Proposed 2027 IPPS Rule: Key Considerations for Leaders in Education

The Centers for Medicare & Medicaid Services (CMS) recently released the proposed 2027 Inpatient Prospective Payment System (IPPS) rule, introducing several updates that may impact Allied Health and Graduate Medical Education (GME) strategy, reimbursement, and program development.

While the rule includes a wide range of policy updates, several proposed changes are particularly relevant for hospitals and health systems involved in residency training. Below are key highlights and considerations for leaders in education as they begin to evaluate potential implications.

Proposed Changes to New Residency Program Criteria

One of the most notable areas of change focuses on how CMS defines and evaluates “new” residency programs for cap-building purposes.

CMS is proposing that, for programs starting on or after October 1, 2026, previous employment of faculty or program directors would no longer be considered when determining whether a program qualifies as new. This represents a shift from prior interpretations and may simplify the pathway for institutions leveraging experienced leadership to launch new programs.

At the same time, CMS is proposing a more stringent requirement related to resident composition. To qualify as a new program, at least 90 percent of trainees must not have prior training in the same specialty. This introduces a more structured threshold that programs will need to monitor closely throughout the five-year cap-building period.

Importantly, CMS also indicates that final determinations of program “newness” would occur after the completion of the cap-building period, rather than upfront. This reinforces the need for ongoing documentation and strategic oversight during program development.

Implications for Program Development and Expansion

Together, these proposed changes introduce much-needed clarification in areas that have historically been vague and difficult to align with the Accreditation Council on Graduate Medical Education (ACGME) requirements.

When working with clients, we have often advised limiting the number of residents entering from existing programs in order to meet the criteria for a “new” program. With this clarification, there will no longer be ambiguity around what qualifies as a new program, providing clearer guidance for institutions pursuing program development and expansion.

The removal of the “new” criteria for Program Directors and Core Faculty also addresses a long-standing inconsistency between ACGME and CMS requirements. For example, the ACGME requires Program Directors to have at least three years of educational and/or administrative experience prior to stepping into the role. In practice, this often means Program Directors transition from leadership roles in one program to another for professional growth or alignment with institutional needs. Under the proposed rule, this movement would no longer impact whether a program is considered “new” for cap-building purposes. 

This clarification is expected to reduce confusion among sponsoring institutions, reimbursement teams, and Medicare Administrative Contractors, helping to streamline the program development process.

Additional Considerations: Hospital Closures and Slot Redistribution through Section 5506

The proposed rule also includes opportunities related to the redistribution of residency positions following hospital closures, specifically Rounds 27 and 28 of Section 5506 of the Affordable Care Act (ACA). CMS continues to provide opportunities for hospitals to apply for available slots, which can serve as a strategic avenue for program growth. Below is additional information on the two recently closed hospitals:

CCN	Provider Name	City and State	Available IME Cap	Available DGME Cap
390081	Delaware County Memorial Hospital	Drexel Hill, PA	28.6	27.96
390180	Crozer-Chester Medical Center	Chester, PA	101.32	100.89

The eligibility for, and likelihood of receiving, these cap positions is based on how the positions will be used and the geographic proximity to the closed hospital. The submission deadline for both application rounds is July 9, 2026.

These redistribution opportunities remain an important mechanism to increase training capacity without relying solely on new program development. If your institution is considering applying for additional cap positions, Germane Solutions can provide support throughout the application process.

Looking Ahead

The proposed 2027 IPPS rule reinforces a broader trend: GME strategy is becoming increasingly interconnected with regulatory interpretation, workforce planning, and operational execution. As additional details emerge and the rule is finalized, proactive planning will be key to positioning programs for success.

In this evolving environment, institutions will need to take a thoughtful and strategic approach to interpreting these changes and aligning them with their long-term goals. At Germane Solutions, we are closely monitoring these developments and working with institutions to assess potential impacts, refine program strategies, and ensure alignment with evolving CMS guidance. If your institution is evaluating how these proposed changes may impact your GME strategy, contact us to learn how Germane Solutions can support your planning and implementation efforts.