The Centers for Medicare and Medicaid Services (CMS) has issued its annual proposed rule for the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System for calendar year (CY) 2026. The proposed rule encompasses a range of significant policy updates, payment rate adjustments and regulatory reforms impacting hospitals and ASCs.
Highlights include updates to payment rates for outpatient hospital and ASC services, refinements to quality reporting program requirements, expanded efforts to enhance hospital price transparency, and targeted policy changes aimed at addressing evolving clinical practices and promoting site-neutral payment policies.
CMS is requesting public feedback on a range of policy proposals. These include new technology applications, market-based payment methods and strategies to simplify regulations and lessen administrative burdens. Comments to the proposed rule must be submitted by September 15, 2025.
Key proposed rule changes and their implications for hospitals and ASCs include the following:
OPPS and ASC payment update
For CY 2026, CMS proposes a 2.4 percent increase in payment rates for both hospitals paid under the OPPS and ASCs. This update is based on a projected 3.2 percent hospital market basket update, reduced by a 0.8 percentage point productivity adjustment. Urban hospitals are expected to receive a 2.6 percent payment increase, rural hospitals a 2.5 percent increase, and major teaching hospitals a 2.3 percent increase. These estimates account for various budget neutrality adjustments, as well as changes in enrollment, utilization, and case mix. Finally, hospitals that do not meet outpatient quality reporting requirements would receive a 2.0 percent reduction.
Site-neutral payment for drug administration services
CMS proposes to pay for drug administration services provided in grandfathered (excepted) off-campus hospital outpatient departments (HOPDs) at a site-neutral rate—specifically, 40 percent of the OPPS rate, which aligns with the equivalent rate in the Medicare Physician Fee Schedule. This change is intended to address increases in OPPS utilization resulting from payment differences between care settings. For CY 2026, CMS estimates this provision will reduce OPPS spending by US$280 million, with US$210 million of the savings for Medicare, and US$70 million in reduced beneficiary coinsurance. CMS is also seeking public comments on expanding site-neutral payment policies to include on-campus clinic visits.
Inpatient only list
CMS proposes to phase out the hospital inpatient-only (IPO) list over three years, starting in CY 2026, citing advances in surgical techniques and patient safety protocols as reasons for this change. In the first phase, 285 musculoskeletal services will be removed from the IPO list, making them eligible for payment under the OPPS. The agency also seeks feedback on whether to restructure Ambulatory Payment Classifications (APCs) or create new ones to accommodate services transitioning off the IPO list.
For CY 2026, CMS will continue its policy of temporarily exempting procedures removed from the IPO list from certain medical reviews related to the two-midnight rule. As such, hospitals performing newly outpatient-eligible procedures will not face automatic claim denials, referrals for further audits or extra reviews based on whether the procedure was done in an inpatient or outpatient setting. The exemption remains in effect until Medicare billing data show the procedure is being performed more frequently in an outpatient setting. At that point, standard medical review processes will resume, according to CMS.
ASC covered procedures and supervision
CMS proposes to modify the criteria for excluding services from the ASC covered procedures list (CPL), shifting several exclusion criteria to nonbinding physician considerations for patient safety. The proposal would add 547 procedures to the ASC CPL for CY 2026, including 276 based on revised criteria and 271 codes proposed for removal from the IPO list. CMS also proposes to permanently modify the definition of direct supervision for cardiac rehabilitation, intensive cardiac rehabilitation, pulmonary rehabilitation, and diagnostic services furnished to hospital outpatients to allow for virtual direct supervision via real-time audio-video technology, except for certain diagnostic services with global periods.
Accelerated repayment for non-drug services overpayments under 340B
CMS proposes to accelerate the annual offset percentage for non-drug items and services from 0.5 percent to 2 percent, effective CY 2026. This 2 percent reduction would remain in effect until the estimated payment reduction reaches US$7.8 billion, which CMS estimates will occur in CY 2031. Hospitals that began billing Medicare under the OPPS after January 1, 2018, are exempt from this reduction. According to CMS: “This prospective offset aimed to balance the goal of restoring hospitals to their financial position had the original 340B policy never existed, while avoiding burdening them with an immediate single year recovery. After subsequent reconsideration of balancing these two goals, we have determined a shorter timeframe to be more appropriate.”
Payment for skin substitute products
CMS proposes new payment categories for skin substitutes based on FDA regulatory pathways and seeks comment on payment policies for preparatory procedures related to cell and gene therapies. Specifically, three new Ambulatory Payment Classifications (APCs) would be created for skin substitute products that are not drugs or biologicals, grouped by FDA regulatory pathway—PMA, 510(k) and 361 HCT/Ps—with an initial payment rate of US$125.38 for each proposed APC. This site-neutral policy would apply in both ASC and outpatient hospital settings.
Updates to hospital price transparency
CMS is proposing revisions to hospital price transparency regulations, effective January 1, 2026, to provide patients with clearer and more accurate healthcare pricing information, following Executive Order 14221. Hospitals would be required to disclose the 10th, median and 90th percentile allowed amounts, as well as the count of allowed amounts, in machine-readable files when negotiated charges are determined by percentages or algorithms, using EDI 835 electronic remittance advice data and following specific calculation methods. Hospitals must also attest to the inclusion of all applicable payer-specific negotiated charges in dollar amounts where possible, provide enough information for the public to determine dollar amounts when not directly available and name a responsible senior official. To further standardize reporting, hospitals would need to include their Type 2 National Provider Identifiers. Additionally, CMS proposes reducing civil monetary penalties by 35 percent for hospitals that accept a noncompliance determination and waive their right to a hearing.
Hospital quality star ratings modification
CMS proposes revising the methodology for the Overall Hospital Star Rating to place greater emphasis on the importance of Safety of Care measures as a principal component of hospital quality assessments. To that end, the agency proposes implementing this modification in two stages: initially capping the star rating for hospitals performing in the lowest quartile of Safety of Care and subsequently reducing the star rating by one for such hospitals in future years.
Other policy changes and proposals
- Outpatient quality reporting program changes: CMS proposes to streamline quality reporting by removing three measures related to health equity and one measure on COVID-19 vaccination among healthcare personnel from the Outpatient, ASC and Rural Emergency Hospital (REH) quality reporting programs. In their place, CMS would adopt a new Emergency Care Access & Timeliness measure for the Outpatient and REH quality reporting programs, and a new patient-reported outcome measure focused on information transfer for the ASC program. CMS also seeks comments regarding measured concepts related to well-being and nutrition for future consideration.
- Partial hospitalization and intensive outpatient: For CY 2026, CMS proposes maintaining the current payment rate methodology for calculating Partial Hospitalization Program (PHP) and Intensive Outpatient Program (IOP) rates for hospital-based providers. For Community Mental Health Centers (CMHC) PHPs and IOPs, the agency proposes calculating the CY 2026 costs based on 40 percent of the corresponding hospital-based PHP and IOP costs.
- Graduate medical education accreditation: CMS proposes that accreditors may not require or encourage institutions to adopt diversity, equity and inclusion programs that involve unlawful discrimination based on race or violate federal law. The proposal further provides that the Secretary may recognize other organizations as accreditors if they meet or exceed Medicare’s standards “in order to increase the potential for competition in the accreditation space and improve the quality of the accreditation process.”
- OPPS drug acquisition cost survey: Pursuant to Executive Order 14273, the Secretary of HHS will conduct a survey, with the survey submission window opening by early CY 2026, of the acquisition costs for each separately payable drug acquired by all hospitals paid under the OPPS. The goal is to have the results ready to help guide CMS policy decisions for the 2027 payment rules.
Requests for information
For CY 2026, CMS is issuing requests for information (RFI) for adjusting payment under the OPPS for services performed in the ASC or physician office settings, and the need for specific adjustments to CMS payment policies for Software as a Service (SaaS) to more accurately and appropriately pay for these products and services across settings of care, among others. In addition, CMS has released a stand-alone RFI seeking input on approaches and opportunities to streamline regulations and reduce administrative burdens on providers, suppliers, beneficiaries, Medicare Advantage and Part D plans, and other stakeholders participating in the Medicare program. Specifically, the agency is seeking “to better understand any challenges to identify opportunities for deregulation, while also ensuring the continued delivery of high-quality care to beneficiaries.”
Monitoring OPPS and ASC payment rules
Our team of experienced lawyers and professionals at Norton Rose Fulbright is closely monitoring the development, response and finalization of the OPPS and ASC proposed rule as well as other payment regulations affecting the healthcare industry. If you have any questions about the proposed rule or other federal and state regulations, please do not hesitate to contact us.
