Highlights
- The Centers for Medicare & Medicaid Services has issued the Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems proposed rule, which suggests updates to the Medicare OPPS and ASC payment system for calendar year (CY) 2026.
- Among numerous enhancements is a 2.4 percent payment rate increase for hospital outpatient departments and ASCs. This includes a hospital market basket percentage increase of 3.2 percent and a point productivity adjustment of minus 0.8 percentage points.
- This Holland & Knight alert provides details of the proposed rule. Public comments are due by Sept. 15, 2025.
The Centers for Medicare & Medicaid Services (CMS) on July 15, 2025, issued the Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems proposed rule, which proposes updates to the Medicare OPPS and ASC payment system for calendar year (CY) 2026. Comments are due Sept. 15, 2025.
Key Resources
Key Takeaways
- Conversion Factor. There is a 2.4 percent payment rate increase for hospital outpatient departments and ASCs. The payment update includes a hospital market basket percentage increase of 3.2 percent, along with a minus 0.8 percentage point productivity adjustment. This payment update is slightly smaller than the 2.9 percent increase for 2025.
- Inpatient-Only (IPO) List. CMS proposes to eliminate the IPO list with a transitional period of three years. For CY 2026, CMS proposes to remove predominantly musculoskeletal procedures from the IPO list, significantly expanding the types of service Medicare will pay for in an outpatient setting.
- Price Transparency. Starting Jan. 1, 2026, CMS proposes to require hospitals to include detailed ranges of the rates they negotiate with health insurance plans in machine-readable files. These rates are known as "allowed amounts" and would include the 10th, median and 90th percentile.
- 340B. CMS proposes to revise the annual reduction to the OPPS conversion factor for nondrug items and services from 0.5 percent to 2 percent effective Jan. 1, 2026.
- Site-Neutral Payments. Building on a 2019 site-neutral policy, CMS proposes to expand site neutral payment to drug administration services furnished by excepted off-campus provider-based outpatient departments (with an exemption for sole community hospitals).
- Drug Acquisition Cost Survey. CMS announced its intent to conduct a national survey on drug acquisition costs to inform CY 2027 payment policy.
- Updated Packaging Thresholds. CMS proposes to package drugs, biologicals and therapeutic radiopharmaceuticals with a per-day cost less than or equal to $140 and to package diagnostic radiopharmaceuticals with a per-day cost less than or equal to $655 and items with a per-day cost greater than $655 a separately payable.
- $10 Add-On Payment to Support Domestically Produced Technetium (Tc)-99m. CMS proposes to codify a $10 add-on payment for Tc-99m made from at least 50 percent domestically produced Molybdenum (Mo)-99. Tc-99m is a radioactive isotope used in nuclear medicine for diagnostic imaging.
- Requests for Information (RFI). CMS solicits stakeholder feedback on site-neutral ASC services, a consistent payment method for software as a service (SaaS) and a stand-alone RFI on reducing Medicare administrative burden.
Key Payment Updates
OPPS Update
The payment rate by an Outpatient Department (OPD) fee schedule increased by a factor of 2.4 percent. This increase is based on the proposed hospital inpatient market basket percentage increase of 3.2 percent. Based on this update, CMS estimates that total payments to OPPS providers for CY 2026 would be approximately $100 billion, a proposed increase of approximately $8.1 billion compared to estimated CY 2025 OPPS payments.
ASC Payment Update
CMS proposes to extend the use of the hospital market basket update through 2026, continuing the policy in place since 2019. ASC meeting quality reporting requirements would also see a 2.4 percent increase in payment rates, with total payments estimated at $9.2 billion – up $480 million from 2025.
Key Policy Updates
Update to Hospital Price Transparency Rules
CMS is proposing significant updates to the hospital price transparency rules for CY 2026 to improve the accuracy, standardization and enforcement of hospital pricing disclosures. Under the proposal, hospitals would be required to report actual payment data (machine-readable files, or MRFs) – specifically the 10th percentile, median and 90th percentile of allowed amounts received for items or services – instead of estimated allowed amounts.
CMS also considered an alternative approach under which hospitals would publish a range of allowed amounts instead of specific percentiles. The agency seeks comment on this option, including input on appropriate range parameters or criteria.
This data must be calculated using EDI 835 remittance advice transaction files and included in the hospital's MRF, along with the number of data points used. Hospitals would also be required to encode their organizational National Provider Identifier (NPI) and identify a senior official, such as the CEO or president, responsible for attesting to the accuracy and completeness of the reported information.
Hospitals deemed to have violated price transparency requirements are subject to civil monetary penalties. Under the proposed rule, these would be reduced by 35 percent if hospitals acknowledge noncompliance and waive their right to an appeals hearing. These changes are intended to enhance consumer access to actionable pricing information, increase provider accountability and support more effective enforcement of transparency requirements.
Method to Control Unnecessary Increases in Volume of Outpatient Services Furnished in Excepted PBDs
In the CY 2019 OPPS Final Rule, CMS established a "method to control" the growth in the volume of OPD services delivered in off-campus provider-based departments (PBDs). CMS achieved this by aligning the payment rate for clinic visits (HCPCS Code G0463) provided in off-campus PBDs with the site-specific Medicare Physician Fee Schedule (PFS) rate. In this rule, CMS notes its concern that hospitals may be shifting more drug administration services to off-campus facilities. Instead of paying the higher OPPS rate, CMS proposes to pay the PFS-equivalent payment rate for any HCPCS codes assigned to the drug administration Ambulatory Payment Classifications (APCs 5691-5694). Rural Sole Community Hospitals would not be affected by this change. CMS is seeking feedback on whether it should expand this policy to on-campus clinic visits and not just off-campus ones.
Prospective Adjustment to Payments for Nondrug Items and Services to Offset Increased Payments for Nondrug Items and Services Made CY 2018-2022 Resulting from 340B Payment Policy
CMS is proposing to increase the annual reduction to the OPPS conversion factor from 0.5 percent to 2 percent beginning in CY 2026 as a way to more quickly recover $7.8 billion in overpayments made to hospitals for nondrug items and services between CY 2018 and CY 2022 due to the now-invalidated 340B drug payment policy. Under the current policy, the 0.5 percent reduction would remain in place until the full amount was recouped, which was estimated to occur by CY 2041. However, after reconsidering the balance between restoring hospitals to their proper financial position and avoiding long-term reductions, CMS now proposes to accelerate this timeline. With the proposed 2 percent reduction, the full $7.8 billion would be recovered by CY 2031. This higher reduction rate would apply only to hospitals enrolled before Jan. 1, 2018.
Notice of Intent to Conduct a Medicare OPPS Drugs Acquisition Cost Survey
CMS is planning to conduct a nationwide survey of hospital acquisition costs for outpatient drugs. This is required under federal law, which mandates that CMS periodically collect data on what hospitals actually pay to acquire specific outpatient drugs. The results of these surveys help CMS determine how much Medicare should reimburse hospitals for these drugs. This upcoming survey is also being driven by Executive Order 14273 signed by President Donald Trump in April 2025, which directs HHS to gather accurate drug acquisition cost data in order to ensure fairer and more transparent pricing in Medicare. CMS plans to launch the survey in early 2026, and it will target all hospitals paid under the OPPS. Hospitals will be asked to report how much they paid to acquire each separately payable outpatient drug. The goal is to complete the survey in time for CMS to use the data to inform drug payment policy in the CY 2027 OPPS/ASC proposed rule.
Changes to the IPO List
The IPO list was originally established to identify procedures that Medicare would cover only when performed in the inpatient hospital setting, due to their complexity, the patient's health status or the need for extended recovery time. Currently, the list includes approximately 1,730 services.
For CY 2026, CMS proposes to phase out the IPO list over three years, beginning with the removal of 285 mostly musculoskeletal services.
Two-Midnight Rule Medical Review Activities Exemptions
For CY 2026, CMS proposes to continue its existing policy exempting procedures removed from the IPO list under the OPPS from certain medical review activities related to the Two-Midnight Rule. Specifically, these procedures will be exempt from site-of-service claim denials, referrals by Beneficiary and Family-Centered Care Quality Improvement Organizations (BFCC-QIO) to Recovery Audit Contractors (RAC) for persistent noncompliance with the Two-Midnight Rule and RAC reviews focusing on patient status. These exemptions will remain in place until claims data shows that the procedures are more commonly billed in the outpatient setting than inpatient. This approach aims to give hospitals time to adapt to changes in billing practices for procedures transitioning from IPO to outpatient settings.
Pass-Through Payment for Drugs and Biologicals
CMS proposes to continue existing pass-through payment policies for drugs, biologicals and radiopharmaceuticals in CY 2026 applying a rate of ASP plus 6 percent. In addition, as skin substitutes with an approved Biologics License Application (BLA) would be considered under transitional drug pass-through payment status, CMS proposes amending its regulations to reflect that.
CMS proposes to continue pass-through payment status through CY 2026 for 41 drugs and biologicals, which were approved for pass-through payment status with effective dates beginning between April 1, 2024, and April 1, 2025. CMS will end pass-through payment status for 28 drugs and biologicals for which pass-through payment status expires by Dec. 31, 2025. CMS proposes to end pass-through payment status in CY 2026 for 52 drugs and biologicals, which were initially approved for pass-through payment status between April 1, 2023, and Jan. 1, 2024.
Graduate Medical Education (GME) Accreditation
CMS is proposing that accreditors may not require as part of accreditation, or otherwise encourage institutions to put in place, diversity, equity and inclusion (DEI) programs that encourage discrimination on the basis of race or other violations of federal law.
Device Pass-Through Payment Applications
CMS received eight complete device pass-through applications by the March 3, 2025, deadline, all of which are addressed in this proposed rule. Two devices – VasQ (preliminarily approved under the alternate pathway effective July 1, 2024) and the SCOUT MD Surgical Guidance System (preliminarily approved effective Sept. 1, 2024) – were approved through the quarterly review process and will be incorporated into the next OPPS annual rulemaking cycle. One application was withdrawn. CMS invites public comment on whether the submitted devices meet the criteria for pass-through payment.
Proposed Packaging Thresholds for Nonpolicy-Packaged Drugs, Biologics and Therapeutic Radiopharmaceuticals Without Pass-Through Payment
For CY 2026, CMS proposes to package drugs, biologicals and therapeutic radiopharmaceuticals with a per-day cost less than or equal to $140 and identify items with a per-day cost greater than $140 as separately payable unless they are policy-packaged.
For CY 2026, CMS proposes to increase the packaging threshold for diagnostic radiopharmaceuticals from $630 to $655 per day. This adjustment is based on the forecasted four-quarter moving average of the Producer Price Index (PPI) for prescription pharmaceuticals, trending the 2025 threshold forward to reflect inflation. CMS rounded the calculated amount ($654.23) to the nearest $5 increment, resulting in the proposed $655 threshold. If more recent PPI data becomes available before the final rule, CMS may revise the threshold accordingly.
Ambulatory Payment Classifications
CMS assigns New Technology APCs to new services that are not eligible for transitional pass-through payments. These APCs are based on estimated costs and allow CMS to collect data over two to three years before assigning services to clinically appropriate APCs.
For CY 2026, CMS proposes to continue exempting services in New Technology APCs with fewer than 10 claims over a four-year lookback period from reassignment under the universal low-volume policy. This approach is intended to prevent large year-to-year payment shifts for services with limited data.
CMS will also maintain its current policy of keeping services in New Technology APCs until sufficient claims data support reassignment to a clinical APC.
There are currently 52 New Technology APC levels, from APC 1491 (Level 1A: $0-$10) to APC 1908 (Level 52: $145,001-$160,000), with cost bands increasing in $10 to $14,999 increments. Payments are set at the midpoint of each cost band. Proposed payment rates for these APCs are listed in Addendum A of the rule.
Changes to the List of ASC Covered Surgical Procedures
For CY 2026, CMS is proposing to expand the ASC Covered Procedures List (CPL) by revising the criteria to modify the general standard criteria and to eliminate five of the general exclusion criteria, moving them into a new section as nonbinding physician considerations for patient safety. CMS also proposes to add 276 procedures to the ASC CPL based on these criteria changes and add an additional 271 codes to the ASC CPL that are proposed for removal from the IPO list for CY 2026.
Add-On Payment for Radiopharmaceutical Tc-99m Derived from Domestically Produced Mo-99
CMS asserts the U.S. represents half of global Mo-99 demand but has no domestic production, making it vulnerable to supply disruptions from aging foreign reactors. The agency continues by noting Congress passed the American Medical Isotopes Production Act of 2012 to support domestic Mo-99 development. CMS provided a $10 add-on payment for non-highly enriched uranium (HEU) sources starting CY 2013, which ended in CY 2025 as the conversion was complete. However, it adds foreign government subsidies that create artificially low prices that disadvantage domestic producers, prompting CMS to establish the new domestic production add-on payment to address payment inequity and support domestic supply chain development once U.S. companies begin Mo-99 production.
Starting in CY 2026, CMS will implement a new $10 add-on payment to incentivize the use of radiopharmaceuticals made with domestically produced Mo-99, the precursor to Tc-99m. This replaces the previous add-on payment that focused on Mo-99 production without HEU, shifting emphasis toward supporting domestic manufacturing and supply chain security. To qualify, at least 50 percent of the Mo-99 used in a Tc-99m generator must be sourced from U.S.-based producers. A new HCPCS code – C917X – will be created to bill for eligible doses, and CMS will codify the definition of "domestically produced Mo-99" to ensure consistent application of the policy. This update aligns Medicare payment policy with national security and energy priorities by promoting domestic isotope production and reducing reliance on foreign or HEU-based sources.
Cross-Program Proposals for Hospital OQR, REHQR and ASCQR Programs
CMS proposes to remove the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP) measure from the Hospital Outpatient Quality Reporting (OQR) and Ambulatory Surgical Center Quality Reporting (ASCQR) Program measure sets; the Hospital Commitment to Health Equity (HCHE) measure from the Hospital OQR and Rural Emergency Hospital Quality Reporting (REHQR) Program measure sets and the Facility Commitment to Health Equity (FCHE) measure from the ASCQR Program measure set; and the Screening for Social Drivers of Health (SDOH) measure and the Screen Positive Rate for SDOH measure from the Hospital OQR, REHQR and ASCQR Program measure sets. Additionally, CMS seeks comments regarding measured concepts related to well-being and nutrition for future consideration in the Hospital OQR, REHQR and ASCQR Programs. Finally, CMS proposes to update and codify the Extraordinary Circumstance Exception (ECE) policy.
Hospital OQR Program
CMS proposes to adopt the Emergency Care Access & Timeliness Electronic Clinical Quality Measure (eCQM) with one year of voluntary reporting for the CY 2027 reporting period followed by mandatory reporting for the CY 2028 reporting period/CY 2030 payment determination and subsequent years; remove the Median Time from Emergency Department (ED) Arrival to ED Departure for Discharged ED Patients and the Left Without Being Seen measures beginning with the CY 2028 reporting period/2030 payment determination; and modify the Excessive Radiation Dose or Inadequate Image Quality for Diagnostic Computed Tomography (CT) in Adults from mandatory reporting.
REHQR Program
CMS proposes to adopt the Emergency Care Access & Timeliness eCQM beginning with the CY 2027 reporting period/CY 2029 program determination and establish related eCQM data submission and reporting requirements, including that rural emergency hospitals (REHs) would be provided the option of reporting either the Emergency Care Access and Timeliness eCQM or the Median Time from ED Arrival to ED Departure for Discharged ED Patients measure beginning with the CY 2027 reporting period/CY 2029 program determination.
Additionally, CMS proposes to codify the requirement that health information technology (IT) used for eCQM reporting by REHs must be certified to all eCQMs (that is, tested and validated on each individual eCQM) available to report under the REHQR Program.
CMS also proposes that certified EHR technology would not need to be recertified each time the eCQMs specifications are updated to a more recent version.
ASCQR Program
CMS proposes to adopt the Patient Understanding of Key Information Related to Recovery After a Facility-Based Outpatient Procedure or Surgery, Patient Reported Outcome-Based Performance Measure.
Hospital Quality Star Rating Modification
CMS is proposing a two-stage update to the methodology used to calculate the Overall Hospital Quality Star Rating to place greater emphasis on the Safety of Care measure group. This change aims to address concerns that some hospitals have received high star ratings despite performing poorly on safety measures. In the first stage, for the 2026 ratings, hospitals that fall into the lowest quartile for Safety of Care (based on at least three measure scores) would be limited to a maximum of four stars, even if their overall performance would otherwise qualify for a higher rating. In the second stage, beginning with the 2027 ratings, any hospital in the lowest quartile for Safety of Care would have its overall star rating reduced by one star, with a minimum rating of one star. These changes are designed to reinforce the importance of patient and healthcare worker safety and reflect CMS' commitment to making safety a central component of hospital quality assessments. Notably, this new methodology is applicable only to hospitals with at least three Safety of Care measures.
PHP and IOP
For CY 2026, CMS plans to keep its current method for setting per diem rates for hospital-based Partial Hospitalization Program (PHP) and Intensive Outpatient Program (IOP) services, based on geometric mean costs. Proposed rates are $340.90 for days with three services and $424.60 for four or more.
For Community Mental Health Centers (CMHCs), CMS proposes applying a 40 percent relativity adjuster to hospital rates to address unstable claims data and cost "inversions." This results in rates of $136.36 (three services) and $169.84 (four or more), reflecting CMHCs' lower overhead and wage costs.
CMS will continue aligning service lists and billing codes between PHP and IOP, requiring at least one primary behavioral health service per day. Condition Code 41 applies to PHP claims and Code 92 to IOP. Services such as caregiver training and Principal Illness Navigation don't count toward daily thresholds.
CMS will monitor trends and invites comments on the 40 percent adjuster and alternative approaches to ensure accurate, stable payments without overpayment risks.
Virtual Direct Supervision of Pulmonary Rehabilitation (PR), Coronary Rehabilitation (CR), Intensive Coronary Rehabilitation and Diagnostic Services
CMS is proposing to revise the reduction to the OPPS conversion factor under Section 419.32(b)(1)(iv)(B)(12) used to determine the payment amounts for nondrug items and services for hospitals for whom this adjustment applies from 0.5 percent to 2 percent.
Payment for Skin Substitute Products Under the OPPS
Consistent with its proposal for the Medicare PFS, CMS is proposing to separately pay for the provision of certain groups of skin substitute products as supplies when they are used during a covered application procedure paid under the PFS in the non-facility setting or under the OPPS. CMS proposes to group skin substitutes that are not drugs or biologicals using three U.S. Food and Drug Administration (FDA) regulatory categories (PMAs, 510(k)s and 361 HCT/Ps) to set payment rates.
Request for Information on Adjusting Payment Under the OPPS for Services Predominately Performed in ASC or Physician Office Setting
CMS is requesting information for future rulemaking on the development of a systematic process for identifying ambulatory services at high risk of shifting to the hospital setting based on financial incentives rather than medical necessity and adjusting payments accordingly.
Proposed Market-Based MS-DRG Relative Weight Data Collection and Change in Methodology for Calculating MS-DRG Relative Weights Under IPPS
CMS is proposing that hospitals would be required to report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after Jan. 1, 2026. CMS is also proposing a change to the methodology for calculating the IPPS Medicare Severity Diagnosis Related Group (MS-DRG) relative weights to incorporate this market-based rate information beginning in FY 2029
Proposed Inclusion in Non-Opioid Policy for Pain Relief for 2026
Section 4135 of the Consolidated Appropriations Act of 2023 provides for temporary separate payment for certain non-opioid pain relief treatments in the Hospital Outpatient Department (HOPD) and ASC settings from Jan. 1, 2025, through Dec. 31, 2027. In the rule, CMS outlines the implementation of this statute for 2026.
Proposed Non-Opioid Treatments
Relying upon the statutory definition of "non-opioid treatment for pain relief," CMS proposes that the following five drugs and six devices qualify as non-opioid treatments for pain relief and qualify for separate payments in the HOPD and ASC settings in CY 2026:
- Exparel (J0666), Omidria (J1097), Dextenza (J1096), Zynrelef (C9088) and Ketorolac tromethamine injection (J1885)
- ON-Q Pump (C9804), SPRINT Peripheral Nerve Stimulator System (C9807), Cryo Nerve Block Therapy (C9808), ambIT Electronic Infusion Pump (C9806), Iovera System (C9809) and IceMan (C9XX0)
CMS invites public comment on whether additional drugs, biologics or devices should be included. Final decisions on eligibility will be addressed in the CY 2026 OPPS/ASC Final Rule.
New Technology APC Payment Determinations
Following past actions, CMS has proposed to mostly maintain payment levels for New Technology APCs. CMS has generally retained a procedure in the New Technology APC to which it is initially assigned until CMS has "obtained sufficient claims data to justify reassignment of the procedure to a clinically appropriate APC." For example, CMS proposes maintaining payment rates through their respective new technology levels for Codes 0648T and 0649T, despite limited claims data suggesting lower average costs. Throughout the section, CMS acknowledges the impact of limited claims data and ever-evolving nature of software-based technologies.
For Current Procedural Terminology (CPT) Codes 0623T to 0626T, CMS proposes to their authority under Section 1833(t)(2)(E) to assign CPT placeholder Code 75XX6 to APC 1511 (New Technology – Level 11 ($901-$1000), with a payment rate of $950.50 for CY 2026, based on the information currently available to them and that they assert this best reflects the cost of the service as described by the New Technology APC application (see Table 19).
In this proposed rule, CMS notes that on Jan. 1, 2026, the American Medical Association (AMA) CPT Editorial Panel is creating a new Category I CPT code for AI-QCT, which is currently described by CPT placeholder Code 75XX6 (quantification and characterization of coronary atherosclerotic plaque to assess severity of coronary disease, derived from augmentative software analysis of the data set from a coronary computed tomographic angiography, with interpretation and report by a physician or other qualified healthcare professional). CPT Codes 0623T to 0626T are being deleted and replaced with CPT placeholder Code 75XX6.
Request for Information on SaaS
CMS is not proposing a specific payment model but is soliciting public comments on how best to establish a consistent methodology for reimbursing SaaS technologies across Medicare payment systems. CMS invites input on appropriate APC classification and cost assessment methodologies and whether factors such as research and development costs or efficiencies gained in clinical workflows should influence payment rates. CMS also expresses concern that geometric mean costs derived from claims data are often lower than manufacturers' reported costs and seeks alternative data sources to improve rate-setting accuracy. The agency requests feedback on how to ensure payments reflect the value and efficacy of SaaS technologies, balance fiscal stewardship and promote high-value care. CMS also directs stakeholders to a parallel comment solicitation in the CY 2026 PFS proposed rule.
RFI on Site-Neutral Payment for ASC Services
CMS is requesting public input to help develop a process for identifying ambulatory services that may be shifting to the hospital setting due to financial incentives rather than clinical need. This RFI is intended to address the growth of volume in outpatient department services due to the higher payments made in hospital outpatient departments as compared to ASCs. In this proposed rule, CMS seeks to expand the site-neutral policy to drug administration services, but CMS also poses 11 question topics for stakeholders regarding a potential shift of some services from ASCs to the hospital setting.
RFI Reducing Medicare Regulatory Burden
CMS invites public feedback on ways to simplify Medicare regulations and ease administrative burdens for program participants. Stakeholders can share their suggestions through a dedicated RFI.
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