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
