New CMS Rules for Inpatient Psychiatric Facilities

The Centers for Medicare & Medicaid Services (CMS) updates Medicare payment policies and quality-reporting requirements for inpatient psychiatric facilities (IPFs) each year. The latest changes appear in the FY 2027 Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) final rule, CMS-1847-F, issued July 29, 2026.

The FY 2027 rule increases IPF PPS payment rates by 2.3%. CMS estimates that total payments to inpatient psychiatric facilities will increase by approximately $60 million compared with FY 2026. The rule also introduces significant changes to outlier payments and the IPF Quality Reporting (IPFQR) Program.

Key FY 2027 Payment Changes

IPF PPS payment rates increase by 2.3%

For FY 2027, CMS is increasing IPF PPS payment rates by 2.3%. The update reflects a 3.2% increase in the 2021-based IPF market basket, reduced by a 0.9 percentage-point productivity adjustment.

CMS is also updating the outlier threshold so that estimated outlier payments remain equal to approximately 2% of total IPF PPS payments. The aggregate impact of the rule is an estimated $60 million increase in IPF payments for FY 2027.

New facility-level limit on outlier payments

CMS finalized a policy to limit outlier payments at the facility level to no more than 20% of an IPF’s total IPF PPS payments in a year. The policy will take effect in FY 2028, beginning October 1, 2027.

The limit will apply to IPFs with at least 50 stays per year. Facilities with fewer than 50 stays will be excluded from the cap. CMS delayed implementation to allow additional time to evaluate the cost factors identified by commenters.

Hospitals should evaluate how this future policy could affect budgeting, cost reporting, charge structures, and the financial performance of high-cost cases.

Major IPF Quality Reporting Changes

The IPFQR Program is a pay-for-reporting program. IPFs that do not meet applicable reporting requirements receive a 2-percentage-point reduction to their annual payment update. The program applies to psychiatric hospitals and psychiatric units paid under the IPF PPS.

Two additional measures are being removed

Beginning with the calendar year 2026 reporting period and the FY 2028 payment determination, CMS is removing:

• Alcohol Use Brief Intervention Provided or Offered and the related subset measure, SUB-2 and SUB-2a
• Tobacco Use Treatment Provided or Offered at Discharge and the related subset measure, TOB-3 and TOB-3a

These changes follow earlier measure removals finalized in FY 2024, including HBIPS-5 and TOB-2/2a. IPFs should confirm the applicable measure specifications and reporting requirements for each payment determination year.

Standardized IPF Patient Assessment Instrument

CMS is implementing a standardized IPF Patient Assessment Instrument, or IPF-PAI, as required by the Consolidated Appropriations Act, 2023.

The IPF-PAI is intended to provide standardized patient-level information that CMS can use to improve payment accuracy, monitor quality, and evaluate disparities in behavioral health care. CMS will support two submission methods:

• The CMS-developed Patient Assessment Reporting Interoperability Tool, known as PARIT
• Application programming interfaces based on Health Level Seven Fast Healthcare Interoperability Resources, or HL7 FHIR

IPFs should monitor CMS and QualityNet guidance regarding implementation timelines, data elements, technical specifications, testing, and submission procedures.

Important Changes Since the FY 2024 Rule

The FY 2024 rule established several foundational changes that remain important but should not be presented as new. These included:

• Rebasing and revising the IPF market basket using a 2021-based IPF-specific market basket
• Allowing hospitals to open and begin billing Medicare for a new excluded IPF unit at any time during the cost-reporting period, provided they give at least 30 days’ notice to the CMS Regional Office and Medicare Administrative Contractor
• Adding health-equity, social-drivers-of-health, and patient-experience measures to the IPFQR Program
• Modifying the COVID-19 vaccination coverage measure to align with current CDC guidance
• Establishing a voluntary data-validation pilot for chart-abstracted IPF quality measures
• Codifying IPFQR Program requirements at 42 C.F.R. § 412.433

The FY 2024 rule did not create a general new process for resolving payment disputes, and CMS’s final-rule summary did not describe an expansion of the list of psychiatric conditions qualifying a patient for inpatient treatment. Those statements should be removed or supported with a more specific CMS policy citation before publication.

Other Recent IPF Policy Changes

CMS made additional changes in FY 2025 and FY 2026 that remain relevant to hospitals and health systems.

For FY 2025, CMS:

• Increased IPF PPS payment rates by 2.8%, with an estimated 2.5% increase in total IPF payments, or approximately $65 million
• Revised patient-level adjustment factors using more recent claims and cost data
• Increased the ECT payment per treatment to $661.52
• Adopted a new 30-day risk-standardized all-cause emergency department visit measure following IPF discharge
• Clarified eligibility for filing an all-inclusive cost report
• Continued development of the standardized IPF-PAI

For FY 2026, CMS:

• Increased IPF PPS payment rates by 2.5%
• Estimated a $70 million increase in total IPF payments
• Increased the facility-level adjustment factors for teaching status and rural location
• Removed four IPFQR measures
• Updated the Extraordinary Circumstances Exception process
• Continued planning for future IPFQR changes, including patient well-being, nutrition, digital quality measurement, and potential IPF star ratings

What Hospitals Should Do Now

Hospitals and health systems operating IPFs should:

• Review FY 2027 payment tables, wage-index materials, adjustment factors, and the October 1, 2026 effective date.
• Model the potential effect of the FY 2028 outlier-payment cap, particularly for facilities with at least 50 annual stays.
• Confirm IPFQR reporting requirements for the applicable payment determination year.
• Prepare for the removal of SUB-2/2a and TOB-3/3a beginning with CY 2026 reporting.
• Monitor CMS guidance regarding IPF-PAI implementation and submission through PARIT or FHIR-based APIs.
• Continue tracking data-validation pilot communications and QualityNet deadlines.
• Coordinate finance, revenue-cycle, clinical, quality, information-technology, and compliance teams before implementation deadlines.

CMS’s IPFQR Program remains central to Medicare payment compliance. IPFs that fail to submit required quality data may receive a 2-percentage-point reduction to their annual payment update, making accurate reporting and deadline management an important operational priority.

Conclusion

CMS’s current IPF policy direction combines annual payment updates with increased expectations for data quality, patient assessment, public reporting, and payment accuracy. The FY 2027 rule provides a 2.3% rate increase and establishes a future facility-level limit on outlier payments, while also removing additional quality measures and implementing a standardized patient assessment instrument.

Hospitals should treat the FY 2027 rule as part of a continuing multiyear transition. The financial impact will depend on each facility’s wage index, patient mix, teaching and rural status, outlier experience, quality-reporting performance, and readiness for the IPF-PAI.