CMS Proposes Rules to Modernize Hospital Payments and Expand Patient Choices in 2026

CMS has proposed rules for hospital payments in 2026, aimed at reducing out-of-pocket costs for Medicare beneficiaries, expanding choices in where patients receive care, increasing hospital accountability and transparency, and safeguarding the Medicare Trust Fund from waste and abuse. The proposals include equalizing payments for certain services delivered in hospitals and off-campus facilities, and phasing out the inpatient-only list to give physicians greater flexibility in determining the most clinically appropriate setting for care.

The Centers for Medicare & Medicaid Services (CMS) has proposed rules for hospital payments in 2026 aimed at reducing out-of-pocket costs for Medicare beneficiaries, expanding choices in where patients receive care, increasing hospital accountability and transparency, and safeguarding the Medicare Trust Fund from waste and abuse. The proposals, outlined in the CMS-1834-P rule, include equalizing payments for certain services delivered in hospitals and off-campus facilities, and phasing out the inpatient-only list to give physicians greater flexibility in determining the most clinically appropriate setting for care [1].

One significant proposal is the 2.4% update to the Hospital Outpatient Prospective Payment System (OPPS) payment rates for hospitals and Ambulatory Surgical Centers (ASCs) that meet quality reporting requirements. This update is based on a projected hospital market basket increase of 3.2%, adjusted by a 0.8 percentage point productivity adjustment. Similarly, ASC rates are proposed to increase by 2.4% for those meeting relevant quality reporting requirements [1].

CMS is also proposing to expand the method to control unnecessary increases in the volume of outpatient services, particularly in drug administration services provided in excepted off-campus provider-based departments (PBDs). This expansion aims to prevent Medicare and beneficiaries from paying significantly more in the excepted off-campus PBD setting than in the physician office setting for some services [1].

To give beneficiaries more choices on where to obtain care with the potential for lower out-of-pocket expenses, CMS is proposing to phase out the Inpatient Only (IPO) list over a 3-year period, beginning with removing 285 mostly musculoskeletal procedures for CY 2026. This proposal would allow these services to be paid by Medicare in the hospital outpatient setting when clinically appropriate, giving physicians greater flexibility in determining the most appropriate site of service [1].

Additionally, CMS is proposing changes to the ASC Covered Procedures List (ASC CPL) to modify general standard criteria and eliminate five general exclusion criteria. These changes aim to maintain safety for Medicare beneficiaries while allowing physicians to exercise their medical judgment and increasing flexibility for patients to choose from more settings of care for surgical procedures [1].

CMS is also proposing a 2% annual reduction in the OPPS conversion factor applicable to non-drug items and services, effective CY 2026, to offset the increased payments for non-drug items and services made from CY 2018 through CY 2022 as a result of the 340B Payment Policy. This reduction is expected to reach the $7.8 billion of increased non-drug item and services payments by CY 2031 [1].

Furthermore, CMS is proposing to unpackage skin substitute products from their associated application procedures and establish several APCs based on relevant product characteristics. This change aims to recognize the clinical and resource differences in product types and incentivize competition to create more innovative products, while also resulting in significant savings to the Medicare Trust Fund [1].

Lastly, CMS is soliciting comments on payment policies for Software as a Service (SaaS) under the OPPS, including applicable lessons learned from risk-bearing payment arrangements and input that helps incorporate the underlying value of technologies within medical practice into payment policy [1].

These proposed rules, if finalized, will significantly impact hospital payments and Medicare beneficiaries' out-of-pocket costs, as well as the overall healthcare landscape in the United States.

References:
[1] https://www.cms.gov/newsroom/fact-sheets/calendar-year-2026-hospital-outpatient-prospective-payment-system-opps-and-ambulatory-surgical