A comprehensive analysis of the final rule that will reshape outpatient billing and reimbursement
The Centers for Medicare & Medicaid Services has finalized its Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System rule for calendar year 2026, introducing changes that will significantly impact approximately 4,000 hospitals and 6,000 ASCs across the nation. Released on November 21, 2025, this comprehensive rule combines modest payment increases with controversial site-neutral payment expansions and enhanced price transparency requirements that providers must prepare to implement by January 1, 2026.
The Payment Rate Increase: 2.6% for Qualified Providers
For hospitals and ASCs meeting quality reporting requirements, CMS finalized a 2.6% payment rate increase for 2026—slightly higher than the initially proposed 2.4% bump. This increase reflects a 3.3% hospital market basket update, reduced by a 0.7 percentage point productivity adjustment mandated by statute.
While this represents positive news on the surface, the actual impact on hospital revenue will be substantially diminished by concurrent policy changes. The 0.5% reduction related to the 340B drug program recoupment and the estimated 0.3% reduction from expanded site-neutral payments mean many hospitals will experience a net increase closer to 1.8% rather than the headline 2.6% figure.
For context, Medicare Part B outpatient services now account for the greatest share of Medicare spending, with traditional Medicare spending more than $65 billion on OPPS services in 2023, while beneficiaries contributed an additional $14.1 billion in cost sharing. From 2012 to 2022, OPPS spending increased by 71%, underscoring why CMS views outpatient payment reform as critical to Medicare’s long-term sustainability.
Site-Neutral Payments: The Controversial Expansion
Perhaps the most contentious element of the 2026 rule is the expansion of site-neutral payment policies. Site-neutral payment refers to CMS paying the same rate for a service regardless of whether it’s provided in a hospital outpatient department (HOPD), ambulatory surgical center (ASC), or freestanding physician office.
What Changes in 2026:
CMS finalized its proposal to apply Physician Fee Schedule (PFS) rates to drug administration services furnished in grandfathered off-campus HOPDs, paying these facilities at just 40% of the OPPS rate. Rural sole community hospitals are exempt from this reduction. The agency estimates this policy will reduce OPPS spending by $290 million in 2026, including $220 million in Medicare savings and $70 million in reduced beneficiary coinsurance.
The Rationale Behind Site-Neutral Payments:
CMS argues that Medicare currently pays significantly more for identical outpatient services when provided in hospital settings versus physician offices. Examples of current payment disparities include:
- Allergy skin tests: $176.01 in a physician’s office versus $719.16 in a hospital-owned off-campus clinic
- Chest x-rays: $17.22 in a physician’s office versus $66.52 in a hospital-owned off-campus clinic
- Radiation therapy: $155.65 in a doctor’s office versus $376.93 in a hospital-owned off-campus clinic
According to the Congressional Budget Office, the current payment differential could cost taxpayers as much as $157 billion over 10 years if not addressed. CMS projects the 2026 rule will save Medicare and beneficiaries $11 billion over the next decade by reducing unnecessary services and aligning payments with care costs.
Hospital Industry Opposition:
The American Hospital Association strongly opposes the site-neutral expansion, with Senior Vice President Ashley Thompson stating: “The AHA is disappointed that CMS has finalized cuts to hospitals and health system services, including those in rural and underserved communities. The reality is that hospital outpatient departments serve Medicare patients who are sicker, more clinically complex, and more often disabled or residing in rural or low-income areas than the patients seen in independent physician offices.”
Hospitals argue that payment differentials are justified because HOPDs face higher licensing, accreditation, and regulatory requirements than independent physician offices, and must maintain 24/7 comprehensive support infrastructure. They also contend that lowering HOPD payment rates threatens their ability to provide essential community services, particularly in rural and underserved areas.
Phasing Out the Inpatient-Only List
CMS is implementing a three-year phase-out of the inpatient-only list—procedures that Medicare traditionally required to be performed in inpatient settings. For 2026, the agency will remove 285 procedures, predominantly musculoskeletal procedures, from this list and add 289 procedures to the ASC covered procedures list.
CMS Administrator Dr. Mehmet Oz stated: “We are strengthening Medicare’s foundation by protecting beneficiaries, eliminating fraud, and advancing medical innovation—all while maintaining strict provider accountability and responsible use of taxpayer funds. These comprehensive reforms expand patient choice and establish the price transparency Americans need for confident healthcare decisions.”
The policy allows Medicare to pay for these procedures in HOPDs when clinically appropriate, giving physicians greater flexibility in determining the most appropriate site of service. However, CMS will continue to exempt certain medical review activities related to the two-midnight policy for procedures removed from the inpatient-only list until the procedure becomes more common in ASCs than HOPDs for the Medicare population.
Overall, CMS will add 547 procedures to the ASC-covered procedures list, reflecting the agency’s belief that the evolving practice of medicine allows more procedures to be performed on an outpatient basis with shorter recovery times.
Revolutionary Price Transparency Requirements
The 2026 rule significantly strengthens hospital price transparency requirements, closing loopholes that hospitals have previously exploited to avoid full disclosure. These changes take effect January 1, 2026, though CMS will delay enforcement until April 1, 2026.
New Requirements Include:
- Actual Consumer-Friendly Prices: Hospitals must post actual prices—not estimates—in standardized formats that patients can understand and compare.
- Statistical Range Requirements: Beginning January 1, 2026, hospitals must include the median, 10th percentile, and 90th percentile allowed amounts for services in machine-readable files. They must also include the count of allowed amounts when charges are based on percentages or algorithms.
- Accountability Attestation: Hospitals must attest in machine-readable files that information is accurate, complete, and current. They must include all payer-specific negotiated charges expressible as dollar amounts and provide sufficient information for patients to calculate charges that cannot be directly expressed.
- Leadership Accountability: Hospitals must include the name of their CEO, president, or other leader who oversees the data encoding process to ensure accountability for pricing data accuracy.
- Provider Identifier Encoding: Hospitals must encode their Type 2 National Provider Identifiers in machine-readable files to support comparison across healthcare datasets.
HHS Secretary Robert F. Kennedy, Jr., emphasized: “This final rule from CMS closes the loopholes hospitals exploit to hide real prices and advances President Trump’s demand for radical hospital price transparency.”
Noncompliance will result in civil monetary penalties, making it critical that hospitals invest in systems and processes to ensure accurate, timely posting of pricing information.
The 340B Recoupment: Temporary Relief
CMS maintained its 340B recoupment policy but provided temporary relief by keeping the annual reduction at 0.5% for 2026 rather than implementing the proposed 2% accelerated timeline. This policy stems from increased payments all OPPS hospitals received for non-drug services between 2018-2022 as a result of the agency’s budget-neutral policy to cut payments to 340B hospitals—a policy unanimously struck down by the Supreme Court.
The recoupment will reduce payments to all OPPS hospitals through an annual 0.5% reduction in the OPPS conversion factor starting January 1, 2026. While hospitals appreciate the delayed acceleration, the AHA remains concerned that CMS intends to move forward with a larger reduction beginning in 2027.
Quality Reporting Program Updates
CMS finalized several changes to the Outpatient, Rural Emergency Hospital (REH), and ASC Quality Reporting programs:
Measure Removals: The agency removed four measures related to health equity and COVID-19 vaccination of healthcare personnel, effective with the 2024 reporting period for the 2026 payment year.
New Measures: For the Outpatient and REH programs, CMS adopted a new e-measure on timeliness of care in the emergency department. The agency also established requirements for REHs to report e-measures.
ASC Program: CMS did not finalize its proposal 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. The agency also did not finalize requiring ASCs to use the Hospital Quality Reporting system for PRO-PM data submission.
Hospital Star Ratings: CMS will update the methodology for calculating Overall Hospital Star Ratings to emphasize the Safety of Care measure group starting in 2026.
ASCs failing to submit required quality data will receive a 2 percentage point reduction to their annual payment rate update.
Additional Policy Changes
Intensive Outpatient Programs: CMS will continue the two-tier payment system for intensive outpatient program services for mental illness or substance use disorder in HOPDs and community mental health centers—one payment for days with three services and another for days with four or more services.
Market-Based Payment Data Collection: The agency will collect market-based payment rate data on the Medicare cost report for cost reporting periods ending on or after January 1, 2026, using this information to set inpatient prospective payment system relative weights beginning in fiscal year 2029.
Skin Substitute Payment: CMS continues its policy of unconditionally packaging skin substitute products into their associated application procedures, dividing them into high-cost and low-cost groups to ensure adequate resource homogeneity among APC assignments.
Implementation Challenges and Timeline Concerns
The American Hospital Association criticized CMS for the significant delay in releasing the final rule, noting that hospitals have little time to understand finalized changes, adjust systems, update billing processes, revise budgets, and train staff before the January 1, 2026, effective date.
“This last-minute scramble creates operational chaos and increases administrative burden, making it harder for hospitals to focus on what matters most: delivering high-quality care for patients,” stated industry representatives.
What Healthcare Providers Must Do Now
Immediate Action Items:
- Conduct Revenue Impact Analysis: Model the combined effects of the 2.6% increase, 0.5% 340B reduction, and site-neutral payment changes on your specific facility and service mix.
- Review Off-Campus HOPD Operations: Identify all drug administration services provided at off-campus locations and calculate the financial impact of the 60% payment reduction (from OPPS rate to 40% of OPPS rate).
- Update Billing Systems: Ensure your systems can correctly identify and bill procedures removed from the inpatient-only list and added to the ASC covered procedures list.
- Implement Price Transparency Compliance: Establish processes to generate, verify, and post accurate pricing data in the required formats, including median, 10th, and 90th percentile calculations. Designate leadership accountability for data accuracy.
- Prepare Quality Reporting: Ensure timely submission of all required quality measures to avoid the 2 percentage point payment reduction. Implement the new emergency department timeliness measure.
- Train Staff: Conduct comprehensive training on new policies, billing procedures, and compliance requirements before the April 1, 2026, enforcement date for price transparency rules.
- Strategic Planning: Consider the long-term implications of site-neutral payment expansion. Evaluate whether certain services should be shifted to different care settings or whether enhanced clinical documentation can support HOPD-level payments where appropriate.
The Future of Site-Neutral Payments
While the 2026 rule represents a significant expansion of site-neutral policies, it likely represents just the beginning. Bipartisan support exists for broader site-neutral payment reforms, with the Congressional Budget Office estimating that comprehensive site-neutral policies could save $157 billion over 10 years.
Future proposals may target additional service categories including evaluation and management visits, imaging services, laboratory tests, and other routine procedures. The Medicare Payment Advisory Commission has recommended site-neutral payment for 57 of 169 ambulatory payment classifications, suggesting substantial room for further expansion.
Healthcare providers should prepare for continued movement toward site-neutral payments by optimizing operational efficiency, documenting clinical complexity that justifies higher payment rates, and potentially restructuring service delivery models to maintain financial viability under evolving payment policies.
The 2026 OPPS and ASC final rule represents a fundamental shift in how Medicare pays for outpatient services. While the 2.6% base rate increase provides modest relief, the expansion of site-neutral payments, elimination of the inpatient-only list, and enhanced price transparency requirements will create significant operational and financial challenges for hospitals and ASCs.
Success in this new environment requires proactive planning, sophisticated revenue cycle management, comprehensive staff training, and strategic thinking about service delivery models. Organizations that adapt quickly and position themselves for further payment reforms will be best equipped to maintain financial stability while continuing to deliver high-quality patient care.
The message from CMS is clear: Medicare is moving toward payment models that prioritize efficiency, transparency, and patient choice. Healthcare providers must evolve accordingly or face increasingly difficult financial pressures in the years ahead.
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