FY2027 inpatient rates: what changed on October 1 for payers pricing DRG claims

What changed on October 1

Medicare resets its inpatient prospective payment system every federal fiscal year. Claims for discharges on or after October 1, 2026 price under the fiscal year 2027 rules, and anything a payer ties to Medicare moves with them: percent-of-Medicare contracts, reference-based pricing, and what a Medicare Advantage plan owes a hospital it has no contract with.

The pieces that move a payment:

• The update. Hospitals that report quality data and are meaningful users of electronic health records get 2.3%: a 3.2% market basket increase less a 0.9-point productivity adjustment. Hospitals that did not report quality data get 1.5%, hospitals that are not meaningful EHR users get −0.1%, and hospitals that miss both get −0.9%.
• The base rates. The national operating base is $6,848.00 per case before the wage index and the DRG weight are applied. Where a hospital's wage index is above 1.0, 66% of the base is adjusted for local wages; at or below 1.0, 62%. The capital base is $539.95, up from $524.15.
• The outlier fixed-loss amount. $49,331, up from $40,397 in FY2026. For the same charges, it is the main reason a high-cost stay earns less in FY2027.
• The grouper. MS-DRG version 44 applies to discharges on or after October 1. CMS created 14 MS-DRGs and deleted 18, leaving 766. New groups include extensive or complex spinal fusion other than cervical (523–525), hip or knee procedures for a periprosthetic joint infection (403–404) and cardiac pacemaker revision and device replacement (210–211).
• Transfer lists. Thirteen MS-DRGs join the post-acute transfer list (210, 211, 361, 362, 400, 403, 404, 456, 457, 458, 523, 524 and 525) and fourteen join the special payment list (361, 362, 400, 403, 404, 456, 457, 458, 463, 464, 465, 616, 617 and 618). A transfer edit built on last year's lists will pay some short stays in full that should now be paid a per diem (see how the per-diem rule works).
• New technology add-on payments. 41 continue into FY2027 and 19 are new.

A correction two days before the start date

On September 29, 2026, CMS published corrections to the FY2027 rates, effective October 1. It had left one hospital's data out after treating it as converted to a rural emergency hospital, and had counted another hospital as rural after that hospital withdrew its request. Putting both right meant recalculating the MS-DRG relative weights, the wage indexes, the budget neutrality factors, the operating standardized amounts, the capital rate and the outlier fixed-loss amount.

The dollar changes are small; the operational point is not. A payer, repricer or plan that loaded the August tables needs to replace them, and claims for October discharges already priced on the August tables need a second look. For Medicare Advantage plans that pay non-contracted hospitals at Original Medicare rates, CMS’s payment guide for out-of-network payments (last updated in February 2010) says that when Original Medicare fee schedules are updated, even shortly before or after they take effect, plans must pay at least the updated rates and make up the claims they underpaid. The same obligation, to pay at least what Original Medicare would have paid, makes the corrected inpatient rates the plan’s minimum for October discharges.

If your tables came from the August final rule, October discharges were priced on weights and wage indexes that have since been recalculated.

The same stay, one day apart

To see what the new year does to a claim, we priced one sample sepsis stay twice: MS-DRG 871 (septicemia or severe sepsis without ventilation over 96 hours, with MCC) at NewYork-Presbyterian Hospital (CCN 330101), eight days, $520,000 in covered charges. That is a high-cost stay that earns a cost outlier in both years. Only the discharge date changes.

The DRG payment itself went up. The hospital's wage index rose 4.2% while the DRG weight fell 0.5%, and with the new base rates the payment before the outlier and pass-through rose $831.47. The outlier went the other way. The stay's outlier threshold rose $13,914.63, mostly because the fixed-loss amount rose $8,934 nationally and this hospital's wage index stretches that to about $12,967. Medicare pays 80% of costs above the threshold, so the outlier fell by $11,131.70. Net, the same stay pays $10,300.23 less. A stay with charges too low for an outlier in either year would instead be paid $831.47 more on October 1.

Discharged a day later, the same high-cost sepsis stay pays $10,300.23 less. The smaller outlier more than accounts for it.

MS-DRG 871’s weight barely moved, but some weights moved a long way. The ten largest changes are all increases: CMS caps a weight cut at 10% a year, so the steepest cuts stop there.

Expensive stays earn smaller outliers

CMS sets the fixed-loss amount each year at the level it projects will make outlier payments 5.1% of inpatient operating payments. The target has not moved, but the amount swings: $46,217 in FY2025, $40,397 in FY2026 and $49,331 in FY2027. For the stay above, the covered charges at which an outlier starts rose from about $392,380 to about $465,232.

Per claim, the same charges now buy a smaller outlier, or none at all. Contract terms that borrow Medicare's outlier method, and reference-based plans that pay a multiple of Medicare's total, moved with it on October 1. Our worked outlier example walks through the threshold line by line.

A checklist for payers and TPAs

1. Load the corrected FY2027 tables (weights, wage indexes, base rates and the $49,331 fixed-loss amount) for discharges on or after October 1, 2026, and keep the FY2026 tables for earlier discharges. The discharge date decides; see which year’s rates apply.
2. Group discharges on or after October 1 with MS-DRG version 44, using codes that are valid on the discharge date.
3. Update transfer edits for the 13 MS-DRGs added to the post-acute list and the 14 added to the special payment list.
4. Re-check contract outlier and stop-loss provisions that reference Medicare's outlier method.
5. Re-price claims for October discharges that were priced before the corrected tables were loaded.
6. Mark January 1, 2027. Under current law the Medicare-dependent hospital program ends that day, and hospitals that held the status are paid at the federal rate. The low-volume hospital adjustment also narrows, to hospitals with fewer than 200 total discharges that are more than 25 road miles from the nearest other hospital paid under the inpatient prospective payment system.