On July 15, 2025, the Centers for Medicare & Medicaid Service (CMS) issued a proposed rule for the Calendar Year (CY) 2026 Outpatient Prospective Payment System (OPPS). As part of the proposed rule, CMS outlines a plan to eliminate the Inpatient Only (IPO) list over a three-year period, beginning with the removal of 285 procedures in 2026. The initial group removed from the list includes mostly musculoskeletal services, along with 16 non-musculoskeletal procedures spanning cardiovascular, lymphatic, digestive, gynecological, and endovascular categories. Although CMS stated that these procedures will initially remain exempt from medical review under the Two-Midnight Rule, that exemption will apply only until Medicare claims data shows they are more commonly performed in outpatient settings. The proposal reflects a broader shift toward more restrictive oversight of inpatient utilization.
Created by CMS in 2000, the IPO list includes a fluctuating list of 1,700 to 1,800 high-risk procedures deemed too complex for outpatient care and which are not payable under the OPPS. CMS previously attempted to eliminate the IPO list in 2021 but reversed course in the CY 2022 OPPS Final Rule. CMS cited “a large number of stakeholder comments throughout the CY 2021 rulemaking cycle and following issuance of the final rule with comment period that opposed the elimination of the IPO list primarily due to patient safety concerns, stating that the IPO list serves as an important programmatic safeguard.” The reversal reflected concerns that removing the IPO list would lead to inappropriate site-of-service denials and create unnecessary administrative burden for hospitals and clinicians managing complex procedures.
The proposed elimination of the IPO list would introduce new reimbursement risk by replacing categorical protections with case-by-case determinations. Without the protections of the IPO list, physicians would be expected to predict in advance potential complications to justify inpatient admission, while utilization review teams face increased documentation demands and scrutiny. If the proposal is finalized, hospitals could see an increase in post-payment audits, reimbursement denials, and appeals.
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Administrative burden increased immediately following the removal of total hip arthroplasty (THA) and total knee arthroplasty (TKA) from the IPO list in 2018. A 2020 survey of the American Association of Hip and Knee Surgeons found that 81% of surgeons reported greater administrative workload, 54% reported needing to obtain preauthorization or appeal a denial of preauthorization for inpatient admissions at least monthly, and 61% had patients contact them over unexpected copayments when surgeries were billed outpatient. 10% had already undergone audits related to inpatient status despite CMS’s initial audit moratorium.
Financial savings were a major driver behind CMS’s decision to remove THA and TKA from the IPO list. Studies show that outpatient TKA cost CMS approximately $8,527 less than extended inpatient stays of 3–4 days and $3,155 less than inpatient admissions overall. By 2020, 57.2% of Medicare TKA patients were classified as outpatients, and 72% of those outpatients still remained in the hospital for more than 24 hours (average length of stay 2.7 days). Compared with inpatient TKAs, outpatients were discharged to skilled nursing facilities more frequently (3.1% vs. 2.0%), had more emergency department visits (5.1% vs. 3.9%), and had higher 90-day readmission rates (2.2% vs. 0.9%). Another study found that about one-third of TKA patients booked for outpatient surgery stayed longer than 48 hours but were still billed as outpatient, leading to underpayment and lost reimbursement despite resource-intensive hospital stays.
Removal from the IPO list shifts more cases into outpatient or observation status, affecting both patient out-of-pocket costs and access to post-acute care. Inpatient stays are billed under Medicare Part A, which covers most hospital costs and skilled nursing facility care after discharge. Observation stays fall under Medicare Part B, which requires patients to pay 20% coinsurance for all hospital and physician services and does not cover post-acute skilled nursing care. Researchers found that pushing revision TKA and THA procedures to outpatient results in unnecessary patient copayments, exclusion from bundled payment programs, and limited access to post-acute care resources such as rehabilitation facilities and home health services.
The financial strain of IPO removals is illustrated by a single-hospital study of the Bundled Payments for Care Improvement (BPCI) program after TKA was removed from the IPO list. Hospital administrators changed 25% of Medicare TKA admissions to observation status, disqualifying those cases from BPCI and resulting in an estimated $24,332 loss in savings to the physician-owned bundle. The study projected that if 50% of TKA cases were moved to observation, the bundle would no longer be financially viable. Research also warns that as lower-risk patients shift outpatient, remaining inpatients will be more medically complex, driving up post-acute costs and further eroding savings. Similar concerns have been raised for complex revisions, where high implant costs, longer recovery times, and exclusion from bundled payment programs could make these cases financially unsustainable for hospitals.
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Shifting more cases outpatient discouraged surgery for patients with comorbidities who are poor candidates for same-day discharge, concentrating the sickest, most resource-intensive patients in fewer hospitals. A cohort study found that following the removal of TKA from the IPO list removal, older, Black, and female patients, as well as patients at safety-net hospitals, were less likely to receive outpatient TKAs. State-level data from New York similarly showed that patients with significant comorbidities were far less likely to undergo total hip or knee replacement in ambulatory surgery centers (ASCs) compared to hospital inpatient departments, reflecting surgeon selection patterns that limit ASC access for sicker patients.
While studies reflect outcomes from the removal of select orthopedic procedures, the current CMS proposal contemplates eliminating the entire IPO list, affecting a far broader range of complex surgeries. If these patterns hold, the consequences, financial strain, reduced access for medically complex and marginalized patients, and increased administrative burden, are likely to be amplified.
As CMS finalizes this policy, providers should be aware of the immediate compliance and reimbursement risks associated with the phase-out. The proposed rule is open for public comment through September 15, 2025.
Photo: kutubQ, Getty Images
Victor On-Sang is a litigation associate at Wolfe Pincavage. As part of the litigation practice group, Victor provides strategic, operational, and litigation support to the firm’s healthcare clientele. He tackles a wide array of complex healthcare disputes, including those involving ERISA, the ACA, state insurance laws, Medicare Advantage, and federal and state regulatory matters.
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