Insights

On July 31, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Fiscal Year 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) Final Rule. A fact sheet from CMS can be found here. The final rule takes effect on October 1, 2025.

UPDATES TO IPPS PAYMENT RATES

As part of the final rule, CMS finalized a 2.8% increase in payment rates for FY26 under the IPPS for acute care hospitals that meet the Hospital Inpatient Quality Reporting Program and meaningful EHR use requirements, effective for discharges on or after October 1, 2025. This update reflects a projected FY26 hospital market basket increase of 3.3%, reduced by a 0.5% productivity adjustment. The final rule also sets a fixed loss threshold for outlier payments at $43,663 (slightly lower than the FY25 threshold of $46,217) to maintain outlier payments at 5.1% of total IPPS payments. Total IPPS payments are projected to increase by approximately $4 billion, including $1.5 billion in uncompensated care payments to disproportionate share hospitals.

Compared to the proposed rule’s 2.4% payment rate increase (based on a 3.2% market basket increase minus a 0.8% productivity adjustment), the final rule’s 2.8% update reflects a higher market basket projection of 3.3% and a lower productivity adjustment of 0.5%, incorporating more recent 2024 data. The fixed loss outlier threshold decreased from the proposed $44,305 to $43,663, driven by updated cost and charge data. The $4 billion total payment increase aligns with the proposed rule’s estimate, but the uncompensated care payment rise reflects a refined projection of an 8.5% uninsured rate for CY26

MEDICARE-DEPENDENT HOSPITALS (MDHS) AND LOW-VOLUME HOSPITALS

The MDH program provides enhanced payments to small rural hospitals (≤100 beds, not Sole Community Hospitals) where at least 60% of inpatient days or discharges are attributable to Medicare patients, using a blended rate that includes 75% of the federal rate plus 25% of the hospital-specific rate based on historical costs. The low-volume hospital adjustment offers percentage add-ons to IPPS payments for rural hospitals with low annual discharges to offset higher per-case costs, currently on a sliding scale up to 25% for facilities with fewer than 3,800 discharges and more than 15 road miles from another subsection (d) hospital.

Both programs are set to expire at the end of FY25 (September 30, 2025). In the FY26 final rule, CMS notes that if Congress does not extend the Medicare-Dependent Hospital (MDH) program, approximately 150-160 hospitals will lose their MDH payment adjustment. Similarly, failure to renew the low-volume hospital payment adjustment would cause around 600 hospitals to miss out on additional payments in FY26. The combined loss in funding would total approximately $500 million in FY26. At this stage, we anticipate Congress will extend both programs as part of “extenders” legislation addressing expired or soon-to-expire healthcare policies (as Congress has done on a bipartisan basis for both the MDH and low-volume add-ons for several years now). However, there will be some uncertainty around this given the partisan dynamics of the appropriations process and the fact that lawmakers are likely to enact at least one (if not more) continuing resolutions before full-year FY26 appropriations legislation (to which extenders would likely be attached) will be enacted into law.

DISCONTINUATION OF THE LOW-WAGE INDEX HOSPITAL POLICY

The low wage index hospital policy was established in the FY20 IPPS final rule as a temporary, budgetneutral initiative to address wage index disparities, which benefited rural hospitals by raising their wage indices to mitigate lower payment impacts. This policy adjusted the wage index for hospitals in the bottom quartile, setting a floor at the 25th percentile value, which was offset by a corresponding reduction for higher-wage hospitals. However, in July 2024, the U.S. Court of Appeals for the D.C. Circuit in Bridgeport Hosp. v. Becerra ruled that CMS lacked the statutory authority under sections 1886(d)(3)(E) or 1886(d) (5)(I) of the Social Security Act (SSA) to implement this policy, vacating both the policy and its budget neutrality adjustment.

For FY26, CMS finalized the discontinuation of the low wage index hospital policy. To cushion the abrupt payment reductions for affected low-wage hospitals, CMS adopted a budget-neutral narrow transitional payment exception specifically for FY26 IPPS calculations. This exception replicates the interim transitional policy from the FY25 interim final rule with comment period (i.e., if the hospital’s FY26 wage index is decreasing by more than 9.75% from the hospital’s FY24 wage index, then the transitional payment exception for FY26 for that hospital is equal to the additional FY26 amount the hospital would be paid under the IPPS if its FY26 wage index were equal to 90.25% of its FY24 wage index).

UPDATE TO THE IPPS LABOR-RELATED SHARE

In the IPPS final rule, CMS finalized a reduction in the labor-related share from 67.6% to 66.6% for hospitals with a wage index greater than 1.0 and from 62% to 60.9% for those with a wage index of 1.0 or less, based on a rebased and revised 2023-based IPPS market basket. This adjustment aligns payments more closely with updated labor cost data. Still, it reduces the portion of payments adjusted by the wage index, likely lowering reimbursements for hospitals in high-wage areas.

HOSPITAL INPATIENT QUALITY REPORTING (IQR) PROGRAM

CMS finalized modifications to several existing measures in the Hospital IQR Program:

• For the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke Hospitalization (MORT-30-STK) measure, changes include incorporating Medicare Advantage patients, shortening the performance period to two years (July 1, 2023–June 30, 2025), transitioning to ICD-10 risk adjustment, and removing COVID-19 exclusions, effective for FY27 payment determinations
• The Hospital-Level, Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (COMP-HIP-KNEE) measure was updated similarly with Medicare Advantage inclusion, a two-year performance period (April 1, 2023–March 31, 2025), ICD10 risk adjustment, and COVID-19 exclusion removal, also effective FY27.
• For the Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures, submission thresholds were lowered to 70% for core clinical data elements and linking variables, allowing up to two missing lab results or vital signs, effective for FY28 payment determinations (July 1, 2025–June 30, 2026).

CMS also finalized the elimination of multiple measures from the Hospital IQR Program. The Hospital Commitment to Health Equity (HCHE), COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP), Screening for Social Drivers of Health, and Screen Positive Rate for Social Drivers of Health measures were removed effective for the CY24 reporting period and FY26 payment determination.

As part of the final rule, CMS finalized enhancements to the Extraordinary Circumstances Exception (ECE) policy in the Hospital IQR Program to provide greater flexibility and reduce penalties during disruptions. The ECE request submission deadline was extended from 90 to 180 days, and partial exceptions for individual measures were allowed rather than requiring all-or-nothing requests, effective immediately upon f inal rule publication. Hospitals can now receive ECEs for up to three consecutive years, with exceptions due to public health emergencies and data submission delays. The post-event request deadline was extended to 60 days, and full cost reporting period exceptions were permitted for widespread impacts.

MEDICARE PROMOTING INTEROPERABILITY PROGRAM

As part of the final rule, CMS made several modifications to the Medicare Promoting Interoperability Program:

• CMS finalized the definition of the EHR reporting period for CY26 and subsequent years as a minimum of any continuous 180-day period within the calendar year for eligible hospitals and CAHs participating in the Medicare Promoting Interoperability Program. This change, codified at 42 CFR 495.4, provides greater flexibility in selecting reporting windows to accommodate operational needs. It maintains consistency with CY25 requirements while supporting EHR vendors in certification processes.
• CMS modified the Security Risk Analysis measure to require eligible hospitals and CAHs to attest “Yes” to both conducting a security risk analysis and performing security risk management activities, in accordance with 45 CFR 164.308(a)(1)(ii)(A) and (B), starting with the EHR reporting period in CY26. This includes addressing the security of data created or maintained by CEHRT, such as encryption under 45 CFR 164.312(a)(2)(iv) and 164.306(d)(3). Attesting “No” to either component results in failing the measure and potential downward payment adjustments. The update enhances cybersecurity practices without adding economic impacts beyond existing requirements.
• CMS updated the Safety Assurance Factors for EHR Resilience (SAFER) Guides measure, mandating eligible hospitals and CAHs to attest “Yes” to completing an annual self-assessment using all eight 2025 SAFER Guides at any point during the calendar year, effective for the EHR reporting period in CY26 and beyond. The 2025 Guides are streamlined to address high-risk issues through technology or practice changes, focusing on foundational, infrastructure, and clinical processes. No specific implementation status is required, and the change does not increase burden estimates. This promotes proactive EHR safety assessments to mitigate common vulnerabilities.
• CMS introduced an optional bonus measure under the Public Health and Clinical Data Exchange objective, allowing eligible hospitals and CAHs to earn five bonus points for exchanging health information with a public health agency using the Trusted Exchange Framework and Common Agreement (TEFCA), beginning with the EHR reporting period in CY26. Requirements include being a signatory to a Framework Agreement, not suspended, submitting data consistent with exchange measures, achieving active engagement under Option 2, and using CEHRT functions. No exclusions were proposed, and attestation is voluntary with no additional burden for those already using TEFCA. This incentivizes advanced interoperability while accommodating varying hospital capabilities.

Separately, CMS reflected on the comments it received in response to three requests for information (RFIs) relating to potential future policy changes regarding the interoperability program:

• Commenters supported transitioning the Query of PDMP measure to a performance-based format for better accountability in tracking queries and preventing opioid misuse and expanding the measure to include additional drug types. However, opponents highlighted increased administrative burdens, especially for rural hospitals, along with concerns over privacy, legal barriers, data accuracy, and interoperability issues with state PDMP systems. Suggestions included phased implementation, technical assistance, EHR integration, federal funding, and pilot testing to ensure smoother adoption.
• Many commenters endorsed moving the Medicare Promoting Interoperability Program’s objectives and measures toward performance-based reporting to align with value-based care, reduce administrative burdens, and provide real-time metrics that benefit low-volume hospitals. Opponents raised issues about heightened reporting complexity, resource strains on smaller practices, data reliability, and potential unfair penalties due to readiness disparities. Recommendations focused on phased rollouts, technical support, risk adjustments, clear thresholds, and pilot testing.
• Stakeholders advocated for improvements in health information exchange quality and completeness through standardized APIs, real-time data sharing, and updated standards like USCDI Version 3 and FHIR, which would enhance care coordination, public health reporting, and address technology disparities. Concerns centered on implementation costs, data security/privacy risks, survey fatigue, and the immaturity of certain standards. Suggestions included provider education, incentives for early adopters, robust security measures, phased approaches, and the collection of disaggregated data.

HOSPITAL READMISSIONS REDUCTION PROGRAM

In the final rule, CMS finalized updates to the Hospital Readmissions Reduction Program by modifying all six condition-specific readmission measures (AMI, HF, PN, COPD, THA/TKA, CABG) to include Medicare Advantage (MA) beneficiaries in performance calculations starting FY27, using a shortened twoyear applicable period (July 1, 2023–June 30, 2025), while removing COVID-19 diagnosis exclusions and updating risk adjustment to individual ICD-10 codes. Due to concerns about data reliability from commenters, CMS did not finalize including MA data in aggregate payment calculations for excess readmissions. The rule extends the Extraordinary Circumstances Exception (ECE) submission deadline from 30 to 60 days, allowing CMS discretion to grant extensions or exceptions proactively for systemic issues.

HOSPITAL ACQUIRED CONDITION (HAC) REDUCTION PROGRAM

For FY26, CMS will maintain the 1% payment reduction for hospitals in the worst-performing quartile based on measures including CMS PSI 90 and CDC NHSN HAI indicators such as CAUTI, CLABSI, SSI, MRSA Bacteremia, and CDI. The rule updates the Extraordinary Circumstances Exception (ECE) policy by extending the submission deadline from 30 to 60 days after public comments, allowing CMS to grant extensions or ECEs proactively for systemic issues, and clarifying notification processes. It also provides notice of rebasing NHSN HAI measures using CY22 data (effective for FY28 program year scoring with CY24-25 performance periods) and removes COVID-19 diagnosis exclusions from PSI 90 and other measures starting FY27. Scoring methodology remains unchanged, with equal weighting of domains and public reporting on Hospital Compare.

HOSPITAL VALUE-BASED PURCHASING (VBP) PROGRAM

CMS finalized modifications to several retained measures in the Hospital VBP Program:

• The Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA/TKA (COMPHIP-KNEE) was updated to include Medicare Advantage beneficiaries, shorten the performance period to two years (April 1, 2023–March 31, 2025), transition to ICD-10 risk adjustment, and remove COVID-19 exclusions, effective for the FY33 program year.
• Similarly, the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke (MORT-30-STK) incorporated Medicare Advantage patients aged 65+, reduced the performance period to two years (July 1, 2023–June 30, 2025), updated risk adjustment to ICD-10 codes, and eliminated COVID-19 exclusions, starting FY27.
• For the Hybrid Hospital-Wide Readmission (HWR) and Hybrid Hospital-Wide Mortality (HWM) measures, submission thresholds for core clinical data elements and linking variables were lowered to 70%, allowing up to two missing lab values or vital signs, effective FY28 with performance periods from July 1, 2025–June 30, 2026.

CMS eliminated several measures from the Hospital VBP Program:

• The Health Equity Adjustment (HEA) was removed effective FY26 to simplify scoring, as its impact on payment adjustments was minimal (0.168% vs. 0.170%).
• The Health Equity Adjustment (HEA) was removed effective FY26 to simplify scoring, as its impact on payment adjustments was minimal (0.168% vs. 0.170%).
• The Medicare Spending Per Beneficiary (MSPB) Hospital measure and Hospital-Level Risk-Standardized Complication Rate Following Elective Primary THA/TKA were eliminated effective FY28 to minimize overlap and address low case volumes with limited scoring impact.

TRANSFORMING EPISODE ACCOUNTABILITY MODEL (TEAM)

In the FY26 IPPS final rule, CMS finalized multiple updates to the Transforming Episode Accountability Model (TEAM), effective January 1, 2026, for five-episode categories (CABG, THA/TKA, spinal fusion, major bowel procedure, acute myocardial infarction), including:

• To support hospital participation, CMS introduced a limited deferment period for certain hospitals, excluded Indian Health Service hospitals, and eliminated downside financial risk for low-volume hospitals with fewer than 31 episodes.
• For quality and performance measurement, CMS added the Information Transfer Patient Reported Outcome-based Performance Measure, assigned neutral scores for participants with insufficient quality data, and removed health equity plans and social needs data reporting, alongside eliminating the Decarbonization and Resilience Initiative to streamline reporting.
• Risk adjustment and pricing were refined by adopting a 180-day lookback period with HCC version 28, replacing the Area Deprivation Index with the Community Deprivation Index, reconstructing normalization trend factors, and establishing a methodology for target pricing during coding changes.
• The SNF 3-day rule waiver was broadened to allow TEAM participants to bypass the 3-day inpatient hospital stay requirement for SNF admissions across all episode categories, modifying the primary care services referral requirement, and aligning episode attribution date ranges.

REQUESTS FOR INFORMATION (RFIS)

As part of the final rule, CMS includes an RFI on streamlining regulations and reducing administrative burdens for those participating in the Medicare program (a response to Executive Order (EO) 14192). To that end, CMS encourages interested stakeholders to submit feedback on that matter by September 15, 2025.

On July 31, 2025, the Senate Health, Education, Labor, and Pension (HELP) Committee held a hearing titled making health care affordable to lower costs and empower patients. Members of the committee heard testimony regarding the impact of health care costs on patient care. There was bipartisan agreement that the cost of health care is too high and there must be a solution to lower the costs.

OPENING STATEMENTS

• Chairman Bill Cassidy (R-LA)

WITNESS TESTIMONY

• Ms. Chris Deacon, Principal and Founder at VerSan Consulting – Testimony
• Dr. Benedic Ippolito, Senior Fellow at American Enterprise Institute – Testimony
• Dr. Brian Miller, Associate Professor of Medicine, Practicing Hospital Medicine Physician – Testimony
• Mr. Wendell Potter, Center for Health and Democracy – Testimony
• Dr. Adam Gaffney, Assistant Professor of Medicine at Harvard Medical School – Testimony

MEMBER DISCUSSION

Health Care Transparency

Chairman Bill Cassidy (R-LA) opened the discussion by asking how price transparency could reduce the cost of care. Ms. Deacon explained that while employers pay premiums on behalf of employees, they often lack the ability to control hospital costs. Transparency would allow insurers and patients to compare prices, identify the best deals, and better understand what is being paid for.

Sen. John Hickenlooper (D-CO) highlighted the importance of maintaining broad health coverage, noting that Medicare and Medicaid remain major revenue sources for providers. He characterized transparency as a central issue and inquired whether future legislation could expand it. Ms. Deacon expressed strong support, emphasizing that giving patients access to clear “price tags” could be transformative.

Sen. Roger Marshall (R-KS) further advocated for the concept, referencing his bipartisan Patients Deserve Price Tag Act with Sen. Hickenlooper, and asked how greater transparency could influence consumer decisions and overall health care costs. Ms. Deacon responded that patients would evaluate both cost and value when making choices. She added that if all members had access to this information, it would drive down costs and potentially lower insurance premiums.

Other witnesses echoed support for greater transparency. Dr. Miller stated that withholding price information is unethical, and Dr. Ippolito agreed that transparency would assist in making informed decisions. Mr. Potter added that transparency would be broadly helpful, while Dr. Gaffney cautioned that transparency alone would not prevent some individuals from becoming uninsured.

PBM Reform

Sen. Marshall raised concerns about pharmacy benefit managers (PBMs), referencing his bill to delink PBM’s and noting that PBMs often create formularies that can prevent patients from accessing generic drugs, emphasizing the importance of legislative oversight. Mr. Potter added that PBMs “suck so much money from the pharmacy supply chain,” highlighting their significant financial impact. Sen. Marshall then asked what value PBMs provide to patients. Dr. Miller explained that PBMs primarily serve as the constructor of formularies.

Sen. Andy Kim (D-NJ) shifted the discussion to retrospective reviews, asking Dr. Miller to elaborate. Miller responded that while the Federal Trade Commission (FTC) previously blocked some hospital mergers, PBM mergers were approved under the assumption that they would lower drug prices. In retrospect, Dr. Miller argued, this analysis was flawed, as PBM consolidation has not delivered the expected price reductions.

340B Drug Pricing Program

Sen. Jon Husted (R-OH) raised concerns about the effectiveness of the 340B drug pricing program, stating, that “340B is not working,” and asked for recommendations to improve it. Dr. Ippolito explained that the program’s original goal is to help hospitals afford care for vulnerable populations. He suggested that tying 340B subsidies more directly to patient care could better align the program with its intended purpose.

 

On July 15, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Calendar Year 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Proposed Rule. The CMS press release can be found here. A fact sheet from CMS can be found here. The 60-day comment period under the Administrative Procedure Act (APA) for the CY26 PFS proposed rule ends on September 15, 2025.

UPDATES TO OPPS & ASC PAYMENT RATES

As part of the rule, CMS proposes updating both OPPS and ASC payment rates for hospitals that meet applicable quality reporting requirements by 2.4%. This update is based on the projected hospital market basket increase of 3.2%, reduced by a -0.8% productivity adjustment.

Notably, CMS has opted to once again extend the use of the hospital market basket for setting ASC rates. In 2019, CMS initiated a five-year “test” of calculating the ASC conversion factor update using the hospital market basket instead of the CPI-U, with the intention of assessing whether this change would prompt a further migration of procedures from the hospital setting to ASCs. That test was initially set to run through CY23, but CMS has since opted to extend it on two occasions (most recently, in this proposed rule) through CY26, due to pandemic-era anomalies in volume that created difficulties in assessing the effect of the shift. Though CPI-U has been running higher than the hospital market basket in recent years (due to the pandemic and the higher-than-usual rates of inflation), the continued use of the hospital market basket would be a positive for ASCs over the long term, given that it has historically been higher than CPI-U (i.e., if/when inflation cools, using CPI-U would be a negative for ASCs relative to the updates experienced during this test).

PROSPECTIVE ADJUSTMENT TO PAYMENTS FOR NON-DRUG ITEMS AND SERVICES

During President Trump’s first term, beginning in CY18, CMS implemented a -28.5% cut to payments for most drugs purchased through the 340B Program and paid under OPPS, lowering the reimbursement amounts from average sales price (ASP) plus 6% to ASP minus 22.5%. The payment reduction was budgetneutral, meaning that savings from the 340B reductions were used to increase payments on other items and services paid under OPPS. Hospitals challenged this policy in federal court and prevailed before the Supreme Court. In 2023, CMS announced it would recoup those increased payments through a -0.5% annual reduction in the OPPS conversion factor beginning in CY26 and running through CY41 (totaling ~$7.8 billion in overpayment recoupments).

As part of the CY26 proposed rule, CMS has announced that it intends to accelerate the recoupment process, implementing a -2% reduction to the OPPS conversion factor through CY31. In practice, for OPPS only, this adjustment would result in an effective payment update for CY26 that is closer to 0.9%. There are, however, outstanding legal questions as to whether the recoupment is allowable on a retroactive basis.

MEDICARE OPPS DRUGS ACQUISITION COST SURVEY

As noted above, in CY18, the Trump administration instituted cuts to Medicare Part B payments for drugs acquired under the 340B program. Those, however, were deemed unlawful by the Supreme Court in the 2022 case American Hospital Association v. Becerra. The court’s decision, reversing a D.C. Circuit ruling that had upheld the cuts, centered on CMS exceeding its statutory authority under 42 U.S.C. §1395l(t)(14) (A)(iii), which outlines two reimbursement methodologies: one permitting rate variation by hospital group only if HHS conducts a survey of hospitals’ average acquisition costs, and a default method requiring uniform ASP-based rates without such variation if no survey is performed. Since HHS did not conduct the requisite acquisition cost survey, the agency lacked the authority to impose differential rates on 340B providers.

As part of the CY26 OPPS proposed rule – and in response to President Trump’s April 2025 drug pricing executive order (EO) – CMS has announced it intends to conduct a comprehensive survey by early calendar year 2026 to collect data on hospital acquisition costs for each separately payable drug acquired by all hospitals paid under the OPPS, with the results aimed at informing policymaking and potential payment rate adjustments beginning with the CY27 OPPS/ASC proposed rule. Although it is not stated in the proposed rule, this effort is likely an attempt by CMS to revisit 340B payment adjustments in a manner compliant with statutory requirements and prior court rulings.

SITE-NEUTRAL PAYMENTS FOR DRUG ADMINISTRATION

The Bipartisan Budget Act of 2015 established the existing site-neutral policies in effect today, aiming to eliminate payment differentials based on the site of service for certain outpatient services. That law stipulated that new off-campus outpatient departments would be paid lower PFS rates for certain services. However, many facilities were exempted from that law (i.e., ASCs, on-campus outpatient departments, off-campus departments that existed before November 2015). Because of these exemptions, the trend has been for hospitals to create new on-campus outpatient departments, purchase pre-2015 off-campus outpatient departments when they want to expand, or build or buy ASCs.

Congress has repeatedly failed to enact broader site-neutral payment reforms beyond the BBA of 2015, often due to opposition from hospital groups concerned about reduced access in underserved areas and the unique costs of hospital-based care. In recent years, bipartisan efforts have included proposals to expand site-neutrality to additional services, such as diagnostic imaging, ambulatory surgery, and drug administration, as well as eliminating grandfathering for existing off-campus PBDs and applying these policies to on-campus facilities. Most recently, as part of the recently enacted One Big Beautiful Bill Act (OBBBA) in 2025, Republican lawmakers debated incorporating comprehensive site-neutral provisions (i.e., eliminating grandfathering, applying site-neutral payments to on-campus departments). The House ultimately passed a proposal to apply site-neutral payments only in the context of drug administration, but that provision was stripped from the bill during Senate consideration.

In the CY26 OPPS proposed rule, CMS proposes to expand site-neutral payments specifically to drug administration services furnished in excepted off-campus outpatient departments, applying a PFSequivalent rate (approximately 40% of the OPPS rate) for services in APCs 5691 through 5694, which include 61 HCPCS codes such as those for chemotherapy infusions and injections. Exceptions include rural sole community hospitals, which will continue to receive 107.1% of OPPS rates for these services, as well as on-campus and non-excepted off-campus locations that are already subject to PFS rates. The agency estimates that this change would yield $280 million in federal savings for CY26, comprising $210 million in reduced Medicare expenditures and $70 million in lower beneficiary copayments.

INPATIENT-ONLY LIST (IPO) & ASC COVERED PROCEDURES LIST (CPL)

The IPO List, established in 2000 under the OPPS, comprises ~1,731 procedures that Medicare reimburses solely when performed in an inpatient setting due to their invasiveness, the need for extended postoperative recovery, and/or patient health risks. For CY26, CMS proposes a three-year phased elimination of the IPO list, entirely removing it by 2029, beginning with the removal of 285 procedures – primarily musculoskeletal services such as hip and knee revisions, osteotomies, amputations, and spinal fusions, along with 16 non-musculoskeletal procedures like cardiovascular interventions, lymphatic excisions, and digestive system repairs.

Relatedly, the ASC CPL outlines surgical procedures and ancillary services eligible for Medicare payment in ASCs – typically HCPCS codes for Category I and III CPT, Level II HCPCS, and items like brachytherapy sources, implantable devices, drugs, and radiology services that are separately payable under OPPS, not on the IPO list, and not unlisted or excluded under regulatory criteria emphasizing safety and minimal risk. For CY26, CMS proposes adding 276 surgery-like codes not currently on the IPO list and an additional 271 codes proposed for IPO removal, expanding the CPL to include spinal procedures (i.e., disc arthroplasty like 0095T and vertebral tethering like 0656T), orthopedic interventions (i.e., hip/knee revisions and osteotomies), general surgery (i.e., amputations like 20816 and tumor resections like 23200), and specialties such as cardiovascular, gynecological, and endovascular.

In practice, these proposals would encourage the migration of procedures to the outpatient setting, potentially lowering Medicare expenditures, reducing beneficiary copayments, and alleviating pressure on hospital inpatient capacity. However, as evidenced in recent years, such adjustments to the IPO and CPL are subject to administrative shifts and thus cannot be presumed to be permanent (i.e., during his f irst term, Trump pursued similar policy changes regarding the IPO and CPL, but those were rescinded through regulation by the Biden administration, with CMS citing safety concerns).

SKIN SUBSTITUTES

Currently, under the OPPS and ASC payment systems, skin substitute products are treated as surgical supplies and are bundled into the payment for the associated wound care procedures, such as application codes 15271-15278 for high-cost groups and C5271-C5278 for low-cost groups. This results in no separate reimbursement for the skin substitutes themselves unless a product has transitional passthrough payment status or qualifies under the Average Sales Price (ASP) + 6% methodology for certain biologicals with pass-through or non-pass-through status. According to CMS, a potential problem with this high-cost/low-cost construct is that it can incentivize manufacturers to set arbitrarily high launch prices to qualify for the more favorable high-cost group reimbursement, and providers may develop a bias toward products falling into that group.

For CY 2026, CMS proposes to unpackage skin substitutes from procedures and pay them separately as incident-to supplies in OPPS and ASCs (excluding Biologics License Application products, which continue under ASP rules). Under this proposal, CMS would group such products into three new Ambulatory Payment Classifications (APCs) based on FDA regulatory pathways – APC 6000 for Premarket Approval (PMA) products, APC 6001 for 510(k) or De Novo cleared items, and APC 6002 for 361 Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) – with new codes (QXXX1-QXXX3) for reporting.

The codes would receive an initial uniform payment rate of $125.38 per unit across all groups, derived from the highest volume-weighted ASP or Manufacturer’s Unadjusted Charge (MUC), updated annually (with fallbacks to Wholesale Acquisition Cost (WAC) or 89.6% of Average Wholesale Price (AWP) if ASP data is unavailable).

INTENSIVE OUTPATIENT PROGRAM (IOP) & PARTIAL HOSPITALIZATION PROGRAM (PHP)

IOPs are structured behavioral health treatment services designed for individuals with acute mental health disorders that provide at least nine hours of therapeutic services per week without requiring overnight stays or inpatient admission. These programs serve as an intermediate level of care between standard outpatient therapy and partial hospitalization. PHPs, in contrast, are intensive outpatient psychiatric services serving as an alternative to inpatient hospitalization for individuals with acute mental illnesses or substance use disorders, requiring at least 20 hours per week of structured therapeutic interventions such as group therapy, individual counseling, occupational therapy, and medication management.

For CY26, CMS proposes to maintain payment rates for hospital-based IOPs ($340.90 for three-service days (APC 5861) and $424.60 for four or more service days (APC 5862)). For Community Mental Health Center-based (CMHC) IOPs, CMS proposes applying a 40% PFS relativity adjuster to hospital rates to resolve cost inversions and stabilize payments, resulting in $136.36 for three-service days (APC 5851) and $169.84 for four or more service days (APC 5852). For CMHC-based PHPs, CMS proposes applying a 40% PFS relativity adjuster to hospital rates to address cost inversions and stabilize payments. This adjustment would result in APC 5853 being reimbursed at $136.36 for three or more service days and APC 5854 at $169.84 for four or more days.

HOSPITAL PRICE TRANSPARENCY

As part of the CY26 rule, CMS proposes a variety of changes to hospital price transparency requirements, including:

• Replacing the affirmation with an attestation in the machine-readable file (MRF) stating that all standard charge information is true, accurate, and complete, encoded with the name of the CEO or senior official, effective December 31, 2025.
• Offering a 35% reduction in civil monetary penalties (CMPs) for hospitals waiving an Administrative Law Judge hearing within 30 days, excluding core violations like failing to post the MRF or shoppable services list, with payment due within 60 days.
• Adding definitions for the 10th percentile, median (50th percentile), and 90th percentile allowed amounts based on historical reimbursements from electronic remittance advice (ERA) data over a lookback period of up to 12 months.
• Requiring disclosure of the 10th percentile, median, and 90th percentile allowed amounts, plus the count of allowed amounts, for percentage- or algorithm-based charges using EDI 835 ERA data, including info to derive dollar amounts.
• Mandating the encoding of the organizational (Type 2) National Provider Identifier (NPI) in the MRF using taxonomy codes starting with ‘28’ or ‘27’ to enhance data comparability.

HOSPITAL QUALITY STAR RATING PROGRAM

CMS proposes updates to the Hospital Quality Star Rating methodology to address concerns that some hospitals can achieve high star ratings despite their poor performance in the Safety of Care measure group. The changes would add a final adjustment step after initial rating calculation (applying only to hospitals with at least three Safety of Care measures) and would be implemented in two stages.

•  Stage 1 (CY 2026): Hospitals in the lowest quartile of Safety of Care performance that would otherwise receive five stars will be capped at four stars, preventing top ratings for those with subpar safety.
• Stage 2 (beginning CY 2027, replacing Stage 1): Hospitals in the lowest quartile of Safety of Care will receive a blanket 1-star reduction, broadly penalizing poor safety across all rating levels.

HOSPITAL OUTPATIENT QUALITY REPORTING (OQR) PROGRAM

CMS proposes the following changes to the OQR Program:

• Adding the Emergency Care Access & Timeliness eCQM, with voluntary reporting in CY 2027 and mandatory starting in CY 2028 (for CY 2030 payment determination).
• Adding the Information Transfer PRO-PM, with voluntary reporting in CY 2027 and CY 2028, and mandatory starting in CY 2029 (for CY 2031 payment determination).
• Modifying the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic CT in Adults eCQM to voluntary reporting beginning in CY 2027 (for CY 2029 payment determination).
• Removing several measures, including COVID-19 Vaccination Coverage Among Healthcare Personnel (effective CY 2024 reporting/CY 2026 payment); Hospital Commitment to Health Equity (effective CY 2025 reporting/CY 2027 payment); Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health (effective CY 2025 reporting); and Median Time from ED Arrival to ED Departure for Discharged ED Patients plus Left Without Being Seen (effective CY 2028 reporting/CY 2030 payment, contingent on Emergency Care Access & Timeliness eCQM adoption).

AMBULATORY SURGICAL CENTER QUALITY REPORTING (ASCQR) PROGRAM

CMS proposes the following changes to the ASCQR Program:

• Adding the Patient Understanding of Key Information Related to Recovery After a Facility-Based Outpatient Procedure or Surgery, Patient Reported Outcome-Based Performance Measure (Information Transfer PRO-PM), with voluntary reporting in CY 2027 and CY 2028, and mandatory starting in CY 2029 (for CY 2031 payment determination); ASCs must use the Hospital Quality Reporting (HQR) system for PRO-PM data submission.
• Removing several measures, including COVID-19 Vaccination Coverage Among Healthcare Personnel (effective CY 2024 reporting/CY 2026 payment); Facility Commitment to Health Equity (effective CY 2025 reporting/CY 2027 payment); Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health (both effective CY 2025 reporting).

REQUESTS FOR INFORMATION (RFIS)

As part of the proposal, CMS issued several RFIs, seeking stakeholder feedback on issues including:

• Ways to streamline Medicare regulations to reduce provider burdens and align those regulations with Executive Order 14192 (“Unleashing Prosperity Through Deregulation”)
• Whether CMS should expand its site-neutral policies to include on-campus outpatient departments
• Whether well-being and nutrition measures should be integrated into the OQR and ASCQR Programs