The Centers for Medicare and Medicaid Services (CMS) finalized a 2.9% bump for hospitals’ inpatient payment rate in fiscal year 2025, amounting to an expected $2.9 billion increase for hospitals.

Despite the overall increase, the update is likely to reduce rural health and disproportionate share hospital payments. The rule also finalized an additional payment for small hospitals that stockpile certain critical drugs. Multiple quality measures were adjusted under the hospital inpatient quality reporting program. CMS also finalized a new episodic payment model, the Transforming Episode Accountability Model (TEAM), which will create bundled payments for care episodes beginning with one of the following procedures: coronary artery bypass graft (CABG), lower-extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), and spinal fusion. Read more here and here.

This bump reflects a slight increase over the 2.6% bump originally proposed by CMS.

This follows the pattern of recent years in which CMS proposes a small payment bump, and then finalizes a very minimally increased rate, which the industry immediately describes as insufficient. The American Hospital Association reflected on the payment rate saying that the “payment updates for hospitals will exacerbate the already unsustainable negative or break-even margins many hospitals are already operating under as they care for their patients.”

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