Heads up: this issue is from July 22, 2025. Because it covers time-sensitive coding and regulatory topics, some details may have changed since. See the latest issues for current guidance.
Last week, the Centers for Medicare & Medicaid Services (CMS) released its proposal for The Hospital Outpatient Prospective Payment System (OPPS) for calendar year 2026. The proposed rule includes several proposals that would reduce Medicare funding for some services provided by hospital outpatient departments.
The following paragraphs summarize the "highlights" of this proposal.
- Conversion Factor: There is a 2.4 percent payment rate increase for hospital outpatient departments and ASCs. The payment update includes a 3.2 percent increase in the hospital market basket percentage, along with a 0.8 percentage point productivity adjustment. This payment update is slightly smaller than the 2.9 percent increase for 2025.
- Site-Neutral Payment for Drug Administration Services: CMS is proposing to extend site-neutral policies to drug administration services in hospital provider-based departments (PBDs), previously referred to as off-campus provider-based departments. CMS proposes to reimburse drug administration services (any HCPCS codes assigned to the drug administration ambulatory payment classifications) in excepted off-campus provider-based departments at the Physician Fee Schedule rate. This proposal would reduce Medicare payments by $210 million for 2026 and, if finalized, would not be implemented in a budget-neutral manner, meaning there will be no payment offsets to compensate for the reduction in payments. The proposed rule also seeks feedback on how CMS should implement similar proposals for on-campus offices.
- Accelerated Timeline for Recouping Non-Drug Services Payments from 2018-2022: CMS cuts to 340B reimbursement from 2018-2022 were offset by increased payment for non-drug services. However, when the courts struck down the 340B cuts, CMS then indicated it would recoup the increased non-drug services payment to ensure budget neutrality. CMS implemented recoupment with a timeframe designed to avoid burdening hospitals via a 0.5% reduction in the OPPS conversion factor for non-drug supplies and services until 2041, which was ridiculous, as anyone who remembers the offset will probably be dead by then. CMS is now proposing to significantly accelerate the recoupment of funds from hospitals by reducing the conversion factor by 2%, resulting in a clawback of $7.8 billion over the next six years. Whoa.
- Drug Bundling: 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 packaged by rule. This is the same as last year. For diagnostic radiopharmaceuticals, they propose packaging those items with a per-day cost of less than or equal to $655 and identifying items with a per-day cost greater than $655 as separately payable.
- Survey of Actual Acquisition Costs: To reduce reimbursement for drugs under 340B, CMS must conduct a survey of actual acquisition costs for each separately-payable drug purchased under OPPS. The 2018-2022 cuts to 340B reimbursement (to ASP – 22.5%) were struck down by the courts because CMS failed to conduct the required survey. CMS is now undertaking the required survey, as a prerequisite for likely reductions in reimbursement for 340B drugs. CMS is proposing that the survey will begin at the end of 2025 and close in early 2026, with policy changes based on the survey results expected for CY 2027 (i.e., next year’s OPPS proposed/final rule). The survey is not currently mandatory (???) and CMS includes several questions related to survey design in the proposed rule.
- The Inpatient Only List: The agency proposes in the CY 2026 rule to eliminate the inpatient-only list, which specifies procedures that Medicare generally requires to be performed in the inpatient setting. Starting in CY 2026, CMS proposes to remove 285 procedures from the inpatient-only list and phase in the total obliteration over 3 years. The procedures largely cover musculoskeletal services, as these services can be performed in the outpatient setting with a shorter recovery time, according to the proposed rule. CMS would also continue the Two-Midnight Rule exemptions for procedures removed from the inpatient-only list.
- Hospital price transparency changes: CMS plans to modify hospital price transparency requirements per an executive order signed by President Donald Trump earlier this year. The executive order aims to bring more dollar-and-cents pricing to healthcare. CMS also proposed reducing the civil monetary penalty by 35% for hospitals that agree with noncompliance determinations from CMS. These hospitals would also waive their right to a hearing with an administrative law judge.
- Hospital quality reporting modifications: Another major policy change in the CY 2026 OPPS and ASC Payment System proposed rule would alter the Hospital Quality Star Rating Program. Under the program, CMS assesses hospital quality performance by giving hospitals a star rating from one to five, with five being the highest quality. The program assesses performance based on quality measures like hospital readmissions, mortality rates, patient experience, safety of care and timely access to care.
- CMS proposed to update the methodology used to determine the star rating to emphasize a hospital's safety of care performance in its star rating. Specifically, CMS would implement a 4-star cap for hospitals in the lowest quartile for safety of care performance starting in CY 2026.
- By CY 2027, hospitals in the lowest quartile for safety of care performance would also receive a blanket 1-star reduction.
- However, only hospitals with at least three safety of care measures would be subject to the new methodology.
- Additionally, CMS proposed updates to other hospital quality reporting programs to generally remove health equity (I told you) and COVID-19 vaccine reporting requirements and adopt a measure that evaluates long wait times in emergency departments.
Healthcare stakeholders can comment on the CY 2026 OPPS and ASC Payment System proposed rule for 60 days following the publication of the proposal on the Federal Register.
To review more of the OPPS proposal, see the following:
