April 2026 in review: FY2027 IPPS proposal, MA rates rise, M&A rebounds

CMS proposed a 2.4% inpatient update and a mandatory joint replacement bundle, finalized a larger MA increase, and Kaufman Hall tallied a busy first quarter for deals.

April is rulemaking season, and this year it brought a modest inpatient update, a significant new mandatory payment model and a much better Medicare Advantage outcome for plans than January’s proposal suggested.

FY 2027 IPPS proposed rule: 2.4% and a nationwide joint bundle

CMS released the FY 2027 inpatient and long-term care hospital proposed rule on April 10. The headline update is a net 2.4%, a 3.2% market basket increase minus a 0.8% productivity adjustment. AHA estimated total hospital payments would rise about $1.9 billion, while disproportionate share and uncompensated care payments would fall. Comments are due June 9.

The bigger strategic item is CJR-X, which would turn the Comprehensive Care for Joint Replacement model into a mandatory, nationwide bundle beginning Oct. 1, 2027, covering hip, knee and ankle replacements in inpatient and outpatient settings. AHA supports value-based models but urged CMS to phase in participation or make it voluntary. CMS also proposed quality program changes, including adding Medicare Advantage patients to five mortality measures starting in FY 2028.

• Finance: A 2.4% update trails the expense growth most systems reported for 2025.
• Orthopedics: Hospitals have about 18 months to prepare episode management, post-acute partnerships and physician alignment.
• Wage index: CMS proposed ending the low-wage index policy, with a budget-neutral transition, while keeping the 5% cap on annual decreases.
• Technology and outpatient sites: CMS would drop alternative pathways for new technology add-on payments starting in FY 2028 and narrow one pathway for provider-based status to outpatient departments.

Medicare Advantage: 2.48% instead of 0.09%

On April 6, CMS finalized a 2.48% average increase in 2027 MA payments, more than $13 billion over 2026, compared with the 0.09% it proposed in January. Much of the difference came from CMS keeping an older risk adjustment model calibration rather than adopting the proposed update. CMS did finalize excluding diagnoses from unlinked chart reviews. Better plan economics do not guarantee better provider terms, but they weaken the case for steep rate demands in 2027 negotiations.

Hospital M&A posts its strongest first quarter since 2020

Kaufman Hall counted 22 announced hospital transactions in the first quarter, representing $14.5 billion in transacted revenue. Divestitures made up 68% of deals, and only 18% involved financially distressed sellers, which suggests systems are reshaping portfolios by choice rather than under duress. The firm also noted soft early-2026 volumes and continued payer mix pressure.

Sources

• FY 2027 IPPS and LTCH PPS Proposed Rule fact sheet (CMS)
• CMS issues hospital IPPS proposed rule for FY 2027 (AHA)
• CMS finalizes Medicare Advantage rates for CY 2027 (AHA)
• Hospital and health system M&A activity ramps up in Q1 (Kaufman Hall)
• CMS Releases Fiscal Year 2027 IPPS and LTCH Proposed Rule (Holland & Knight)