FY 2027 IPPS final rule: payment update and MS-DRG changes
CMS published the FY 2027 inpatient prospective payment system (IPPS) and LTCH PPS final rule (CMS-1849-F) in the Federal Register on August 4, 2026, effective October 1, 2026. It sets Medicare inpatient payment for discharges from that date.
Written by Salman Saeed, CEO and Co-Founder · Reviewed by a Certified Medical Coder · 
In short: the FY 2027 IPPS final rule (CMS-1849-F, 91 FR 49570) is effective October 1, 2026. It sets a 2.3 percent applicable percentage increase for hospitals that report quality data and are meaningful EHR users, and it creates new MS-DRGs for pacemaker, hip and knee revision and spinal fusion cases.
What did CMS publish, and when does it apply?
The Federal Register published the final rule on August 4, 2026 at 91 FR 49570. It is the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and Long-Term Care Hospital Prospective Payment System FY 2027 rates rule (CMS-1849-F and CMS-0062-F, RINs 0938-AV79 and 0938-AV44).
The regulations are effective October 1, 2026. That date starts the 2027 federal fiscal year, so the rates and DRG logic apply to discharges on or after October 1, 2026. How the MS-DRG system sets payment is on the MS-DRGs rule page and in how MS-DRGs set inpatient payment.
What changed for billing in FY 2027?
| Change | What the rule says | Applies from |
|---|---|---|
| Payment update | The applicable percentage increase is 2.3 percent for hospitals that submit quality data and are meaningful EHR users: a 3.2 percent market basket increase less a 0.9 percentage point productivity adjustment. | October 1, 2026 |
| Cardiac pacemaker revision | MS-DRGs 258 to 262 are deleted. New MS-DRG 210 (Cardiac Pacemaker Revision or Device Replacement with MCC) and MS-DRG 211 (without MCC) replace them. | October 1, 2026 |
| Hip and knee revision | MS-DRGs 466, 467, 468, 485, 486 and 487 are deleted. New base MS-DRG 449 is titled Revision of Hip or Knee Prosthesis. | October 1, 2026 |
| Spinal fusion | New MS-DRGs 523, 524 and 525 take extensive spinal fusion cases, and cases using two named fusion devices, from the existing fusion MS-DRGs. | October 1, 2026 |
| Uterine and adnexa malignancy | MS-DRGs 736 to 741 are deleted. New MS-DRGs 731, 732 and 733 split uterine and adnexa procedures for malignancy by MCC, CC and neither. | October 1, 2026 |
| Other circulatory O.R. procedures | Base MS-DRG 264 is deleted and its 1,447 procedure codes move to new MS-DRG 361 (with MCC) and MS-DRG 362 (without MCC). | October 1, 2026 |
| Bundled joint replacement | The CJR-X model expands nationally and is mandatory for acute care hospitals except those in TEAM and in Maryland. TEAM policies are also updated. | CJR-X: January 1, 2028 |
Who does this affect?
Acute care hospitals paid under the IPPS, long-term care hospitals under the LTCH PPS, and the inpatient coding and clinical documentation teams that assign MS-DRGs. Emergency department groups bill professional claims under the fee schedule and are not paid under the IPPS.
Cardiology, orthopedic, spine and gynecologic oncology cases are the ones that regroup. The rule also adopts the Advance Care Planning eCQM in the inpatient quality reporting and Promoting Interoperability programs.
What should billing teams do now?
- Update your grouper and charge capture to the FY 2027 logic before billing discharges dated October 1, 2026 or later.
- Run last year's pacemaker revision, hip and knee revision, spinal fusion, uterine malignancy and circulatory O.R. cases through the new logic to see where they land and how the weights compare.
- Use the corrected rates and tables from the September 29, 2026 correction, described in CMS corrects the FY 2027 IPPS final rule, not the August 4 figures.
- Apply the replaced device credit policy to the new MS-DRGs 210, 211 and 449, which join that list.
- Assign owners for the quality measure changes and, if you perform joint replacements, for the CJR-X start on January 1, 2028.
What is still open?
The rule is final, so there is no comment period. The first correction followed on September 29, 2026. CJR-X starts January 1, 2028.
Related reading: the hospital revenue cycle guide, the two-midnight rule and the three-day payment window. Hospital and facility billing covers how Nucleus Align handles UB-04 inpatient claims.
We check every rule, code and deadline against the official source. See our editorial policy.
Common questions
Straight answers from the team that does the work.
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01What is the FY 2027 IPPS payment update?
The applicable percentage increase is 2.3 percent for hospitals that submit quality data and are meaningful EHR users. It comes from a 3.2 percent market basket increase reduced by a 0.9 percentage point productivity adjustment. Hospitals that fail the reporting or EHR requirements receive a smaller update.
02When does the FY 2027 IPPS final rule take effect?
The Federal Register published it on August 4, 2026 at 91 FR 49570. The regulations are effective October 1, 2026, so the new rates and MS-DRG logic apply to inpatient discharges on or after that date. A correction was published on September 29, 2026.
03Which MS-DRGs are new or deleted for FY 2027?
CMS creates MS-DRGs 210, 211, 449, 523 to 525, 731 to 733, 361 and 362. It deletes MS-DRGs 258 to 262, 466 to 468, 485 to 487, 736 to 741 and base MS-DRG 264. Cases move to the new groups based on their procedure codes.
04What is CJR-X in the FY 2027 IPPS rule?
CJR-X is the expansion of the Comprehensive Care for Joint Replacement model, starting January 1, 2028. It covers lower extremity joint replacement, holds hospitals accountable for spending and quality for 90 days after discharge, and is mandatory for acute care hospitals except TEAM participants and Maryland hospitals.
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