At the end of July 2025, CMS finalized the annual Inpatient Prospective Payment System (IPPS) rules. This fundamentally reshapes how your hospital’s quality story is measured and penalized. And these aren’t abstract policy changes taking effect next year.
Your hospital’s quality penalties are already being calculated under these brand-new CMS rules. Since January 2025, your hospital has been generating performance data that will be evaluated against these new infection benchmarks (CMS & ONC, 2025). Medicare Advantage encounters have been counting toward readmission penalties since July 2023 (CMS & ONC, 2025). The measurement periods determining your 2026 public ratings and 2027 payment adjustments are already underway – or in some cases, already complete.
The question isn’t whether these changes will impact your hospital – they already have. The question is how quickly you can adjust your quality improvement efforts to succeed under these new rules.
Your HRRP Patient Population May Have Doubled
The Hospital Readmission Reduction Program (HRRP) just got significantly more complex and, potentially, more expensive. The performance period determining your future penalties has already been completed.
The following measure changes apply retroactively to patients back to July 2023, with updated measures already publishing in 2026 (CMS & ONC, 2025). The most consequential change brings Medicare Advantage (MA) encounters into HRRP calculations for the first time. Previously, readmission measures tracked only traditional Medicare patients. Now your MA population – roughly 50% of Medicare beneficiaries (Lieberman & Mayes, 2025) – directly impacts penalty exposure. If quality improvement focused exclusively on traditional Medicare, you’ve been optimizing for half the equation.
Measure calculations are also shifting from three-year to two-year averages, accelerating both improvement recognition and penalty impact. Combined with MA inclusion, more hospitals will likely face penalties as the 25-encounter threshold becomes easier to reach (CMS, 2024).
While revised data will appear on Care Compare, CMS hasn’t clarified whether star rating readmission measures will incorporate these changes, creating potential confusion between public performance and penalty calculations.
Infection Baselines Reset – Your 2025 Performance Under New Rules
This year, your hospital’s healthcare-associated infection (HAI) performance will be judged against fundamentally different benchmarks. Starting with 2025 data, NHSN shifted from the 2015 baseline to the 2022 baseline for calculating standardized infection ratios (SIR) (CMS & ONC, 2025). This isn’t a future change – it’s affecting your performance evaluation right now.
Your hospital may be in the middle of monitoring your 2025 infection rates against the familiar 2015 baseline. But when your 2025 data gets published and penalized, it will be measured against the 2022 baseline – a benchmark that reflects post-pandemic infection patterns and updated risk adjustment models (CDC, n.d.). The 2022 baseline’s adjustments may make achieving favorable SIRs more challenging, potentially increasing penalty exposure.
You have a few months remaining to influence your 2025 scores. Quickly, assess your new infection rates with the 2022 baseline. Work with your improvement teams to assess what actions could be taken to further improve on this year’s performance.
Your 2025 infection performance under the new baseline will cascade through quality programs over the next four years (CMS & ONC, 2025):
- Fall 2026: Public reporting on Care Compare using 2022 baseline data, likely incorporated into 2027 star ratings
- Fall 2027: Hospital-Acquired Condition Reduction Program (HACRP) penalties using the new baseline (covering performance periods CY25-CY26)
- Fall 2028: Hospital Value-Based Purchasing (HVBP) integration begins, with CY27 performance compared to CY25 baseline for improvement scoring
Refreshing Hip and Knee Replacements
The Hip and Knee Replacement Complication measure lost relevance after 2018, when procedures shifted outpatient and Medicare Advantage grew. Hospital reporting dropped from 2,746 to 1,657 facilities, with average case volumes falling 59% from 347 to 142 cases per hospital (CMS, 2025b).
This year, CMS is reversing its course. Starting with 2026 Care Compare, the measure will include Medicare Advantage patients and shift from three-year to two-year averages (CMS & ONC, 2025) – significantly increasing eligible cases overnight. More hospitals will qualify for scoring, and the revised measure becomes eligible for CMS star ratings and HVBP (starting FY33).
The first performance period for this measure ran April 2023 through March 2025 – it’s already complete. If you haven’t been tracking Medicare Advantage hip and knee outcomes with the same rigor as traditional Medicare, you’ve been monitoring only half the equation. Now, you can target 2027 reporting that will include hip and knee replacements through June 2026.
And this measure’s influence is about to grow. The proposed OPPS rule suggests penalizing hospitals in the bottom quartile of the safety domain by dropping them a full star level – a change phasing in from 2026 to 2027 (CMS, 2025a).
30-Day Stroke Mortality Gets the Treatment
In public reporting, stroke quality is measured only by 30-day mortality. Of all major programs, it’s included as a required measure for Inpatient Quality Reporting and used in hospital stars (CMS & ONC, 2025). Similar to hip and knee complications, CMS announced they would apply the same changes to 30-day mortality among stroke patients (CMS & ONC, 2025).
Your hospital’s 30-day stroke mortality rate will be published in 2026 based on Medicare and Medicare Advantage discharges from July 2023 to June 2025. This performance period has already passed. You are now in the performance period for 2027 reporting that will look at discharges through June 2026.
Pandemic-Era Measures Retire
CMS is retiring COVID-specific quality reporting requirements. They finalized removing both patient exclusions and the healthcare worker vaccination measure (CMS & ONC, 2025). The changes reflect the limited adoption and utility of pandemic-era adjustments.
The healthcare worker COVID vaccination measure never gained traction compared to established measures. Recent data shows flu vaccination rates were reported by 4,167 hospitals averaging 77% employee vaccination, while COVID vaccination rates were reported by only 3,461 hospitals with just 11% average vaccination rates (CMS, 2025b). The stark difference in vaccination participation underscores a potential reason why CMS is abandoning this measure.
With these COVID-specific protocols ending, hospitals can redirect quality improvement focus toward measures with greater impact on ratings and financial performance.
Taking Control of Your Quality Story
The hospitals positioning themselves for success are already recalibrating their approach:
- Tracking MA outcomes with the same intensity as traditional Medicare. See our free tools for risk adjustment in traditional Medicare and MA.
- Adjusting infection prevention strategies for the 2022 baseline reality
- Training quality teams on compressed measurement windows that accelerate both improvement recognition and penalty impact.
Your quality story is being written right now – under these new rules. The question is whether you’re actively telling that story or letting it write itself.
Know Your Story Under the New Rules
While this blog covers the broad regulatory changes, every hospital’s exposure varies dramatically based on your specific patient mix, current performance, and measurement timing. With some performance periods already complete and others actively running, understanding your exact positioning under these new rules isn’t optional—it’s urgent.
A custom analysis of your hospital’s quality story can reveal which of these finalized rule changes will impact your hospital’s quality the most and when.
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Disclaimer
This content is provided for informational purposes only and does not constitute legal, financial, or professional advice. CMS regulations are complex and subject to change. Hospitals should consult with qualified legal and compliance professionals before making operational decisions based on this information. CareKate Analytics makes no warranties regarding the accuracy or completeness of this content and is not liable for any decisions made based on this information.
References
Centers for Disease Control and Prevention. (n.d.). Frequently asked questions regarding the 2022 HAI rebaseline project: NHSN patient safety component. https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf
Centers for Medicare & Medicaid Services. (2024, August 9). Hospital Readmissions Reduction Program: Frequently Asked Questions fiscal year 2025. https://qualitynet.cms.gov/files/66ab917f6a3d89e3e327232e?filename=FY2025_HRRP_FAQs.pdf
Centers for Medicare & Medicaid Services. (2025a, July 17). Medicare and Medicaid programs: Hospital outpatient prospective payment and ambulatory surgical center payment systems; quality reporting programs; overall hospital quality star ratings; and hospital price transparency. Federal Register, 90(138), 33476-33865. https://www.federalregister.gov/documents/2025/07/17/2025-13360/medicare-and-medicaid-programs-hospital-outpatient-prospective-payment-and-ambulatory-surgical
Centers for Medicare & Medicaid Services. (2025b, August 6). Provider data catalog. https://data.cms.gov/provider-data/
Centers for Medicare & Medicaid Services & Office of the National Coordinator for Health Information Technology. (2025, July 31). Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year (FY) 2026 Rates; Changes to the FY 2025 IPPS Rates Due to Court Decision; Requirements for Quality Programs; and Other Policy Changes; Health Data, Technology, and Interoperability: Electronic Prescribing, Real-Time Prescription Benefit and Electronic Prior Authorization. Federal Register, 90, 36536. https://public-inspection.federalregister.gov/2025-14681.pdf
Lieberman, S. M., & Mayes, R. (2025). Inside the meteoric rise of Medicare Advantage. Health Affairs, 44(8). https://doi.org/10.1377/hlthaff.2024.01546
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