On April 2, CMS proposed several payment and policy changes for inpatient psychiatric facilities in fiscal year 2027, prompting concerns from the American Hospital Association about reimbursement adequacy and administrative burden shared in a June 1 letter.
The proposal includes a 2.3% payment increase, or about $50 million, for inpatient psychiatric facilities in fiscal year 2027. The update includes a 3.1% market basket increase offset by a 0.8 percentage point productivity adjustment.
Here are five things behavioral health leaders should know:
- Industry groups say cost growth continues to outpace payment updates. The AHA pointed to a 7.5% increase in hospital expenses in 2025, including a 5.6% increase in workforce costs, a 9.9% rise in supply costs and a 13.6% increase in drug costs. The association also noted aggregate Medicare margins across all inpatient psychiatric facilities were -9.4% in calendar year 2021.
- Hospitals are facing growing administrative costs. The AHA said most Medicare Advantage plans require prior authorization for inpatient psychiatric admissions, which can drive providers to devote significant resources to authorization and appeals processes. The association cited a 2024 Premier study that estimated hospitals spend just under $20 billion annually appealing denials.
- CMS wants to cap outlier payments. The agency proposed limiting total outlier payments to no more than 20% of a facility’s total inpatient psychiatric facility PPS payments beginning with certain discharges on or after Oct. 1. The AHA said more analysis is needed before implementing the policy and urged CMS to maintain the current fixed-dollar loss threshold of $39,360.
- A new patient assessment tool could significantly increase administrative workload. CMS proposed requiring inpatient psychiatric facilities to collect standardized patient assessment data through the IPF Patient Assessment Instrument. CMS estimated the tool would require 514,228 additional annual burden hours and 14.7 minutes per patient.
- Providers are pushing for a delay of the assessment instrument. The AHA said that the proposed assessment tool has limited clinical relevance for psychiatric care and could add between 699,629 and 874,537 annual burden hours based on testing results. The association urged CMS to delay implementation while developing a more meaningful assessment approach.
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