CMS Releases CY 2026 Hospital OPPS And Ambulatory Surgical Center Final Rule

Highlights

• On Nov. 21, 2025, the Centers for Medicare & Medicaid Services (CMS or Agency) released the calendar year (CY) 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule.
• The Final Rule establishes broad policy, payment, quality and transparency changes that will reshape outpatient care delivery beginning on Jan. 1, 2026.
• This Holland & Knight alert reviews various updates and changes included in the Final Rule and how they apply to affected entities next year and beyond.

On Nov. 21, 2025, the Centers for Medicare & Medicaid Services (CMS or Agency) released the calendar year (CY) 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Final Rule, establishing broad policy, payment, quality and transparency changes that will reshape outpatient care delivery beginning Jan. 1, 2026.

The rule finalizes sweeping reforms, including the full phaseout of the Inpatient Only (IPO) list, a significant expansion of site-neutral payment policies, heightened hospital price transparency requirements, permanent authorization of virtual direct supervision and the launch of a nationwide survey of drug acquisition costs for outpatient drugs.

CMS finalized most of what it proposed, leaving providers with several immediate operational and compliance priorities. Hospitals should begin planning for the full elimination of the IPO list – starting with 285 procedures removed for CY 2026 – by updating site-of-service decision pathways, physician education, scheduling workflows and patient liability communications. Providers should also assess the expanded site-neutral policies, particularly the application of Physician Fee Schedule (PFS)-equivalent rates to drug administration services in excepted off-campus Provider-Based Departments (PBDs), and model the impact on practice patterns, staffing and utilization. With virtual direct supervision now permanent, hospitals and physician groups should revise supervision policies, telehealth infrastructure and staffing plans to support real-time audio/video oversight.

Hospitals must also prepare for substantial price transparency changes beginning Jan. 1, 2026 (with enforcement starting April 1), including publishing percentile allowed amounts, using EDI 835 Electronic Remittance Advice (ERA) data, developing standardized methodology statements, encoding organizational National Provider Identifiers (NPIs), and obtaining CEO or senior official attestations. Providers should similarly evaluate changes across Outpatient Quality Reporting (OQR), Ambulatory Surgical Center Quality Reporting (ASCQR) and Rural Emergency Hospital Reporting Quality Reporting (REHQR) programs – including measure removals, adoption of the Emergency Care Access and Timeliness electronic Clinical Quality Measure (eCQM), and updated Extraordinary Circumstances Exception (ECE) policies – to avoid payment reductions. Finally, hospitals should prepare for the upcoming national drug acquisition cost survey launching in late 2025-early 2026, establish internal reporting workflows and ensure strong Two-Midnight Rule documentation as more procedures migrate to outpatient settings under the IPO phaseout.

Resources

• Final Rule
• Press Release
• Fact Sheet
• Fact Sheet on Hospital Transparency Policy Changes
• Addenda

Key Takeaways

• IPO List Eliminated: CMS will fully eliminate the IPO list by Jan. 1, 2028, beginning with 285 procedures removed for CY 2026.
• Major Site-Neutral Expansion: CMS finalized application of the PFS-equivalent rate (40 percent of OPPS) to drug administration services furnished in excepted off-campus PBDs.
• Skin Substitutes: CMS finalized a single $127.14 per-cm² rate, new status indicator S1 and removal from packaged payment under OPPS and PFS.
• Hospital Star Ratings Modified: Beginning in 2026, hospitals in the lowest quartile of Safety of Care performance are capped at four stars. Beginning 2027, they will see a one-star reduction.
• Virtual Direct Supervision Made Permanent: CMS finalized permanent adoption of virtual direct supervision via real-time audio/video for most outpatient therapeutic and diagnostic services.
• OPPS Drug Acquisition Cost Survey Finalized: CMS will conduct a comprehensive national survey in late CY 2025-early 2026 to inform CY 2027 drug payment policy.
• 340B Remedy Offset: CMS did not finalize the accelerated prospective payment reduction and retained the previously codified 0.5 percent annual OPPS conversion factor reduction beginning CY 2026 until the $7.8 billion offset is achieved (estimated by CY 2041).
• Device Pass-Through Updates Finalized: VasQ" and SCOUT MD" were approved under the U.S. Food and Drug Administration's (FDA) Breakthrough Device Program. Several other applications were denied.
• Graduate Medical Education (GME) Accreditation: CMS finalized changes to the definition of an "approved medical residency program" for Medicare GME payments beginning Jan. 1, 2026, prohibiting accrediting organizations from using criteria that mandate or encourage discrimination based on race, color, national origin, sex, age, disability or religion or proxies for those traits.
• Updates to Requirements for Hospitals to Make Public a List of Their Standard Charges: CMS finalized revisions to hospital price transparency requirements, including adding definitions for percentile allowed amounts, requiring disclosure of 10th percentile, median and 90th percentile allowed amounts in Machine-Readable Files (MRFs) and mandating use of EDI 835 ERA or equivalent data sources.

Payment System Updates

CMS finalized a 2.6 percent increase (2.4 percent was proposed) to OPPS payment rates for CY 2026, driven by a projected 3.3 percent hospital market basket increase netted against a 0.7 percent productivity adjustment. Although the overall update is modest, the net impact on providers may vary considerably once budget neutrality adjustments, wage index changes and other payment offsets – especially the continuing multiyear 340B remedy offset – are factored in.

CMS similarly finalized a 2.6 percent update to ASC payment rates, continuing its policy of aligning ASC inflation updates with the Inpatient Prospective Payment System (IPPS) market basket rather than the Consumer Price Index for All Urban Consumers (CPI-U). ASCs that do not meet ASCQR reporting requirements will incur a two-percentage point reduction. In combination with significant expansions to the ASC Covered Procedures List (CPL), the payment update may shift significant service volume from hospital outpatient departments to lower-cost ASC settings over time.

Device Pass-Through Payment Applications

CMS has established that hospitals should receive pass-through payments for devices offering substantial clinical improvement to facilitate beneficiary access to new technology, while devices with little or no clinical improvement can be paid through appropriate Ambulatory Payment Classification (APC) payment. CMS issued determinations on eight device pass-through applications. Two devices – VasQ" and the SCOUT MD" Surgical Guidance System – were approved under the FDA Breakthrough Device pathway. Several applications were denied due to either insufficient evidence or because CMS concluded the devices were already adequately described by existing APC categories. CMS reaffirmed its policy of reviewing device pass-through applications quarterly and publicly posting submissions. Additionally, skin substitutes with FDA Biologics License Application (BLA) approval will be considered under drug pass-through payment, while those with Premarket Approval (PMA) or 510(k) clearance will continue to be evaluated under device pass-through payment. The pass-through payment period remains limited to two to three years, with quarterly expiration.

Changes to the List of ASC Covered Surgical Procedures

The Final Rule significantly expands the ASC Covered Procedures List. CMS removed five regulatory exclusion criteria, shifting these clinical judgments to physicians to assess on a case-by-case basis. As a result, the Agency finalized the addition of 560 surgical procedures and 35 ancillary services to the CPL, reinforcing CMS' broader commitment to shifting appropriate care to lower-cost, clinically suitable environments. This expansion is closely tied to CMS' concurrent elimination of the IPO list, described below.

Elimination of the IPO List

CMS finalized a major structural overhaul by eliminating the IPO list in its entirety over a three-year period ending Jan. 1, 2028, accelerating the phaseout by one year compared to the proposed rule. As the first step, CMS finalized the removal of 285 mostly musculoskeletal procedures (plus 16 previously removed non-musculoskeletal procedures) from the IPO list for CY 2026. CMS continues to exempt certain medical review activities under the two-midnight rule for procedures removed from the IPO list. These services will remain exempt from site-of-service denials, Recovery Audit Contractor (RAC) referrals and RAC "patient status" reviews until the U.S. Department of Health and Human Services (HHS) secretary determines that a particular procedure is more commonly performed in the outpatient setting. However, contractors may still deny claims when the service itself is not reasonable and necessary. CMS emphasizes that together, physician judgment, state and local licensure, accreditation, hospital Conditions of Participation (CoPs), malpractice laws and CMS quality monitoring will safeguard patient safety as services shift to the outpatient setting.

On beneficiary cost-sharing, CMS finalizes no notable changes but notes that most complex procedures coming off the IPO list will be assigned to Comprehensive Ambulatory Payment Classifications (C-APCs), typically resulting in one bundled payment and one copayment, capped at the Part A inpatient deductible per service. CMS reiterated that the three-day inpatient stay requirement for Skilled Nursing Facility (SNF) coverage remains unchanged. That removal from the IPO list does not require a procedure to be performed in an outpatient setting – it simply allows payment in either inpatient or outpatient settings based on clinical judgment.

Add-On Payment for Domestic Tc-99m

CMS finalized a $10 add-on payment for each dose of Tc-99m derived from Molybdenum-99 (Mo-99) that is both irradiated and processed domestically. This payment reflects CMS' recognition that domestically produced Mo-99 carries higher acquisition costs and is critical to ensuring national radiopharmaceutical supply chain reliability. Providers will report Healthcare Common Procedure Coding System (HCPCS) Code C9176 for qualifying doses beginning Jan. 1, 2026, and must maintain documentation and supplier verification demonstrating compliance with CMS' definition of "domestically produced" Mo-99.

Quality Reporting Programs

The Final Rule removes several measures across the Hospital OQR, REHQR and ASCQR programs, including COVID-19 Vaccination Coverage Among Healthcare Personnel, Facility and Hospital Commitment to Health Equity and two Social Drivers of Health measures. CMS concluded that these measures no longer provide meaningful performance distinctions or impose undue administrative burden. Although CMS did not adopt newly proposed nutrition and well-being measures, it acknowledged substantial stakeholder interest in future policies driven by validated patient-reported outcomes.

CMS finalized updates to Extraordinary Circumstances Exception (ECE) policies, including extending the request window to 60 days and authorizing CMS to grant ECEs proactively in response to systemic disruptions. In the Hospital OQR Program, CMS adopted the Emergency Care Access and Timeliness eCQM with voluntary reporting in 2027 and mandatory reporting beginning in 2028. CMS will also remove two emergency department measures beginning that year. Hospitals failing to meet OQR requirements will continue to receive reduced OPPS conversion factors, with CMS finalizing a reporting ratio of 0.9805 for CY 2026. REHs will have the option to report the new emergency care eCQM beginning in 2027, while the ASCQR Program will remove four measures but will not adopt the proposed recovery-focused Patient-Reported Outcome-Based Performance Measure (PRO-PM) due to concerns about survey design and burden.

Hospital Star Ratings Methodology Changes

CMS adopted a two-stage update to the Overall Hospital Quality Star Rating methodology to place greater emphasis on patient safety after finding that some hospitals in the lowest quartile of Safety of Care performance (the bottom 25 percent on safety, with at least three Safety of Care measures) could still receive five stars overall due to strong performance in other measure groups. Accordingly, under Stage 1, beginning with CY 2026 ratings, hospitals in the lowest quartile of Safety of Care performance (with at least three Safety of Care measures) are capped at four stars. Under Stage 2, beginning with the CY 2027 ratings, hospitals in the lowest quartile of Safety of Care performance (again with at least three Safety of Care measures) will instead receive a blanket one-star reduction, with one star remaining the minimum possible rating. The quartile calculation for Safety of Care is based on all hospitals with at least one Safety of Care measure, even if they do not qualify for an Overall Star Rating. The four-star cap is a transitional, one-year policy applicable only to the 2026 ratings; starting in 2027, Stage 2 replaces this cap as a new step in the methodology. In practice, this means that in 2026, a hospital with four stars in 2026 that does not improve its quality and remains in the lowest Safety of Care quartile (with at least three Safety of Care measures) could see its rating fall to three stars in 2027 if its underlying "base" star assignment remains four stars under the core methodology. In 2026, during Stage 1, the four-star cap applies only to hospitals that would otherwise receive five stars but are in the lowest Safety of Care quartile; a hospital whose base result is four stars is unaffected and remains at four stars. Beginning in 2027, when Stage 2 takes effect and the cap is removed, that same hospital – still in the lowest Safety of Care quartile and still mapping to four stars before adjustment – would have its rating reduced by one star, resulting in a final rating of three stars.

Partial Hospitalization and Intensive Outpatient Programs

CMS finalized CY 2026 payment methodologies for Partial Hospitalization (PHP) and Intensive Outpatient (IOP) programs. Hospital-based programs will receive per diem payments of $321.83 for three-service days and $421.67 for days with four or more services. Community Mental Health Centers (CMHCs) will continue to receive payments equal to 40 percent of hospital-based rates. All existing outlier policies for CMHCs will remain in place. CMS again declined to implement site-neutral payment policies for behavioral health programs, citing statutory constraints and persistent differences in cost structure across provider types.

OPPS Drug Acquisition Cost Survey

CMS finalized its plan to launch a nationwide OPPS Drug Acquisition Cost Survey beginning in late 2025 or early 2026, as required by statute and reinforced by Executive Order (EO) 14273. The survey will collect hospital acquisition cost data for all separately payable outpatient drugs, including specified covered outpatient drugs (SCODs) and other drugs historically treated as SCODs, purchased between July 1, 2024, and June 30, 2025. Hospitals will be required to report net acquisition costs inclusive of all discounts, rebates and other price concessions. CMS excluded radiopharmaceuticals from the survey due to their unique production and acquisition characteristics and has created a streamlined submission process, including an online portal, Excel-based reporting option, user guides, webinars and technical assistance.

CMS directly addressed commenters' claims that the survey should be voluntary, emphasizing that Section 1833(t)(14)(D) of the Social Security Act imposes obligations on both CMS and hospitals. The statute requires CMS to conduct acquisition cost surveys and produce statistically significant data, which CMS interprets as necessitating broad hospital participation. CMS rejected the argument that the absence of explicit penalties means the survey is optional, stating that the Agency must rely on comprehensive hospital reporting to fulfill its legal mandate and accurately set future OPPS drug payment rates.

For hospitals that do not respond, CMS made clear it may interpret non-response as meaningful data regarding acquisition costs. CMS may impute values using the lowest reported acquisition costs among similar hospitals, Federal Supply Schedule prices, 340B ceiling prices or average sales price (ASP)-based benchmarks. CMS also indicated that it could consider packaging drug costs into APC payments for non-responders, consistent with longstanding OPPS packaging principles for items without clearly attributable incremental costs. These potential adjustments, CMS stated, reflect necessary tools to ensure equitable and data-driven rate setting when hospitals fail to report cost information.

CMS acknowledged the burden associated with the new survey but emphasized that it has taken steps to minimize complexity, provide technical support and allow flexible submission options. The Agency reiterated that any specific methodologies for handling non-responses or applying imputed values will be proposed through notice-and-comment rulemaking as part of the CY 2027 OPPS rulemaking cycle.

Two-Midnight Rule Review Exemptions

CMS affirmed continuation of the indefinite exemption from certain medical review activities for procedures removed from the IPO list on or after Jan. 1, 2021. These protections include relief from site-of-service claim denials and RAC patient status reviews. The exemption will remain until CMS determines that a majority of procedures are furnished in outpatient settings, at which point the first removal of the exemption will be implemented through full rulemaking. CMS emphasized that the exemption does not override the underlying Two-Midnight Rule requirements and that physicians must continue to document their inpatient admission decisions under existing criteria.

Permanent Adoption of Virtual Direct Supervision

One of the more operationally significant changes in the Final Rule is CMS' decision to permanently adopt virtual direct supervision for therapeutic and diagnostic services under both the PFS and OPPS. This policy allows supervising practitioners to meet the "immediately available" requirement via real-time, two-way audio/video communication, though audio-only communication is not permitted. CMS emphasized that virtual supervision is appropriate for many services but does not supersede clinical judgment. Cardiac rehabilitation, intensive cardiac rehabilitation, pulmonary rehabilitation and a large subset of diagnostic services will now be eligible for virtual supervision, expanding flexibility for hospitals and practitioners, particularly in rural areas.

340B Remedy Offset

CMS did not finalize its proposed accelerated offset of the $7.8 billion in additional spending on non-drug OPPS services that occurred between 2018 and 2022 due to prior 340B payment changes. Instead, CMS will continue the previously adopted 0.5 percent annual reduction to the OPPS conversion factor beginning in CY 2026. This reduction is expected to remain in effect until approximately CY 2041, when CMS estimates the full offset will be achieved. Consistent with the Final Remedy rule, hospitals that enrolled in Medicare after Jan. 1, 2018 (defined as "new providers" based on their CMS certification number effective date) are exempt from the prospective payment reduction. CMS confirmed this exemption in the final rule and will continue to maintain Addendum R – 340B Remedy Offset Providers listing providers subject to the reduction.

Skin Substitute Payment Reform

CMS finalized a major overhaul of payment for skin substitute products. CMS finalized a uniform per-cm² payment rate of $127.14 for CY 2026 and created a new OPPS status indicator (S1) to signal separate payment. The Agency deleted low-cost C-codes and retained Current Procedural Terminology (CPT) codes for application procedures but did not finalize new APCs based on regulatory pathways. Instead, CMS will continue to treat BLA-licensed skin substitutes as drugs paid under ASP methodology, while non-BLA products will be paid as incident-to supplies under standard OPPS cost methodologies. CMS acknowledged stakeholder concerns regarding cross-setting discrepancies and indicated it will continue to evaluate alternative methods in future rulemaking.

Site-Neutral Payment Policies for Off-Campus Provider-Based Departments

CMS finalized a significant expansion of its site-neutral payment policies by applying them to drug administration services furnished in excepted off-campus PBDs. Beginning in CY 2026, these services – specifically those assigned to drug administration APCs 5691 through 5694 – will be paid at a rate equivalent to approximately 40 percent of the OPPS rate (the PFS-equivalent amount). CMS cited persistent growth in off-campus drug administration volume as evidence of financial incentives misaligned with clinical decision-making. Rural Sole Community Hospitals will be exempt from these reductions. While CMS declined at this time to extend site-neutrality to on-campus clinic visits, the Agency issued a Request for Information seeking input on whether broader site-neutral policies should be pursued in future rulemaking cycles.

Software as a Service

CMS did not finalize new payment mechanisms for software as a service (SaaS) technologies, acknowledging stakeholder concerns about inconsistent definitions, widely variable pricing structures and insufficient cost data. Commenters recommended using New Technology APCs as transitional payment vehicles for AI-enabled and digital health tools until sufficient utilization and cost data can be gathered. CMS will maintain the current OPPS payment pathways for SaaS products in CY 2026 but indicated that the issue remains a high-priority area for future policy development.

Market-Based Medicare Severity Diagnosis Related Group Weight Methodology

CMS finalized new requirements – implemented under the IPPS but addressed in this rule – to require hospitals to report, by Medicare Severity Diagnosis Related Group (MS-DRG), median payer-specific negotiated charges to Medicare Advantage Organizations (MAOs) for all cost-reporting periods ending on or after Jan. 1, 2026. CMS will begin using this data to calculate market-based MS-DRG relative weights starting in FY 2029, replacing the current cost-based system. CMS believes this transition will better reflect negotiated market prices and reduce distortions associated with hospital chargemaster rates. A multiyear transition period, during which both cost-based and market-based weights will be published, will allow stakeholders time to adjust.

Hospital Price Transparency Requirements

CMS first established hospital price transparency requirements in the CY 2020 OPPS/ASC final rule, directing hospitals to publicly disclose their standard charges through both an MRF and a consumer-friendly format, as required by Section 2718(e) of the Public Health Service Act. CMS subsequently strengthened these policies in the CY 2022 and CY 2024 rulemakings by mandating standardized MRF formats, expanding required data elements and enhancing enforcement mechanisms to improve compliance and usability. EO 14221, issued in 2025, further reinforced these efforts by directing HHS to standardize disclosures across hospitals and ensure that publicly posted files reflect actual prices rather than estimates, cementing transparent, comparable pricing as a core federal priority.

CMS finalized substantial enhancements to the Hospital Price Transparency (HPT) regulations. Beginning Jan. 1, 2026 – with enforcement delayed until April 1, 2026 – hospitals must disclose the 10th percentile, median and 90th percentile allowed amounts when payer-specific negotiated charges are based on percentages or algorithmic formulas. Hospitals must rely on EDI 835 electronic remittance advice data or equivalent data sources when calculating allowed amounts. CMS now requires hospitals to provide detailed methodology explanations, encoding the number of allowed amounts included in calculations, and use standardized lookback periods. The rule requires a mandatory attestation of accuracy by a CEO or senior official and requires hospitals to encode organizational NPIs. Finally, CMS finalized a 35 percent civil monetary penalty reduction for hospitals that choose to waive their Administrative Law Judge (ALJ) hearing rights to expedite compliance resolution.

GME Accreditation

Effective Jan. 1, 2026, CMS is revising the definition of an "approved medical residency program" for Medicare GME payment purposes. Accrediting bodies may not adopt standards that mandate, encourage or rely on discriminatory criteria based on race, color, national origin, sex, age, disability or religion, nor may they use intentional proxies for those traits when making accreditation-related decisions. CMS emphasizes that this policy does not prohibit lawful diversity, equity and inclusion (DEI) efforts. Programs may continue outreach, recruitment and pipeline activities as long as protected characteristics – or their proxies – are not used as selection criteria.

Diagnostic Radiopharmaceutical Packaging Threshold and Payment Policies

CMS finalized an increase to the diagnostic radiopharmaceutical per-day packaging threshold, raising it from $630 to $655 for CY 2026. Although several stakeholders urged CMS to freeze the threshold for two years to avoid distorting pricing strategies, the Agency declined to do so. CMS acknowledged concerns that manufacturers may attempt to position prices just above the threshold but stated it would monitor for any unintended market behaviors.

CMS also reaffirmed its decision not to adopt ASP-based payment for separately payable diagnostic radiopharmaceuticals. The Agency reiterated that universal ASP reporting does not yet exist for these products and that current submissions often contain erroneous or extreme values, raising the risk of substantial overpayments if ASP were used under current conditions. CMS noted that ASP could be adopted in the future only if manufacturers submit complete, validated and descriptor-aligned data that allow accurate comparison across products.

For new diagnostic radiopharmaceuticals priced above the packaging threshold but lacking claims data, CMS finalized a tiered payment hierarchy. Such products will be paid at ASP plus 6 percent when ASP is available. If ASP is not yet reported, CMS will pay WAC plus 3 percent during the initial sales period and WAC plus 6 percent afterward if ASP data remain unavailable. Only in cases where neither ASP nor WAC is available will CMS fall back to 95 percent of AWP, though CMS expects such situations to be rare. The Agency also indicated it may update ASP submission guidance through future subregulatory processes as reporting becomes more consistent.