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.
