On July 15, the Centers for Medicare & Medicaid Services (CMS) released the CY 2026 Proposed Rule for the Medicare Outpatient Prospective Payment System (OPPS). The proposed rule introduces several significant policy changes that will impact hospitals and ambulatory surgical centers (ASCs) beginning Jan. 1.
From updates to the 340B payment policy and ambulatory payment classifications (APCs) to the elimination of the Inpatient-only (IPO) list and expanded reporting requirements, the CY 2026 OPPS rule is one of the most comprehensive updates in recent years.
CMS projects an overall $1.61 billion increase in OPPS payments before accounting for the 340B remedy offset, which is expected to reduce payments by $1.1 billion, resulting in a net increase of approximately $510 million.
This blog post breaks down the most important proposed changes, financial impacts and reporting requirements so your organization can prepare for compliance and optimize reimbursement strategies under the new framework.
Overview of CY 2026 OPPS
In addition to the regular updates to wage indexes and market basket, the following policies are proposed in this rule:
updating APC Groups and Weights;
updating the 340B Final Remedy reduction to the OPPS conversion factor;
eliminating the IPO list;
updating current methodology for Overall Hospital Quality Star Rating;
updating requirements for the Hospital Outpatient Quality Reporting (OQR) Program;
updating requirements for the Rural Emergency Hospital Quality Reporting (REHQR) Program; and
updating payment rates and policies for ASCs.
A summary of the major hospital OPPS sections of the proposed rule is provided below. Program changes will be effective for discharges on or after Jan. 1, unless otherwise noted.
The proposed rule and other resources related to the OPPS are available on the CMS website on its hospital outpatient PPS page.
Comments are due to CMS by Sept. 15 and can be submitted electronically by using the website’s search feature for “CMS-1834-P”.
Payment adjustments for non-drug items and services as a result of the 340B payment policy
The 340B Drug Pricing Program allows certain hospitals to purchase outpatient drugs at discounted prices. From CY 2018 to CY 2022, CMS expanded their policy to reduce payments for 340B-acquired drugs from Average Sales Price (ASP)+6% to ASP-22.5% to redistribute savings and increase payments for non-drug items and services under the OPPS.
The Supreme Court ruled in American Hospital Association v. Becerra that the payment reductions for 340B drugs were unlawful because CMS had not conducted a survey of hospital acquisition costs. In turn, CMS revised the payment policy to pay for 340B drugs at ASP+6% in a single-lump sum payment.
To recoup the $7.8 billion increase that was made for non-drug items and services from CY 2018 to CY 2022, CMS adopted an annual prospective payment reduction of 0.5 PPT to the OPPS conversion factor in the 340B Final Remedy Rule that was to start in CY 2026. Recoupment was estimated to take approximately 16 years. However, CMS has since determined that a shorter timeframe would be more appropriate due to the potential that not all providers who were overpaid may remain by 2041.
Therefore, CMS is proposing to revise the annual reduction percentage for non-drug items and services from 0.5 PPT to 2.0 PPT (1.95%) effective for CY 2026 and estimated to end in CY 2031. This policy excludes hospitals that enrolled in Medicare after Jan. 1, 2018. Table 62 on page 33636 located within the Federal Register outlines the proposed 2.0 PPT conversion factor annual reduction from CY 2026 to CY 2031.
Addressing wage index disparities between high and low wage index hospitals
For CY 2026 and subsequent years CMS is proposing to realign the IPPS and OPPS wage index values and proposing to eliminate the low wage index hospital policy under the OPPS. CMS is proposing that the 5% cap that will apply to the CY 2026 OPPS wage index will be based off the IPPS wage index for FFY 2025 rather than the OPPS wage index for CY 2025.
CMS notes that because the CY 2025 OPPS wage index was different than the FFY 2025 IPPS wage index, using the FFY 2026 IPPS wage index for CY 2026 OPPS wage index will result in decreases greater than 5% to some hospitals’ wage indexes under the OPPS.
Under CMS’ proposal, the 5% cap on wage index decreases in the CY 2026 OPPS would apply in a similar manner to years prior to the CY 2025 OPPS, in which IPPS hospitals would receive the same wage index with the cap on wage index decreases as they would under the IPPS, and non-IPPS hospitals and Community Mental Health Centers (CMHCs) would receive a similar corresponding wage index with the cap on wage index decreases policy under the broader wage index adoption.
Additionally, in the FFY 2026 IPPS proposed rule CMS proposed to use a narrow transitional exception to the calculation of the FFY 2026 IPPS payments for low wage index hospitals significantly impacted by the discontinuation of the low wage index hospital policy. The temporary payment exception is meant “to mitigate short-term instability and payment fluctuations that can negatively impact hospitals consistent with principles of certainty and predictability under the prospective payment systems”.
To address the same concerns under OPPS, CMS is proposing a transitional payment exception for CY 2026. The transitional payment exception policy would apply to hospitals that benefitted from the CY 2024 low wage index hospital policy. If the hospital’s proposed CY 2026 wage index decreases by more than 9.75% from the hospital’s CY 2024 wage index, the transitional payment exception would be set to 90.25% of the CY 2024 wage index. The transitional payment exception would be applied after the application of the 5% cap. CMS proposes to make this policy budget neutral under the OPPS.
In cases where the hospitals report the payer-specific negotiated share as a percentage or algorithm on the machine readable file (MRF), CMS is proposing that hospitals would instead use the proposed “median allowed amount” to calculate the negotiated charges to report on the Medicare cost report.
Payment for off–campus outpatient departments
In order to control what CMS deemed an unnecessary increase in OPPS service volume for a basic clinic visit representing a large share of the services provided at off–campus provider-based departments (PBDs), CMS expanded the Medicare Physician Fee Schedule (MPFS) payment methodology in CY 2019 to excepted off–campus PBDs for HCPCS code G0463. As of CY 2024, this policy has the following additional exemptions:
For excepted off-campus PBDs belonging to rural Sole Community Hospitals (SCHs):
application of the CMHC per-diem rates for hospital partial hospitalization program (PHP) and intensive outpatient (IOP) services provided at an off-campus PBD, instead of the MPFS rate for that service; and
payment made for intensive cardiac rehabilitation (ICR) services.
For CY 2026, CMS is proposing to extend this policy for drug administration services furnished in excepted off-campus PBDs. In line with CMS’ policy to exempt rural SCHs from the clinic visit policy, CMS is proposing to exempt rural SCHs from the site-specific PFS-equivalent payment for drug administration service when furnished at an off-campus PBD. Under this proposal, rural SCHs would continue to bill services in APC family 569X with the “PO” modifier for CY 2026 and payment rates for these services would continue to be the full OPPS payment without the PFS adjustment.
CMS is also soliciting comments on whether it would be appropriate to address unnecessary increase in volume of covered OPD services by expanding the method to control unnecessary increases in volume to on-campus clinic visits. Specifically, CMS is requesting feedback on the questions found on page 33691 of the Federal Register.
Inpatient-only list
The IPO list specifies services/procedures that Medicare will only pay for when provided in an inpatient setting. For CY 2026 and subsequent years CMS is proposing to eliminate the IPO list through a three-year transition, beginning in CY 2026 and completing the elimination by Jan. 1, 2029. For CY 2026, CMS identified and is proposing to remove 285 services from the IPO list which can be found in Table 69 on pages 33670–33684 located within the Federal Register.
In addition, CMS is proposing to exempt procedures that have been removed from the IPO list from certain medical review activities to assess compliance with the two-midnight rule. The proposed exemption would continue for all services or procedures removed from the IPO list until the Secretary determines that the exemption is no longer appropriate for each specific service or procedure because it is more commonly performed in the outpatient setting.
CMS is soliciting comments on whether three years is an appropriate time frame for the transition, and whether other services are ideal candidates for removal from the IPO list in the near term. CMS is also seeking comments on whether CMS should restructure or create new APCs or C-APCs to allow for efficient OPPS payment for services that are removed from the IPO list.
Market-Based Medicare Severity-Diagnosis Related Groups (MS-DRG) relative weights
CMS is proposing a new market-based methodology for estimating the MS-DRG relative weights, beginning in FY 2029. The proposed market-based methodology would be the same methodology that was adopted in the FFY 2021 IPPS final rule where relative weights are calculated using the median payer-specific negotiated charge for Medicare Advantage Organizations (MAOs) for each MS-DRG. CMS is also proposing to require hospitals to report the median payer-specific negotiated charge with all of its MAOs, by MS-DRG on the Medicare cost report beginning in CY 2026.
Takeaways
The CY 2026 OPPS proposed rule signals notable shifts in Medicare outpatient reimbursement, reporting requirements and hospital quality measures. From the accelerated 340B payment recoupment to the phased elimination of the IPO list and updates impacting ASC payments, off-campus PBDs and wage index calculations, providers must begin evaluating operational and financial strategies now.
Hospitals, ASCs and other stakeholders should review the rule in detail and submit comments to CMS by Sept. 15 to ensure their perspectives are considered before the final rule is published. Early preparation will be key to managing potential payment adjustments and meeting expanded reporting expectations heading into 2026 and beyond.
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