For all the talk of innovation and transformation at industry conferences, history suggests that Federal policy is the sole catalyst of transformational change in the health economy, not technology entrepreneurs at innovation conferences or healthcare summits. Like most things done under compulsion, health economy “innovation” is motivated by desperation to survive, not aspiration for excellence.
As I have written previously, exceptions to that rule are rare; industry driven innovation is usually limited to discrete industry sectors, whereas industry-wide innovation is usually driven by external forces, like the Internet.
The Federal government is notorious for announcing unpopular or disruptive policy changes on Friday afternoons, as the Centers for Medicare and Medicaid Services (CMS) did on November 21 in announcing the 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Final Rule (the “2026 Final Rule”). One of the most notable aspects of the 2026 Final Rule is the modification of the Inpatient Only (IPO) list, which CMS described this way:
“In order to give beneficiaries more choices on where to obtain care with the potential for lower out-of-pocket expenses, CMS is finalizing its proposal to phase out the IPO list over a 3-year period, beginning with the removal of 285 mostly musculoskeletal procedures for CY 2026. CMS believes that the evolving nature of the practice of medicine allows more procedures to be performed on an outpatient basis with a shorter recovery time. This policy allows for these services to be paid by Medicare in the hospital outpatient setting when determined to be clinically appropriate, giving physicians greater flexibility in determining the most appropriate site of service.”
The IPO list was established in 2000 as part of the OPPS final rule to identify procedures that CMS would reimburse only when performed in a hospital inpatient setting.1 During 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. Those changes materially transformed the site of service for those procedures.
In December 2020, CMS finalized a plan to eliminate the IPO list entirely over three years, beginning with 298 musculoskeletal and spinal procedures.2 Concurrently, CMS expanded the ASC Covered Procedures List (CPL) by adding 267 new codes.3 However, in 2022, the Biden Administration reversed this direction, 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.4
On July 15, 2025, CMS published the proposed 2026 OPPS Rule, which contained the proposed changes to the IPO list, all of which were included in the 2026 Final Rule. Additionally, the 2026 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. In summary, effective January 1, 2026, CMS will reimburse 547 surgical procedures if performed in an ASC CPL that were previously limited to inpatient or hospital outpatient department settings.
Perhaps coincidentally, CMS’s Transforming Episode Accountability Model (TEAM) also commences on January 1, 2026. What you or your colleagues will never hear about at an innovation conference are the financial implications of the convergence of changes to the IPO list, the ASC CPL and TEAM beginning in 28 days.
If past is prologue, the IPO list changes beginning January 1, 2026 will manifest something like this:
As the number of orthopedic surgeries performed on Medicare beneficiaries in ASCs increases, the number performed on Medicare beneficiaries in inpatient settings will decrease. In turn, hospitals will suffer from something like adverse selection, treating a declining number of Medicare beneficiaries who are more clinically complex. Moreover, 744 hospitals will bear financial risk under TEAM for all the costs of care “from surgery through 30 days post-hospitalization" for many of the remaining inpatient orthopedic surgeries.5
In any event, every hospital will begin to realize what I have articulated for the past eight years: healthcare is a negative-sum game.
As I wrote in January 2021:
"Game theory is infrequently, if ever, discussed in healthcare systems, but nothing will have a more profound effect on the performance of America’s hospitals in the next 20 years.
The most difficult problems are negative-sum situations, where the pie is shrinking. In the end, the gains and losses will all add up to less than zero. This means that the only way for a party to maintain its position is to take something from another party, and even if everyone takes his or her share of the ‘losses,’ everyone still loses in comparison to what they currently have or really need. This type of situation often sparks serious competition.”6
“Winning” and “competing” are foreign concepts in the health economy, which epitomizes the Lake Wobegon effect, with performance that is scarcely “above average” deemed “good enough” and CEOs who are skilled at regulatory capture lauded as visionaries. In other industries, “good enough” is not a mark of excellence but rather a determination that the product or service is competitive in the context of value for money, i.e., you get what you pay for.
The fact that “good enough” has persisted despite two decades of “healthcare consumerism” suggests that patients don’t know what they bought, much less what it was worth. The fact that “good enough” was ever deemed acceptable in something as personal as healthcare suggests a dearth of exceptional leadership in the health economy.
“Good enough” is a loser’s mindset. “Being perfect” is a winner’s mindset, which Coach Gary Gaines describes this way:
“Being perfect is about being able to look your friends in the eye and know that you didn't let them down, because you told them the truth. And that truth is that you did everything that you could. There wasn't one more thing that you could've done.”7
Very few “winners” in the health economy in the 21st century have done so by “being perfect.” True, “a win’s a win,” but true competitors know that phrase is a tacit acknowledgement of failing to meet the standard of excellence – you won even though you deserved to lose.
Despite substandard performance – whether strategic or financial or operational or clinical – most health economy stakeholders have been insulated for years by opaque business structures and patent law gimmicks that Congress is too scared to outlaw and/or Federal largesse in the form of insurance subsidies, state directed payments and provider taxes. Recent Federal policy guarantees that numerous health economy stakeholders who have “won” in the past 25 years are about to be losers. Does your organization have the requisite mindset to be a winner in healthcare’s negative-sum game?