On July 15, 2025, CMS issued a proposed rule with updates to the Medicare payment rates for the Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for calendar year 2026 (the Proposed Rule). In the proposed rule, CMS seeks to expand site neutral payments for drug administration services and requests comments on expanding site neutral payments in other areas. Additionally, the agency plans to unpackage skin substitute products from the application services and establish APCs based on product characteristics rather than based on stated prices for provision of these products when they are used during a covered application procedure under the OPPS. Finally, CMS proposes updates to the hospital price transparency regulations, the inpatient only list (IPO), and graduate medical education accreditation. This article provides an overview of CMS’s proposals in the Proposed Rule. Comments are due by September 15, 2025.
Updates to OPPS and ASC Payment Rates
The Proposed Rule updates the OPPS payment rates by 2.4% for hospitals that meet applicable quality reporting requirements. This 2.4% update factor is based on the projected hospital market basket percentage increase of 3.2%, reduced by a reductivity adjustment of 0.8%. CMS estimates that these new payment rates would result in increased total payments to OPPS providers of approximately $100 billion for CY 2026.
For CY 2026, using the hospital market basket update, CMS proposes an update factor to the ASC rates of 2.4% as well. The update applies to ASCs meeting relevant quality reporting requirements. This update is based on the proposed hospital market basket percentage increase of 3.2%, reduced by a reductivity adjustment of 0.8%. CMS estimates that these rates will result approximately $9.2 billion in total payments to ASCs in CY 2026, an increase of approximately $480 million compared to what was estimated CY 2025.
ASC Market Basket Update
As mentioned above, the Proposed Rule extends the five-year market basket update that was proposed in CY 2019. In the CY 2019 OPPS/ASC final rule with comment period, CMS finalized a proposal to apply the hospital market basket update to ASC payment system rates for an interim period of five years (CY 2019 through CY 2023) while CMS determined the impact of the higher update factor on the migration of services from the hospital outpatient setting to the ASC setting. In light of the COVID-19 Public Health Emergency (PHE), CMS extended the application of the hospital market basket update an additional two years in the CY 2024 OPPS/ASC final rule with comment period, that is, through CY 2024 and CY 2025 so that CMS could analyze claims data further removed from the effects of the COVID-19 PHE.
In this Proposed Rule, CMS seeks to extend its utilization of the hospital market basket update as the update factor for the ASC payment system one additional year, through CY 2026, while CMS continues to study the migration of outpatient surgical procedures.
CY 2026 Prospective Adjustment to Payments for Non-Drug Items and Services to Offset the Increased Payments for Non-Drug Items and Services Made in CY 2018 Through CY 2022 as a Result of the 340B Payment Policy
The 340B Final Remedy rule finalized changes to the calculation of the OPPS conversion factor applicable to non-drug items starting to CY 2026. That rule codified a 0.5% reduction in the OPPS conversion factor applicable to non-drug items and services that would remain in effect until the estimated aggregate payment reduction reached the $7.8 billion of increased non-drug item and services payments made from CY 2018 through CY 2022, which CMS estimated would occur in CY 2041. 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.
Now, CMS has determined a shorter timeframe to be more appropriate, and the Proposed Rule revises the annual offset percentage for non-drug items and services from 0.5% to 2% effective CY 2026. This 2% reduction would remain in effect until the estimated payment reduction reaches $7.8 billion, which CMS estimates will occur in CY 2031 (ten years earlier than initially implemented).
Skin Substitutes
In the CY 2014 OPPS/ASC Final Rule, CMS packaged skin substitute products and finalized a method to divide skin substitutes into a high-cost group and a low-cost group.
The Proposed Rule changes that methodology. In the Proposed Rule, CMS plans to unpackage the skin substitute products from the application services and establish APCs based on product characteristics rather than based on stated prices for provision of these products when they are used during a covered application procedure under the OPPS (CPT codes 15271-15278).
CMS is also proposing to group skin substitutes that are not drugs or biologicals into three FDA regulatory categories, noting that it believes grouping and paying for skin substitute products based on their relevant product characteristics recognizes the clinical and resource differences in product types and would incentivize competition to create more innovative products. For CY 2026, CMS proposes using a single payment rate for the three categories of skin substitute products (an initial payment rate of $125.38), but it intends to propose payment rates that differentiate between the three FDA categories in future years.
Inpatient Only (IPO) List
The Proposed Rule seeks to phase out the IPO list over a 3-year period, starting with removing 285 mostly musculoskeletal procedures, to allow for services to be paid by Medicare in a hospital outpatient setting when clinically appropriate. CMS intends for this transition to give physicians greater flexibility in determining the most appropriate site of service.
Site Neutrality Proposals – Drug Administration Services
The Proposed Rule seeks to expand the site neutral payment policy for drug administration services. Specifically, CMS proposes to pay for drug administration services furnished in grandfathered off-campus hospital outpatient departments at a site-neutral rate of 40% of the OPPS rate.
Although the Proposed Rule only implements site neutral payments for drug administration services, it requests comments on whether CMS should expand site-neutral payments to clinic visit services provided in on-campus hospital outpatient departments (“HOPDs”).
Market-Based MS-DRG Relative Weight Data Collection and Methodology Proposal
The Proposed Rule requires hospitals to report certain market-based payment rate information on their Medicare cost report. CMS is proposing to collect from hospitals the median payer-specific charges that they have negotiated with Medicare Advantage organizations and disclosed under CMS’ hospital price transparency rules and then use the data to help determine relative Medicare payment rates for inpatient hospital services. In doing so, CMS hopes to reduce Medicare’s reliance on the hospital chargemaster and support the development of a market-based approach to payment under the Medicare FFS system.
CMS is also seeking comment on how market-based approaches such as this one could be utilized to improve additional Medicare FFS payment systems.
Graduate Medical Education (GME) Accreditation
The Proposed Rule prohibits accreditors to require as part of accreditation, or otherwise encourage institutions to put in place, diversity, equity, and inclusion programs that encourage unlawful discrimination on the basis of race or other violations of Federal law. CMS states that the purpose of this Proposed Rule is to ensure that GME accreditation for approved medical residency programs complies with applicable laws related to race-based admission policies and to improve the accreditation process.
Additionally, CMS notes that the Secretary may certify other organizations as accreditors to increase the potential for competition in the accreditation space and improve the quality of the accreditation process.
Hospital Price Transparency (HPT)
Standard Charges – Allowed Amounts
Under the hospital price transparency regulations, a hospital must make public its standard charges, and when the standard charge is based on a percentage or algorithm, the hospital must encode the “estimated allowed amount” in dollars for that item or service in the machine-readable file. The estimated allowed amount is the “average dollar amount that the hospital has historically received from a third party payer for an item or service.” 45 C.F.R. § 180.20. CMS proposes to replace the requirement to encode the estimated allowed amount with the following three new data elements:
- “Median allowed amount’’ would be defined as the median of the total allowed amounts the hospital has historically received from a third party payer for an item or service for a time period no longer than the 12 months prior to posting the machine-readable file. Should the calculated median fall between two observed allowed amounts, the median allowed amount is the next highest observed value.
- ‘‘Tenth (10th) percentile allowed amount’’ would be defined as the 10th percentile of the total allowed amounts the hospital has historically received from a third party payer for an item or service for a time period no longer than the 12 months prior to posting the machine-readable file. Should the calculated percentile fall between two observed allowed amounts, the 10th percentile allowed amount is the next highest observed value.
- ‘‘Ninetieth (90th) percentile allowed amount’’ would be defined as the 90th percentile of total allowed amounts the hospital has historically received from a third party payer for an item or service for a time period no longer than the 12 months prior to posting the machine-readable file. Should the calculated percentile fall between two observed allowed amounts, the 90th percentile allowed amount is the next highest observed value.
The “total allowed amount” figure used in each of these proposed definitions would be derived from the gross charge minus contractual adjustments and consist of the portion billed to a payer for a particular plan and the portion, if any, billed to the patient. The amount should reflect the total amount the hospital was reimbursed for the item or service (or service package). CMS proposes that hospitals would determine the ‘‘total allowed amount’’ from EDI 835 ERA transaction data from no longer than 12 months prior to posting the machine-readable file.
Other Machine-Readable File Updates
Current hospital price transparency regulations require each hospital to affirm in its machine-readable file that the hospital, to the best of its knowledge and belief, has included all applicable standard charge information in accordance with the requirements of 45 C.F.R. Part 180 and that the information displayed is true, accurate, and complete as of the date indicated in the file. CMS proposes to supplant the existing affirmation statement as follows:
- Hospitals would be required to include in their machine-readable files the following attestation: “The hospital has included all applicable standard charge information in accordance with the requirements of § 180.50, and the information encoded is true, accurate, and complete as of the date in the file. The hospital has included all payer-specific negotiated charges in dollars that can be expressed as a dollar amount. For payer-specific negotiated charges that cannot be expressed as a dollar amount in the MRF or not knowable in advance, the hospital attests that the payer-specific negotiated charge is based on a contractual algorithm, percentage or formula that precludes the provision of a dollar amount and has provided all necessary information available to the hospital for the public to be able to derive the dollar amount, including, but not limited to, the specific fee schedule or components referenced in such percentage, algorithm or formula.”
- Hospitals would encode the name of the hospital chief executive officer, president, or senior official designated to oversee the encoding of true, accurate, and complete data as directed in § 180.50(a)(3)(iii).
- Separately, CMS proposes that hospitals reporting a unique identifier, specifically their NPI(s), in the machine-readable file.
Enforcement Updates
Under current hospital price transparency regulations, hospitals can appeal a civil monetary penalty (CMP) within 30 days of issuance of the notice of a CMP. CMS proposes that a CMP would be reduced by 35 percent should a hospital submit to CMS a written notice requesting to waive its right to a hearing under § 180.100 within 30 calendar days of the date of the notice of imposition of the CMP. CMS also proposes that if a hospital waives its right to appeal a CMP and receives a 35 percent reduction, the hospital:
- Would not be eligible to receive a 35 percent reduction on any CMPs issued that result from the same instance(s) of noncompliance (i.e., continuing violations); and
- Would waive its right to appeal CMPs for any such continuing violations.
CMS also proposed that the agency would decline to make available to hospitals the opportunity to have a CMP amount reduced in certain situations. These include:
- When a hospital has not affirmatively waived its right to a hearing in accordance with the procedures specified at proposed § 180.90(c)(4);
- When CMS imposes upon a hospital a CMP for noncompliance going to the core of the hospital price transparency requirements—for example, failing to make public either a machine-readable file 45 C.F.R. § 180.40(a) or any shoppable services in a consumer-friendly format (either in the form of a shoppable services file or an internet price estimator tool) as required in 45 C.F.R. § 180.40(b)—the hospital would be ineligible to avail itself of such an opportunity.
The Proposed Rule can be found here, and the CMS fact sheet is available here. Comments are due by September 15, 2025.
