Final 2026 IPPS Rules: GME Clarifications Solidified Without Policy Shifts

On August 1, 2025, the Centers for Medicare & Medicaid Services (CMS) released the Final 2026 IPPS Rules.

Along with the Final 2026 IPPS Rules, CMS published updated wage index data. Germane Solutions noticed a major shift from the proposed rules in which calculation was utilized to calculate the rural floor for each state. Recall that the rural floor wage index for each state is the highest of Calculations 1-3 summarized below. In the proposed rules, 39 of the 46 states (excluding frontier and imputed floor states) eligible for a rural floor (85%) utilized Calculation 1 below. The remainder (15%) utilized Calculation 2. In the final rules, 22 of the 46 states with a rural floor (only 48%) utilized Calculation 1 (the remainder (52%)) utilized Calculation 2. This major shift happened as more states strategically identified which hospitals to remain in the rural floor calculation through actions that caused Calculation 2 to be the highest calculation.

Also, CMS has updated the Rural Floor Budget Neutrality Factor, which was implemented to ensure that the rural floor policy does not lead to an increase in overall Medicare payments. As a result of the strategic shift outlined above, the Rural Floor Budget Neutrality Factor has decreased from 0.985942 in the proposed rules to 0.973986 in the final rules, a decrease of 1.21%. A lower Rural Floor Budget Neutrality Factor indicates relatively lower IPPS payments for all IPPS hospitals in the country.

Within the Final 2026 IPPS Rules, CMS finalized the clarifications outlined in the proposed rules, without implementing any new policy revisions. While the update maintains existing guidelines, it strengthens the interpretive framework around critical areas like FTE counting for stub cost reports and Medicare Advantage DGME reductions.

Below, Germane Solutions highlights the finalized areas most relevant to Graduate Medical Education programs:

Stub Cost Reports: Final Clarifications on FTE Counting

CMS finalized its restatement of the FTE counting policy for Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME) in cost reports that cover less than a full 12-month period (i.e., stub cost reports).

While no changes were made to the long-standing policy, the finalized language provides important clarity on how FTEs should be reported in these shortened cost reporting periods. Institutions undergoing mergers, acquisitions, or other mid-year structural changes should pay particular attention to this clarification to ensure compliance and accuracy in FTE reporting.

At Germane Solutions, we continue to advise clients on properly calculating and validating FTEs for stub cost reports, especially in complex organizational transitions.

DGME Reduction Factor for Medicare Advantage (MA) 

CMS finalized a 2.33% reduction to MA DGME payments for FY 2026. This remains a relatively low reduction compared to the historic 14.13%  and is consistent with more recent years. This continues to minimize the reduction to DGME payments for institutions serving Medicare Advantage beneficiaries.

No Other GME-Related Policy Changes Finalized

Consistent with the proposed rule, the Final 2026 IPPS Rule included no updates to program newness criteria or Section 5506 cap redistribution policies, and reaffirmed the State Frontier Floor, Rural Floor wage index methodology, and 5% cap on wage index decreases.

Whether you're preparing a stub cost report, validating FTEs, or modeling DGME payments under Medicare Advantage, Germane Solutions is here to support your institution in navigating the Final 2026 IPPS Rules with clarity and precision.

Please contact our team of GME experts to discuss your current cost reporting structure, FTE compliance, and future planning under the finalized rule.