Hospital Groups Urge CMS to Reconsider Payment Update and Mandatory Joint Replacement Model

Hospital industry organizations are urging the Centers for Medicare and Medicaid Services (CMS) to revise both its proposed inpatient payment update and its plan to implement a mandatory episode-based payment model for joint replacement procedures at hospitals nationwide.

In comment letters submitted this week in response to CMS’ proposed Inpatient Prospective Payment System (IPPS) rule, hospital associations and healthcare service organizations argued that the agency’s proposed 2.4% net increase in inpatient payment rates does not adequately address the substantial financial headwinds facing hospitals.

The proposed update consists of a 3.2% market basket increase and a statutory productivity adjustment that reduces the overall increase by 0.8 percentage points. The American Hospital Association (AHA) argued that the market basket update is “not keeping pace with real-world cost growth” and said the productivity adjustment has long proven to be “a poor fit” for measuring anticipated productivity within healthcare.

In its comments to CMS, the AHA wrote: “We urge CMS to revisit both its market basket forecasts and the magnitude of the productivity adjustment, and to consider the combined effect on provider reimbursements.” The organization also asked the agency to work with Congress to reduce the size of the productivity adjustment.

The Federation of American Hospitals (FAH), which represents more than 1,000 for-profit hospitals, said cumulative IPPS payment updates have trailed cumulative inflation by 4.2 percentage points since fiscal year 2021. According to the group, the gap has widened over time and should be addressed through the use of more current inflation data and a forecast error correction policy.

Healthcare service organizations Premier and Vizient expressed similar concerns regarding the proposed payment update. The organizations also raised issues related to CMS calculations for supplemental payments, including Medicare Disproportionate Share Hospital Payments. They said details of those calculations have not been adequately disclosed and called on CMS to carry out a court-ordered transition away from increased wage index payments for low-wage hospitals without offsetting the change by reducing payments to other hospitals.

Beyond payment rates, hospital groups focused significant attention on CMS’ proposal to expand the Comprehensive Care for Joint Replacement (CJR) Model. The program, which CMS said produced “significant” savings and care quality during testing from April 2016 through 2024, makes hospitals accountable for Medicare spending associated with joint replacement surgeries, hospital care, and the first 90 days of recovery, including follow-up services. Under the proposed CJR-X Model, participation would become mandatory for most hospitals beginning Oct. 1, 2027.

The AHA submitted a separate comment letter dedicated to the proposal. The association said mandatory participation could create difficulties for hospitals that lack the scale or financial capacity to make the necessary investments in care redesign. It suggested a phased implementation or voluntary participation approach instead.

FAH also opposed the proposal as currently structured, citing what it described as structural, methodological and operational concerns. The group said several elements of the model create operational complexity and overlapping accountability obligations that are not present in some other recent Innovation Center models, including the Transforming Episode Accountability Model (TEAM).

FAH recommended delaying implementation by at least one year and providing an initial year without financial risk for participating hospitals. The AHA proposed that the first year serve only as a data-sharing period, followed by at least two years without downside risk for participants and continued upside-only risk for special designation hospitals throughout the model’s duration.

The organizations expressed support for several other provisions within the proposed rule. These included increased support for educational programs and updates affecting graduate medical education residency programs. The AHA also supported the removal of selected quality reporting measures it said no longer provide useful information for improving patient outcomes. FAH endorsed several proposed changes related to the Medicare Promoting Interoperability Program as well as updates concerning electronic prior authorization.

CMS generally releases the final version of its annual IPPS rule in late July or early August.

Leading hospital organizations are calling on CMS to reconsider key aspects of its proposed payment update and mandatory joint replacement model. Healthcare providers argue that the current proposal could place additional financial strain on hospitals already managing rising labor, technology, and supply chain costs.

Industry representatives have expressed concerns that the CMS payment adjustments may not adequately reflect the real costs of delivering high-quality patient care. As healthcare systems continue to recover from operational and economic challenges, hospitals believe more flexibility is needed in reimbursement policies.

Concerns About the Mandatory Joint Replacement Model

The proposed mandatory joint replacement initiative from CMS is designed to improve care coordination and reduce healthcare spending. However, hospital groups warn that mandatory participation could create administrative burdens, especially for smaller and rural healthcare facilities.

Stakeholders argue that the CMS model may not account for differences in patient populations, regional healthcare resources, and local market conditions. Hospitals are requesting modifications that would allow providers to better manage risks while maintaining quality outcomes.