FY27 Budget & Key CMS Actions

THIS WEEK’S DOSE

• Congress wraps up spring recess, turns toward reconciliation. Attention remains on the prospect of a reconciliation 2.0 bill to fund US Immigration and Customs Enforcement and US Customs and Border Protection.
• White House releases FY 2027 budget request. The president’s fiscal year (FY) 2027 budget requests a 12.5% funding cut to the US Department of Health and Human Services compared to FY 2026 levels.
• CMS finalizes MA and Part D 2027 technical rule. The Centers for Medicare & Medicaid Services (CMS) largely finalized policies as proposed, including changes to special needs plans.
• CMS releases MA final rate notice for 2027. After a record-breaking 40,000 comments on the advance notice, CMS finalized a 2.48% net increase to Medicare Advantage (MA) plan payments for 2027, a large increase compared to the originally proposed 0.09%.
• CMS issues four FY 2027 proposed Medicare rules. The rules propose payment changes for hospice, inpatient rehabilitation, inpatient psychiatric, and skilled nursing facility care.
• CMS Innovation Center launches LEAD model RFA. Applications for the Long-term Enhanced ACO Design (LEAD) model are due May 17, 2026.
• CMS issues OBBBA guidance on federal Medicaid funding for immigrants. The state health official letter provides guidance for limiting federal funding for certain noncitizens, as passed in the One Big Beautiful Bill Act (OBBBA).
• Federal judge denies Minnesota’s request for injunction in Medicaid funding lawsuit. Minnesota asked for a preliminary injunction to block CMS’s deferral of more than $200 million in federal Medicaid funding.

CONGRESS

Congress wraps up spring recess, turns toward reconciliation. Both the House and Senate have been in recess for the last two weeks. While lawmakers have been out of town, focus has remained on funding the US Department of Homeland Security. President Trump has directed congressional Republicans to use the reconciliation process to fund US Immigration and Customs Enforcement (ICE) and US Customs and Border Protection (CBP) by June 1, 2026. That tight timeline may be challenging for Republicans, particularly given small margins in both chambers. If the package remains narrowly focused on ICE and CBP (and potentially the Iran war), it may not need to be offset. However, once reconciliation discussions begin they can be hard to control. If the bill grows, healthcare could become part of the package, especially health provisions used to offset other spending.

ADMINISTRATION

White House releases FY 2027 budget request. While the budget request is a nonbinding outline of the administration’s funding goals for the coming year, it also sheds light on the administration’s policy goals. The broad goal of this budget is to increase defense spending and reduce domestic spending. The budget includes proposed funding levels and policies for FY 2027 across all federal departments, including a request for $111.1 billion for the US Department of Health and Human Services (HHS), a $15.8 billion or 12.5% cut from FY 2026 levels. Notably, the budget requests $41.2 billion for the National Institutes of Health (NIH), a $3.7 billion decrease from FY 2026 levels. This is a smaller cut than the administration requested in the FY 2026 budget, which included only $27.5 billion for NIH. Congress rejected that cut and provided a small increase to NIH in its final FY 2026 funding package.

Typically, HHS budgets have also included ideas for how to reform existing programs such as Medicare and Medicaid that do not rely on annual appropriations. For the second year in a row, the budget does not include Medicare or Medicaid proposals.

To support the request, HHS released the FY 2027 Budget in Brief and agency/division congressional justifications. Administration officials will begin testifying before Congress on the budget request next week, including a House Budget Committee hearing and a Senate Budget Committee hearing with Office of Management and Budget Director Russel Vought on April 15, 2026. Hearings with HHS Secretary Kennedy are beginning as well, starting with a double header on April 16, 2026 at the House Ways and Means Committee in the morning and House Appropriations Committee in the afternoon.

CMS finalizes MA and Part D 2027 technical rule. On April 2, 2026, CMS issued a final rule that puts forth policy and technical changes to the MA and Part D programs for 2027 and beyond.

Key takeaways from the final rule include:

• Star ratings. CMS finalized the removal of 11 measures from the star ratings beginning with the 2027 measurement year. CMS opted to not finalize the proposal to remove the Diabetes Care – Eye Exam measure.
• Part D plans. CMS codified changes to the Part D benefit design, as required by the Inflation Reduction Act, including eliminating the coverage gap phase and the annual out-of-pocket threshold, removing cost sharing for enrollees in the catastrophic phase, and implementing the manufacturer discount program.
• Supplemental benefits. CMS will require MA plans to publicly post eligibility criteria for special supplemental benefits for the chronically ill and establish new guardrails for debit card use, including verifying eligible expenses in real time and limiting cards to a single plan year.
• Special needs plans. Finalized policy changes include updates to passive enrollment, continuity of care and enrollment, contract modifications, and model of care submission requirements.
• Special enrollment periods. CMS did not finalize the proposal to modify the special enrollment period that allows enrollees to change plans when a provider they see leaves the network. CMS will consider the possibility of further action in future rulemaking.

More information on the final rule can be found in a CMS fact sheet and the press release.

CMS releases MA final rate notice for 2027. The final rate notice, released on April 6, 2026, projects that the payment policies and updates will result in a net 2.48% increase in payments to MA plans in 2027. The advance notice projected a net increase of only 0.09%, which many MA plans raised as a concern. After accounting for expected trends in coding, the payment rates and policies described in the final rate announcement are projected to result in a net payment increase of 4.98%. This projection is an average across the industry, so the payment impact on individual MA plans will vary depending on their service area, eligibility for quality bonuses in 2027, and enrollees’ health status and conditions.

CMS also finalized two changes to policies related to risk score calculations and diagnosis sources. As proposed, CMS will exclude diagnoses from audio-only services and from unlinked chart review records. CMS will remove diagnoses from encounters that are submitted as a chart review but are not linked to a specific item or service, except in cases where an enrollee switches from one MA organization to another. More information can be found in the press release and fact sheet from CMS.

CMS issues four FY 2027 proposed Medicare rules. On April 2, 2026, CMS issued four of the five annual FY Medicare payment regulations:

• Hospice. CMS proposes to increase hospice payments by 2.4% in FY 2027. In line with the administration’s program integrity focus, CMS discusses its service and spending variation index (SSVI), which would analyze claims to compare spending and care between hospices. The analysis would specifically focus on non-hospice spending, which CMS notes has risen in recent years. CMS proposes to publish SSVI information, noting that a high SSVI, while not directly indicating fraud, waste, or abuse, could raise program integrity concerns. The same day that CMS released this proposed rule, the US Department of Justice announced arrests of eight Los Angeles-based hospice owners due to allegations of $50 million of Medicare fraud.
• Inpatient psychiatric facility (IPF). CMS proposes a 2.3% payment increase for FY 2027 and proposes to remove alcohol intervention and tobacco use treatment measures from the IPF quality reporting program (QRP).
• Inpatient rehabilitation facility (IRF). CMS proposes a 2.4% increase to IRF payments for FY 2027. CMS seeks information on adding an advance care planning measure (a continuous process of conversation to align a patient’s care and interventions to their values and preferences) to the IRF QRP.
• Skilled nursing facility (SNF). CMS proposes to increase SNF payments by 2.4% in FY 2027 and remove COVID-19 vaccine measures from the SNF QRP. CMS also seeks information on adding the advance care planning measure to the SNP QRP.

We await the release of the fifth FY 2027 proposed Medicare payment rule, which will address inpatient hospital services.

CMS Innovation Center launches LEAD model RFA. LEAD will begin after the conclusion of the ACO REACH model on December 31, 2026, and aims to test whether a 10-year stable benchmarking pathway, combined with flexible population-based payments, voluntary two-sided risk options, and enhanced beneficiary engagement tools, can expand participation in accountable care. The LEAD request for applications (RFA), available to healthcare providers and accountable care organizations (ACOs), has a deadline of May 17, 2026. The model will begin January 1, 2027, and run through performance year 2036, including an optional implementation period from September 15 through December 31, 2026.

LEAD aims to encourage participation from both high- and low-performing ACOs while introducing new beneficiary alignment pathways, including for dually eligible individuals. The model will provide upfront capitated payments to support care delivery and investment in value-based care. LEAD will establish a “high needs” beneficiary category for individuals with significant clinical risk, frailty, or high utilization, with tailored benchmarking, risk adjustment, and payment policies applied consistently across participating ACOs.

CMS issues OBBBA guidance on federal Medicaid funding for immigrants. The state health official letter discusses Section 71109 of OBBBA, which limits federal Medicaid and Children’s Health Insurance Program (CHIP) funding to four groups: US citizens and nationals, lawful permanent residents, Cuban/Haitian entrants, and Compact of Free Association migrants. States will not be able to claim federal funding for coverage of other noncitizens, such as asylees and refugees, starting October 1, 2026. The guidance discusses what states must do to ensure compliance with this policy for current enrollees and notes that CMS will issue future guidance on implications for dual-eligible enrollees. CMS also describes operational considerations for states, such as updates to application forms, new processes for verifying immigration status, changes to managed care contracts, and state-only-funded coverage for ineligible noncitizens.

COURTS

Federal judge denies Minnesota’s request for injunction in Medicaid funding lawsuit. Minnesota filed the lawsuit in March 2026 in relation to CMS’s January 2026 announcement that the agency would withhold $2 billion annually from the state because of concerns that Minnesota was not addressing fraud within 14 home- and community-based service (HCBS) categories and was not in compliance with federal program integrity requirements. Minnesota appealed that decision and requested a hearing, but in February 2026, CMS announced it would defer $259 million in federal matching funds for Minnesota’s Medicaid program, including $243 million for potentially fraudulent claims related to HCBS. Minnesota alleged in the lawsuit that CMS extinguished the state’s right to a hearing related to the January announcement by taking February’s deferral action, as both actions relate to the same federal funding.

This week, the judge denied Minnesota’s request for a temporary restraining order or preliminary injunction, noting that the court must wait until an agency’s proceedings are final before deciding whether the action is lawful. However, the judge acknowledged that Minnesota credibly complained that CMS’s deferral was historically unprecedented, and noted that Minnesota identified reasonable legal concerns regarding the deferral’s nature and scope. The ruling notes that the record for the case could support Minnesota’s claims in the future.

BIPARTISAN LEGISLATION SPOTLIGHT

Sens. Wyden (D-OR) and Blackburn (R-TN) introduced the Health Workforce Innovation Act to address the growing shortage of allied health professionals such as physical therapists, emergency medical personnel, behavioral health paraprofessionals, and pharmacy technicians. These shortages are expected to disproportionately affect rural and underserved communities. The bill would establish the Health Care Workforce Innovation Program, a grant program to fund community health centers and rural health clinics to carry out programs to educate and train a wide range of allied health professionals, including through partnerships with high schools, community colleges, and other entities. A one-pager on the bill can be found here.

QUICK HITS

• MedPAC holds April meeting. The Medicare Payment Advisory Commission (MedPAC) discussed Part D plans, beneficiary enrollment decisions, payment incentives in Medicare, and the association between MA enrollment and hospitals’ and post-acute care providers’ finances.
• MACPAC holds April meeting. The Medicaid and CHIP Payment and Access Commission (MACPAC) meeting included votes on recommendations related to work requirements implementation, managed care accountability, and the transition to adult coverage for children with special healthcare needs. Other sessions focused on program integrity, pharmacy benefit managers, and prior authorization.
• HHS restores ONC as singularly titled office. HHS announced that it will reverse the Biden-era establishment of the Assistant Secretary for Technology Policy and restore the Office of the National Coordinator for Health IT (ONC) to a singularly titled office. With this change, the roles and responsibilities of the HHS chief technology officer, the Office of the HHS Chief AI Officer, and the Office of the HHS Chief Data Officer will no longer be part of ONC.
• Treasury Department issues advisory on healthcare fraud. The advisory from the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) urges financial institutions to be on alert for healthcare fraud, including schemes targeting Medicare and Medicaid, and to report suspicious activity to FinCEN. CMS Chief Operating Officer Kim Brandt discussed collaborating with the Treasury Department during a recent House Energy and Commerce healthcare fraud hearing. 
• CMS Innovation Center delays implementation of two services in WISeR model. The Wasteful and Inappropriate Services Reduction (WISeR) model, which began January 1, 2026, involves prior authorization for certain Medicare fee-for-service services. CMS’s announcement delays implementation, until a future date to be announced in the Federal Register, of prior authorization for two services: deep brain stimulation for essential tremor and Parkinson’s disease, and percutaneous image-guided lumbar decompression for spinal stenosis.
• CMS Innovation Center announces new hemp initiative for certain models. As of April 1, 2026, participants in certain CMS Innovation Center models, including ACO models, are able to offer a new substance access beneficiary engagement incentive in an effort to expand access to hemp-derived products.
• Democratic Senate committee leaders request hearings with health insurance executives. Senate Health, Education, Labor, and Pensions (HELP) Committee Ranking Member Sanders (I-VT) and Senate Finance Committee Ranking Member Wyden (D-OR) wrote to HELP Committee Chair Cassidy (R-LA) and Finance Committee Chair Crapo (R-ID) requesting that they hold bipartisan hearings with health insurance CEOs as the House Energy and Commerce and Ways and Means Committees did earlier this year.
• HHS announces nutrition initiatives. CMS issued a memo to hospitals reminding them of federal Medicare requirements to ensure hospital menus and diets meet individual patient nutritional needs in accordance with recognized dietary practices. CMS noted that hospitals should review and revise food and nutrition service policies, standard menus, therapeutic diet protocols, and food procurement practices to align with the 2025 – 2030 Dietary Guidelines for America. The Health Resources and Services Administration also announced $125 million in funding opportunities to expand access to nutrition services and $11 million to support the rural workforce.

NEXT WEEK’S DIAGNOSIS

Both chambers return to Washington, DC, next week, with the Senate returning April 13 and the House returning April 14. Lawmakers will return to a hearing-filled week, including budget-related hearings with administration officials. Hearings include:

• April 14, 2026: House Ways and Means Health Subcommittee field hearing on modernized healthcare.
• April 15, 2026: House Energy and Commerce Health Subcommittee legislative hearing on improving public health, and House Oversight Government Operations Subcommittee hearing on fraud in federal programs administered by states.
• April 16, 2026: House Ways and Means Committee hearing with HHS Secretary Kennedy, House Appropriations Labor-HHS Subcommittee hearing on the FY 2027 budget, and Senate HELP Committee hearing on lowering drug prices.

On the regulatory front, we await the release of the FY 2027 Inpatient Prospective Payment System proposed rule and the final 2027 Notice of Benefit and Payment Parameters for the Marketplace.