2026 OPPS Final Rule Summary and Highlights

Ronald Hirsch, MD, FACP, CHRI, ACPA-C

At the end of November, the Centers for Medicare and Medicaid Services (CMS) released the 2026 Outpatient Prospective Payment System (OPPS) Final Rule, finalizing their plan to gradually eliminate the Medicare Inpatient Only (IPO) list over the next three years. Hopefully, you have begun to formulate a plan about how your hospital or health system will address this change. In addition, here are other issues pertinent to physician advisors which should be considered:

What is the purpose of the IPO? As described in CMS regulation, it was an attempt to protect patient safety by ensuring complex surgeries are only performed in hospitals as Inpatient and not in other, lesser settings. This makes sense when comparing surgery in a hospital to surgery in an ambulatory surgery center (ASC) or physician’s office. But for the most part, surgery in a hospital is equally safe if the patient’s status is Inpatient or Outpatient, unless the hospital facility is an off-campus location.

For years, CMS has also published the Ambulatory Surgery Center Covered Procedure List (ASC-CPL), listing surgeries which are allowed to be performed at an ASC. To make it more complex, there is also a smaller subset of surgeries which are allowed to be performed in physician’s offices, although there is no official list. To find them, one must access the physician fee schedule and determine if there is a payment rate for non-facility performance of the procedure. We could digress even further by discussing site neutral payments but that’s beyond the scope of this overview.

In the 2026 OPPS Final Rule, CMS decided that due to advances in medical care and new technology, there is no longer a need for the IPO list or the ASC-CPL. They are trusting that physicians will do what is best for their patients by picking the most appropriate setting for performance of a procedure. Starting in January 2026, any surgery not on the Medicare IPO list or billed with an unlisted code can be performed at an ASC. CMS feels physicians will make the best decision as for the proper site of service for any surgery. 

While there’s no safety difference between a surgery performed at a hospital as Inpatient or Outpatient, an ASC doesn’t have the same capabilities as a hospital in the event of an adverse occurrence during surgery and such patients often require transfer to a hospital. In the past, ASCs had to have formal transfer agreements with hospitals, but that requirement was eliminated several years ago. When such an event happens at an ASC, or if the patient requires a longer than expected recovery period than allowed at an ASC, these facilities will simply call 911. The appropriate care of such patients is paramount, but hospitals should watch for patterns that might suggest quality issues with patient selection at the ASC. 

Outside of the location where these procedures can take place, there are other financial implications of the decision, as well. The same surgery performed as Inpatient pays a higher fee than Outpatient. In addition, the structure to pay hospitals for medical education is designed to provide revenue through direct medical education funding – which is a fixed sum each year – and indirect medical education – which is a payment added to each Inpatient hospitalization. In other words, fewer Inpatient hospitalization, especially those involving surgeries, will reduce the funds provided to hospitals to support their education programs. There are other additional payments that accompany an Inpatient DRG payment, including payments for uninsured and underinsured patients. But those payments are set yearly and are reconciled with cost reporting at the end of the year, so the full amount gets paid. 

What does this mean for hospitals? Once the IPO list is completely gone, the proper status for every surgery will need to be determined based on the Medicare Two-Midnight Rule. But remember, for the next three years, we still must consult the list and ensure IPO surgeries, some of which have short lengths of stay like transcatheter aortic valve replacements (TAVRs) which are now being discharged from the recovery room, get an Inpatient order.

The main provisions of the Medicare Two-Midnight Rule are that Inpatient status is appropriate if the expected, medically necessary length of stay is over two midnights, the patient has a justified need for skilled nursing care in a facility after surgery (a point which unfortunately has only indirectly been alluded to by CMS), or they meet the case-by-case exception based on complexity, severity, and/or risk. What about simply performing every surgery as Outpatient and not worrying about all of this? That’s a rational question but to answer it depends on your payment rates. 

If your hospital has no medical education programs, the difference between Inpatient and Outpatient may be a few hundred dollars per case and not worth the time and effort to set up a program to screen hospitalizations for status. But if you have residents and fellows roaming the halls, that multi-thousand-dollar medical education payment, which occurs with each Inpatient surgery but not Outpatient surgeries, may make it a valuable endeavor. Remember that one of your CFO’s favorite key performance indicators is the Case Mix Index (CMI) and if you decide to do most of your surgeries as Outpatient, your CMI will plummet, even if your revenue may not. 

Of course, the 2026 OPPS Final Rule contains more than changes to the IPO list. There are also changes to the 340B program for medication discounts which are complex beyond belief. Price transparency regulations have been tightened down, mostly to the benefit of payers who will now be able to see how much hospitals are paid by other payers and use that information to cut rates to all hospitals. And, there the usual changes to Outpatient payment rates and new technologies.

While payment rates are outside the purview of physician advisors, remember that for many high-cost procedures involving new technologies, physician advisors should be involved in ensuring new technology is used appropriately and that the medical necessity for its use is properly documented. Although it may sound obvious, one of the most crucial parts of new technology use is ensuring the device, treatment, or medication is properly added to your hospital’s chargemaster with proper pricing and that the HCPCS code is placed on the claim. Unless that happens, the new technology will benefit the patient but there will be no additional payment to the hospital to cover the added cost of the care provided. 

As with every rule, there is always something for a physician advisor to learn by reading the rule front to back. There are many talking heads out there, like me, who provide summaries and commentaries. Trust these at your own risk. Download the rule and read it. Then share with other American College of Physician Advisor (ACPA) members by writing an article for the newsletter – ACPA Update.