The Centers for Medicare & Medicaid Services has finalized a major change that will reshape surgical care, inpatient volumes and post-acute flows: the phaseout of the Medicare Inpatient-Only (IPO) list as part of the CY 2026 Outpatient Prospective Payment System (OPPS) and ASC final rule.
Starting Jan. 1, 2026, 285 mostly musculoskeletal surgical procedures will be removed from the IPO list and allowed in hospital outpatient departments and ambulatory surgery centers. CMS plans to remove the remaining codes in stages, with the IPO list fully eliminated by Jan. 1, 2028.
At the same time, CMS will increase OPPS rates by a net 2.6 percent for 2026, while expanding site-neutral cuts and advancing other policies that generally pressure hospital margins.
CMS’ CY 2026 OPPS and ASC final rule does several big things at once:
- Net 2.6 percent payment bump for hospital outpatient departments and ASCs that meet quality reporting requirements.
- Expansion of site-neutral policies, including paying most grandfathered off-campus HOPDs 40 percent of the OPPS rate for drug administration, with an exemption for rural sole community hospitals.
- A three-year phaseout of the IPO list, beginning with 285 procedures in 2026, largely orthopedic and other musculoskeletal surgeries.
- A sizable expansion of the ASC-covered procedures list, with hundreds of additional codes now eligible for ASC payment.
- Continued implementation of 340B recoupment and new drug acquisition cost survey requirements that could influence future outpatient drug payments.
CMS frames these changes as a way to modernize the IPO list, align payment with current surgical capabilities and promote lower cost sites of care where clinically appropriate.
Why the IPO list matters for hospitals
The IPO list has historically served as a guardrail, signaling which complex surgeries Medicare considered appropriate only in an inpatient setting and paying them exclusively under the inpatient prospective payment system.
Its elimination will create three immediate dynamics for hospitals:
- Shift of surgical volume to outpatient and ASCs
Many of the 285 procedures leaving the IPO list are already trending toward shorter stays. Market analyses suggest the IPO reform will accelerate the migration of surgical care from inpatient units to hospital outpatient departments and ASCs, particularly for ortho and spine. For hospitals, that means:
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- Lower average revenue per case compared with inpatient DRG payments.
- Potentially higher case volumes in outpatient surgery, but with tighter margins and more exposure to site-neutral cuts.
- The need to ensure appropriate selection of outpatient candidates to avoid safety and readmission issues.
- Margin pressure from site-neutral trends
At the same time it removes IPO protections, CMS is moving further toward site-neutrality, paying some services in hospital outpatient departments at a fraction of OPPS rates and signaling interest in broader site-neutral reforms in the future. Taken together, the changes make it more likely that:
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- Inpatient surgical revenue will erode faster than outpatient revenue grows.
- Hospital-based outpatient departments, especially off-campus sites, will face sustained downward pressure on payment rates.
- Operational and compliance complexity
Without the IPO list, hospitals will have more discretion, but also more risk, in determining the appropriate site of service for procedures that used to be “inpatient only.” Utilization review, case management and coding teams will need to recalibrate how they apply medical necessity criteria, status determinations and prior authorization workflows.
What hospital and health system leaders should do now
- Quantify your IPO exposure
• Build a list of all procedures currently on the IPO list that your surgeons perform, starting with the 285 codes slated for change in 2026.
• Model historical volumes, payer mix and contribution margins for those cases under inpatient payment.
• Project revenue and margin under outpatient and ASC payment assumptions, including site-neutral cuts where applicable. - Tighten governance around site-of-service decisions
• Update medical staff policies, order sets and scheduling workflows to reflect when a procedure can safely be done outpatient versus inpatient.
• Strengthen utilization review, including physician advisor oversight, so status determinations are consistent with CMS guidance and commercial payer policies.
• Monitor denial patterns closely as payers react to the new flexibility. - Redesign perioperative care pathways
• For the procedures shifting off the IPO list, invest in enhanced recovery after surgery protocols, home health partnerships and virtual follow-up to support safe same-day or short-stay discharges.
• Ensure that anesthesia, nursing and rehab staffing models align with higher outpatient surgical volume and potentially shorter inpatient stays. - Rework post-acute and SNF strategies
• Map which Skilled Nursing Facilities (SNFs) currently depend on your surgical patients and which procedures generate most of your SNF referrals.
• Collaborate with SNF partners on new care pathways that can accommodate more outpatient-based surgical episodes, potentially with home health or swing bed options when SNF coverage is limited.
• Engage in federal and state advocacy for reforms to the three-day stay requirement to avoid coverage “cliffs” for complex patients. - Prepare for broader payment and transparency changes
• Incorporate the 2.6 percent OPPS update, site-neutral cuts and potential future 340B recoupment into your multiyear financial plans.
• Invest in hospital price transparency capabilities that meet CMS’ updated requirements and reduce enforcement risk in 2026.
• Align your contracting and risk strategies with the expectation that more surgical care will move to outpatient settings and ASCs.