backCMS Issues FY 2026 Inpatient Rehabilitation Facility Prospective Payment System and Quality Reporting Program Final Rule
On August 1, 2025, CMS issued a final rule updating the Medicare rates and policies applicable to inpatient rehabilitation facilities (IRFs) under the IRF Prospective Payment System (PPS) and the IRF Quality Reporting Program (QRP) for fiscal year (FY) 2026 (the Final Rule). A summary of the Final Rule is available below.
Updates to IRF PPS Payment Policies
CMS finalized a 2.6% increase to the IRF PPS payment rate, reflecting a market basket increase of 3.3% less a 0.7 percentage point productivity adjustment. CMS also finalized updates to the outlier threshold to maintain outlier payments at 3% of total payments. CMS estimates an increase in IRF payments of $340 million in FY 2026.
CMS finalized its proposal to maintain the policies and methodologies described in the FY 2025 IRF PPS final rule related to labor market area definitions and the wage index methodology for areas with wage data, and the same methodology discussed in the FY 2008 IRF PPS final rule addressing geographic areas in which there are no hospitals. This means that the only rural area without wage index data available for FY 2026 is North Dakota.
For urban areas without specific hospital wage index data, CMS will continue to apply average wage indexes of all urban areas within the state to serve as a reasonable proxy for the wage index of the urban Core Based Statistical Areas (CBSAs) as set forth and finalized in FY 2006.
CMS finalized its proposal to update the national urban and rural Cost-to-Charge Ratio (CCR) for IRFs as well as the national CCR cap for FY 2026. The update is consistent with the past practice of setting the national CCR ceiling at three standard deviations above the mean CCR. Accordingly, CMS set the national CCR ceiling to 1.54 for FY 2026.
CMS had proposed maintaining the existing case-mix group (CMG) relative weights and average length of stay values for FY 2026 but opted to update the CMG relative weights and average length of stay values in the Final Rule to, according to CMS, reflect “as accurately as possible the current costs of care in IRFs” based on recently available data.
IRF QRP Updates
CMS finalized its proposal to remove two QRP measures. CMS removed (1) the COVID-19 Vaccination Coverage among Healthcare Personnel (HCP) measure, beginning with the FY 2026 IRP QRP, and (2) the COVID-19 Vaccine: Percent of Patients/Residents Who are Up to Date measure, beginning with the FY 2028 IRF QRP. Because the HCP COVID-19 measure bases payment on data from CY 2024, IRFs that did not report their CY 2024 HCP COVID-19 measure are now considered compliant with the IRF QRP for purposes of their FY 2026 payment determination.
CMS finalized its proposal to remove four Standardized Patient Assessment Data Elements that were adopted last rulemaking cycle under the Social Determinant of Health (SDOH) category with the FY 2028 IRF QRP. Specifically, CMS removed one item for Living Situation (R0310), two items for Food (R0320A and R0320B), and one item for Utilities (R0330) from the SDOH standardized patient assessment data elements.
CMS also finalized amendments to the QRP reconsideration process to permit IRFs to request an extension to file a request for reconsideration of a noncompliance determination if the IRF was affected by an extraordinary circumstance beyond the control of the IRF (e.g., a natural or man-made disaster). CMS also finalized updated bases on which it can grant a reconsideration request. CMS codified these finalized policies and processes at 42 C.F.R. § 412.634(d)(5) through (d)(7).
CMS also discussed comments received regarding requests for information on the following:
- future measure concepts for the IRF QRP;
- potential revisions to the IRF-Patient Assessment Instrument;
- potential revisions to the data submission deadlines for assessment data collected for the IRF QRP; and
- advancing digital quality measurement in IRFs.
While CMS did not respond to comments to the requests for information, CMS plans to take such comments into account in future rulemaking on these topics.
The fact sheet for the IRF PPS and QRP Final Rule is available here. The Final Rule was published in the Federal Register on August 5, 2025. A copy of the Final Rule is available here.
Reporter, Michael L. LaBattaglia, Washington, DC, +1 202 626 5579, mlabattaglia@kslaw.com.
White House and CMS Announce Health Technology Ecosystem Initiative
On July 30, 2025, CMS issued a press release announcing its Health Tech Ecosystem initiative, a voluntary, patient-centric initiative aimed at utilizing technology to improve the patient experience. The main goals of the initiative are to: (1) promote a CMS Interoperability Framework to easily and seamlessly share information between patients and providers; and (2) increase the availability of personalized tools so that patients have the medical information and resources they need to make decisions.
CMS is calling upon healthcare industry data networks, Electronic Health Record Systems (EHRs), health app developers, providers, payers and innovators to voluntarily align around the agency’s vision for the CMS Digital Health Ecosystem, a shared framework for data and access with a focus on consumers. Voluntary criteria aligned with the CMS Interoperability Framework are set for CMS Aligned Networks, EHRs, providers, payers and patient-facing apps.
The tools developed in connection with this initiative will allow medical records to be securely obtained and deliver key services to beneficiaries, including diabetes and obesity management, the use of AI assistants to check patient symptoms and navigate care options, and digital check-in methods. In order to achieve this, CMS has issued guidance on the functionality requirements of patient-facing apps that seek to be promoted or highlighted through CMS. These requirements for patient-facing apps include:
- Supporting data exchange with patient identity verification either via an intermediary personal health record application or using a CMS-approved service to generate digital credentials that can be used to access health records from CMS Aligned Networks.
- Enabling Medicare program connectivity, as appropriate, for users who are Medicare beneficiaries by offering a way to be notified of communications from gov (e.g., notices, EOBs, fraud alerts).
- Participating in CMS reviews, including disclosure of data sources, terms/agreements and a basic security checklist.
- Offering trial access for Medicare patients if the app charges a fee.
- Participating in the CMS discovery experience, allowing the app to be presented as a recommended option to eligible beneficiaries (such as through an “app store” interface on Medicare.gov).
- Operating in a manner consistent with the HIPAA Rules.
In addition to meeting the above standards, the app must meet one of the following initial case uses: (1) eliminating manual check-in forms and fragmented data collection (“Kill the Clipboard”); (2) using AI-powered assistants to deliver personalized guidance to patients by securely assessing and interpreting their medical history in real time; or (3) providing tailored, data-driven support to individuals at risk for or living with diabetes and obesity, powered by direct access to clinical data from trusted networks. Patient-facing apps will be required to connect to a CMS Aligned Network to retrieve patient health records.
CMS Aligned Networks must meet the following criteria focused on allowing different health data sources, such as health information networks and exchanges, to align with CMS interoperability goals:
- Implement CMS Interoperability Framework criteria, including clinical and claims data as appropriate.
- Respond to patient, provider, and when appropriate, payer requests following the CMS Interoperability Framework.
Networks that self-attest to meeting the CMS Interoperability Framework will be designated as CMS Aligned Networks but must also agree to be reviewed if it is suspected that the network does not meet the criteria.
EHRs participating in this initiative must:
- Make electronic medical information accessible to CMS Aligned Networks, including structured data (via FHIR) and unstructured clinical documents (e.g., PDFs, JPGs, TIFs) as part of the patient record as indicated in United States Core Data for Interoperability Version 3 (USCDI v3);
- Provide appointment and encounter notifications to those who are subscribed to specific patient records (including outpatient visits, telehealth, emergency department, and inpatient stays) to CMS Aligned Networks within 24 hours of occurrence; and
- Accept patient health data from patient-facing apps, and give patients the ability to retrieve a visit record via the same method used at check-in. EHRs should not require portal credentials or additional account set-up when the patient’s identity has been verified using a CMS-approved service.
Providers participating in this initiative must:
- Join CMS Aligned Networks to ensure electronic medical information is available and discoverable across care settings;
- Support patient-centered workflows that enable real-time access for treatment and for patient use to electronic medical information across systems; and
- Make electronic medical information accessible to CMS Aligned Networks, including structured data and unstructured clinical documents (e.g., notes, PDFs, JPGs, TIFs) as part of the patient record as indicated in USCDI v3.
Payers participating in this initiative must:
- Make claims data accessible to CMS Aligned Networks;
- Respond to patient, provider and where appropriate, payer requests; and
- Implement CMS Interoperability Framework criteria.
To achieve the goals of this initiative, sixty companies pledged to collaborate to effectuate the goals of the program, twenty-one networks pledged to meet the CMS Interoperability Framework criteria to be CMS Aligned Networks, and thirty companies pledged to promote real health outcomes utilizing technology.
The press release can be found here, and additional information on the initiative can be found here.
Reporter, Kimberly Rai, New York, +1 212 556 2198, krai@kslaw.com.
Aetna Policy Attempts to Circumvent Two Midnight Rule for MA Plans
In a recent Aetna newsletter update (also referred to as OfficeLink), Aetna advised that it would change its reimbursement approach for emergent or urgent inpatient stays that span at least one midnight at facilities that contract with Aetna’s Medicare Advantage (MA) and/or Special Needs Plans (SNPs). Beginning November 15, 2025, under Aetna’s new “[l]evel of severity inpatient payment policy” (the Policy), Aetna will approve urgent or emergent inpatient stays without a medical necessity review but only initially pay the claim at a lower level of severity rate comparable to the observation rate. The inpatient rate would only be subsequently paid if the inpatient stay meets MCG (Aetna Supplemental Guidelines for inpatient admission), meaning that payment for stays spanning more than two midnights could be just the observation rate. The “Policy” thus amounts to an attempt to circumvent CMS’s recent clarification that the “Two Midnight Rule” for when a stay qualifies as an inpatient stay applies to MA plans. Facilities contracted with Aetna should consider challenging the “Policy.”
Background on the Two Midnight Rule’s Application to MA Plans
As King & Spalding previously reported, CMS confirmed in preamble discussion that the statutory requirement that MA plans cover items and services for which benefits are available under traditional Medicare, referred to as “basic benefits,” includes the requirement that MA plans must follow the federal “Two Midnight Rule.” See CMS-4201-F; see also CMS-4208-F. The Two Midnight Rule provides that an inpatient admission is generally appropriate for payment under Medicare Part A (inpatient care) “when the admitting physician expects the patient to require hospital care that crosses two midnights.” 42 C.F.R. § 412.3(d).
CMS’s guidance regarding the Two Midnight Rule’s application to MA plans, however, noted that MA plans may still use prior authorization or concurrent case management review of inpatient admissions based on whether the complex medical factors documented in the medical record support medical necessity of the inpatient admission.
Aetna’s “Policy” Means Inpatient Stays Spanning Two Midnights May Not Be Paid at the Contracted Inpatient Rate
Aetna’s “Policy” attempts to circumvent the Two Midnight Rule by asserting that no medical necessity determinations will be involved, only a determination of whether the stay was severe enough to qualify for payment at an inpatient rate rather than an observation rate. This may be too clever by half and still violate the Two Midnight Rule; CMS’s guidance on the Two Midnight Rule was that “MA plans may not use InterQual or MCG criteria, or similar products, to change coverage or payment criteria already established under Traditional Medicare laws.”
Aetna’s “Policy” could result in certain inpatient claims being paid at the observation rate, not the contracted inpatient rate, which could have a material adverse effect on a facility’s expected reimbursement from Aetna. As a result, facilities contracted with Aetna for its MA and SNP plans should consider promptly objecting to and rejecting Aetna’s “Policy” in writing.
King & Spalding attorneys are available to assist with challenges to Aetna’s “Policy.”
The Aetna OfficeLink Update can be found here.
Reporter, Christopher C. Jew, Los Angeles, + 1 213 443 4336, cjew@kslaw.com.
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King & Spalding 12th Annual Cybersecurity & Privacy Summit
Tuesday, September 30 at 10:00 A.M. – 6:00 P.M. ET
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Join King & Spalding for the 12th Annual Cybersecurity & Privacy Summit, an immersive program dedicated to sharing key lessons, best practices, and the latest critical trends shaping the world of cybersecurity and privacy. This year, our theme “Navigating the Future: Empowering Innovation, Protecting Data and Prioritizing Privacy” sets the stage for insightful dialogue and practical guidance.
The Summit will feature distinguished data, privacy and security lawyers; in-house counsel; and leading industry experts who will focus on balancing innovation with risk management, sharing insights into new and upcoming privacy regulations, exploring the evolving threat landscape and more. Mark your calendar and join us for a dynamic program designed to address the most pressing issues in the field.
Further program announcements will follow, with the full agenda to be released in the coming weeks.
Please RSVP by September 19. The page to RSVP for the summit can be found here. For questions, contact the K&S Events Team.
King & Spalding Health Law & Policy Forum West
Wednesday, October 15, 8:30 A.M. – 6:00 P.M. PT
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Join our distinguished faculty and industry leaders for our annual Health Law & Policy Forum West in Marina del Rey. As the healthcare industry continues to evolve in response to economic pressures, patient needs and accelerating technological advances, this full-day program will cover the trending topics that lawyers, executives, managers and investors need to know as they adapt to changes associated with the new administration and more. A keynote session featuring Chad Golder, general counsel of the American Hospital Association, and Rob Hur, former special counsel and U.S. attorney, and current King & Spalding partner, will discuss key issues facing the healthcare industry. Additionally, our partner Rob DeConti, former chief counsel to the Department of Health and Human Services (HHS OIG), will provide his insights into the OIG’s enforcement priorities and share his thoughts on the emerging enforcement trends and compliance issues.
Attendees will also enjoy multiple networking opportunities, including a reception following the sessions.
Register by September 5. Registration is available here and is $95 per person. For questions, contact the K&S Events Team.
Editors: Chris Kenny and Ahsin Azim
Issue Editors: Morgan Cronin and Gregory Fantin