five notable updates:
Financial Impact: CMS anticipates no net financial impact as a result of these changes but recognizes operational and reporting adjustments will be required.
The VBP Program links a portion of hospital reimbursement to performance across four domains: clinical outcomes, safety, patient experience, and efficiency.
Financial Impact: The VBP Program is budget-neutral by statute. For FY 2026, CMS expects to redistribute approximately $1.7 billion in value-based incentive payments.
While these proposed changes are largely administrative or technical in nature, they are significant in terms of data collection, analytics, and quality reporting infrastructure. The inclusion of Medicare Advantage data in HRRP, the removal of COVID-19 exclusions across programs, and the sunset of the Health Equity Adjustment in VBP all reflect the CMS pivot back to pre-pandemic measurement systems while still allowing for flexibility in times of crisis via the codified ECE policy.
The FY 2026 IPPS Proposed Rule reinforces CMS’s broader goals of aligning quality, cost, and outcomes under a unified data-driven framework.
As CMS moves to finalize these updates, hospital leaders, quality teams, and clinical documentation professionals should take a close look at their performance in each of these programs and prepare to respond.
Programming note:
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