As of this month, 285 procedures that were previously reimbursed by Medicare only when performed in inpatient settings can now be delivered in hospital outpatient departments (HOPDs). Of those 285 procedures, 271 procedures are also now allowed in ambulatory surgery centers (ASCs). CMS has signaled its intent to phase out the remainder of the Inpatient Only (IPO) list over the next three years, with significant financial implications across the health economy. This analysis examines the revenue implications of the outpatient procedures newly eligible for reimbursement under Medicare.
The Medicare IPO list was established in 2000 to designate procedures that Medicare would reimburse only when performed in inpatient settings, based on clinical complexity and safety criteria. As of 2025, the list included over 1,700 surgical and interventional procedures. Under the first Trump Administration, CMS began phasing out the IPO list, starting with the removal of total knee arthroplasty (TKA) in 2018, followed by total hip arthroplasty (THA) in 2020. In December 2020, CMS finalized a plan to eliminate the IPO list entirely over three years, beginning with 298 musculoskeletal and spinal procedures. Concurrently, CMS expanded the ASC Covered Procedures List (CPL) by adding 267 new codes.
However, the Biden Administration reversed this direction in 2022, reinstating the IPO list and removing hundreds of codes that had been added to the ASC CPL, citing safety concerns and the need for further procedural review. On July 15, 2025, CMS published the 2026 Outpatient Prospective Payment System (OPPS) proposed rule, which included a provision that would phase out the IPO list over three years, which was approved in the final rule released in November 2025. Additionally, the 2026 OPPS final rule revised safety criteria and expanded the ASC CPL by adding 276 separate procedures, including cardiac ablations and percutaneous coronary interventions, along with 271 procedures removed from the IPO list.
The different Medicare prospective payment systems create reimbursement levels based on site of service. Inpatient procedures are reimbursed through the Inpatient Prospective Payment System (IPPS) using Diagnosis-Related Groups (DRGs), while outpatient procedures are paid through the OPPS using Ambulatory Payment Classifications (APCs). ASCs receive payment through a separate fee schedule typically set at lower rates than HOPDs. These payment differentials are intentional, with outpatient reimbursement comparatively lower than inpatient, reflecting CMS's assessment of the relative resource intensity and overhead costs associated with different care settings.
As procedures migrate from inpatient to outpatient settings, the aggregate revenue impact on hospitals will be substantial, particularly for high-volume procedures.
National all-payer claims data were leveraged to analyze reimbursement impacts for the 285 procedures being removed from the IPO list in 2026. CPT codes from the 2026 proposed removal list were mapped to the corresponding MS-DRG codes. Reimbursement rates were derived from the most recent CMS IPPS and OPPS final rules. Multiple migration scenarios were modeled to estimate the revenue impact of site-of-service shifts, ranging from 0% to 100% inpatient volume in 20 percentage point increments.
The likely shift from inpatient to outpatient settings following the 2026 IPO list removals will result in reimbursement reductions across the affected procedures. In aggregate, the average difference between IPPS and OPPS payment rates across all 285 procedures is -$16,334 per procedure. The highest absolute difference is observed for sternum procedures, CPT 21740 (reconstruction of sternum) and 21750 (repair of sternum separation), where the corresponding IPPS rate of $64,125 exceeds the OPPS rate of $7,534 by $56,591 (Figure 1). More moderate differences are seen in procedures such as CPT 27137 (repair, revision of or reconstruction of hip joint replacement), where the IPPS rate of $25,489 exceeds the OPPS rate of $13,254 by $12,235, while smaller rate differences are seen in other codes, such as CPT 23474 (repair, revision or reconstruction shoulder joint), with an IPPS rate of $17,473 exceeding the OPPS rate of $13,254 by $4,218. These findings underscore the considerable financial pressure that healthcare systems will face as these procedures transition to outpatient settings.
The following scenario analysis demonstrates the revenue impacts of site-of-service migration for procedures removed from the IPO list in 2026. Using 2024 inpatient Medicare data for volumes, total reimbursement would be $9.3B under a fully inpatient scenario (100% IPPS/0% OPPS and $4.0B under a fully outpatient scenario (0% IPPS/100% OPPS), a difference of $5.3B (Figure 2). At an 80/20 inpatient-to-outpatient distribution, total reimbursement would be $8.2B, while a 20/80 inpatient-to-outpatient distribution would yield $5.1B in reimbursement.
This regulatory change inaugurates a fundamental restructuring of surgical care economics. For decades, the IPO list has effectively served as a bulwark for hospitals, at one time ensuring through CMS reimbursement policy that almost 2,000 surgical procedures would only be performed in inpatient hospital settings. The phased elimination of the IPO list will further accelerate the migration of surgical volume, and the accompanying revenue, to outpatient facilities, a shift that has been intensifying for decades, regardless of Medicare reimbursement guidelines.
The financial implications are significant, particularly for hospitals. The reimbursement amount differences between inpatient and outpatient settings, an average decline of $16,334 per procedure, combined with the historical precedent of rapid volume migration following removal of a code from the IPO list, foreshadows increasing revenue pressures for hospitals in the coming years. The previous removal of joint replacements from the IPO list, where inpatient TKA volume declined 85.4% and THA volume declined 66.1% from pre-removal baselines, provides a historic, observed benchmark for what may occur with the 285 newly eligible procedures.1 If similar migration patterns occur, the potential revenue impact could approach $5.3B as volume shifts from inpatient to outpatient settings.
Health systems that have strategically invested in ambulatory capacity, through ASC ownership, joint ventures or integrated outpatient surgical facilities, are positioned to capture market share as this transition accelerates in 2026. Health systems that have not invested in outpatient capabilities face the compounding challenges of declining inpatient revenue without corresponding outpatient growth. These competitive dynamics will intensify if Congress and CMS continue expanding site-neutral payment policies, which would further compress reimbursement across settings. As surgical volume shifts from inpatient to outpatient settings, inpatient hospitals will inevitably treat higher-acuity patients, which will amplify the impacts of the Transforming Episode Accountability Model (TEAM), which also starts in 2026.
The policy also introduces potential reimbursement changes for payers beyond Traditional Medicare. Commercial payers and Medicare Advantage plans have historically relied on the IPO list as a reference point for coverage determinations and site-of-service requirements. These payers are likely to accelerate their own shifts toward outpatient care, amplifying the volume migration beyond Traditional Medicare. Meanwhile, pharmaceutical innovations, such as GLP-1 medications for obesity and metabolic management, may reduce the clinical necessity of certain musculoskeletal procedures, creating added pressure for procedure-dependent service lines, such as bariatrics.
The finalization of the 2026 IPO list phased elimination, coupled with CMS's stated intent to solicit input on future removals over the subsequent two years, indicates that the full phaseout of the IPO list remains highly probable. Organizations that recognize this shift as an opportunity to reimagine care delivery, rather than simply react to volume losses, will be best positioned to thrive in an increasingly ambulatory-centric surgical marketplace. For those unable or unwilling to adapt, the financial pressures documented in this analysis will be difficult to offset without shifts in existing strategies.