CMS FY26 IPPS Final Rule: Readmissions Expands To MA
By Tiffany Ferguson, LMSW, CMAC, ACM
The CMS FY 2026 Inpatient Prospective Payment System (IPPS) Final Rule is here, and case management leaders, as well as quality teams, should take note. The rule brings both confirmation of significant policy shifts and signals of what is coming in likely future rulemaking.
CMS confirmed that beginning in FY 2027, the Hospital Readmissions Reduction Program (HRRP) will expand to include Medicare Advantage (MA) patients, not just traditional Medicare (FFS) beneficiaries. This means the baseline data collection period will be from July 2023 to July 2025. The finalized updates include:
Refinement of all six readmission measures to incorporate MA patient cohort data.
Reduction of the applicable period from three years to two.
Codification of the Extraordinary Circumstances Exception (ECE) policy, giving CMS discretion to grant modifications.
Removal of the COVID-19 exclusion from all six readmission measures.
Notably, CMS decided not to finalize the inclusion of MA payment data in aggregate readmission penalty calculations, at least for now. The comments related to the inclusion of MA plans significantly expressed provider opinions and tone related to MA plans lack of payment for readmissions as well as their narrow networks which impact beneficiary access to care. Although CMS recognized this in their replies, they are focused on quality outcomes and the reality is that half of Medicare beneficiaries are in an MA plan and thus the data should include all Medicare beneficiaries.
An interesting mention in the readmission discussion and section was the use of “leave of absence” billing practices (Medicare Claims Processing Manual, Chapter 3, Section 40.2.5). Hospitals may place a patient on leave of absence when a readmission is expected but the patient does not require inpatient-level care during the interim. Importantly, this generates only one bill and one DRG payment, not two separate admissions.
As CMS evaluates readmission differences between FFS and MA populations, expect further attention around this practice, particularly as MA data become integrated into HRRP. It was unclear in the review exactly the significance of why this guideline was raised in the readmission option, but important to note.
CMS is also exploring refinements to readmission measurements, including:
Breaking down readmissions into 7-day and 14-day cohorts (not just 30-day).
Analyzing ambulatory care utilization and its relationship to readmission risk.
Separating readmission patterns across MA and FFS populations.
The FY 2026 IPPS ruling demonstrates CMS’s widening focus on readmissions, with Medicare Advantage now confirmed as ‘in scope’. For case management and quality leaders, the charge is twofold: Operationally, prepare for MA populations to be included in HRRP penalties, and strategically reexamine how data, discharge planning, and post-acute coordination will be managed under a shortened two-year reporting cycle.