The Center for Medicare and Medicaid Services (CMS) Calendar Year (CY) 2026 Final Rule for Medicare Hospital Outpatient Prospective Payment System (OPPS) announced the phase out of the Inpatient Only (IPO) List by Calendar Year (CY) 2029. This transition represents a major operational and clinical shift for hospitals, outpatient surgery departments, and providers.
What Is the Inpatient Only (IPO) List?
The IPO List, established by CMS in 2000, identifies CPT® procedures that Medicare will only reimburse when performed in the inpatient setting. These procedures were originally designated as inpatient-only because they were considered:
Highly invasive or clinically complex.
High-risk, requiring extensive postoperative monitoring‑risk, requiring extensive postoperative monitoring.
Likely to require more than 24 hours of recovery.
Historically, if a procedure on the IPO List was performed in an outpatient setting, Medicare would deny payment, deeming it not medically necessary.
Why Is the IPO List Being Phased Out?
CMS is eliminating the IPO List for various reasons, to include:
1. Advances in Medicine & Anesthesia
Many procedures once considered too risky for outpatient care can now be performed safely in ambulatory or hospital outpatient settings due to minimally invasive techniques, improved anesthesia, and enhanced recovery pathways.
2. Evidence from Alternative Care Models
The COVID19 Acute Hospital at Home Initiative demonstrated that hospital level of care can be delivered safely in nontraditional settings, further supporting CMS’s move toward site flexibility.
3. Cost Effectiveness
Outpatient reimbursement is generally less expensive for Medicare than inpatient payments, representing a significant opportunity for program savings.
4. Emphasis on Clinical Judgement
CMS intends for procedure settings to be driven by individual patient needs, physician judgment, and medical necessity rather than a predetermined list of procedures.
5. Recognition of Inappropriate Denials
Previously, medically necessary outpatient procedures were denied solely because of IPO designation. Removing the IPO List helps align payment policy with modern clinical practice.
How Is the IPO List Being Phased Out?
During the three (3) year time period towards full elimination, CMS will review and remove procedures from the IPO List according to clinical and utilization criteria.
2026 – Year 1
285 procedures (out of 1,731) are removed from the IPO List.
2027–2028 – Years 2 and 3
CMS continues to remove additional procedures each year.
2029
The IPO List will be fully discontinued and no longer published as an OPPS addendum.
The rationale for the three (3) year phaseout is an attempt by CMS to provide hospitals time to:
Adjust workflows
Educate physicians
Update revenue cycle systems
Gain operational experience with newly outpatient eligible procedures‑eligible procedures
Consequences for Hospitals and Current Practices?
While there are benefits in transitioning away from the IPO List, below we have outlined key elements that should be evaluated by all Hospitals so as to ensure appropriate reimbursement for services in the new environment.
1. Procedures removed from the IPO List may STILL be performed as inpatients; however, it will require inpatient status to be justified based on:
The Two Midnight Rule
Clear medical necessity documentation
Patient specific clinical factors
2. Consistent with when procedures were previously removed from the IPO List, the change often requires documentation improvement for procedures previously on the IPO List to ensure:
Surgeons document why the patient requires inpatient care
Documentation aligns with the Two Midnight Rule
Utilization Management (UM) teams support correct status placement
We note that CMS temporarily exempted recently removed IPO procedures from place of service audits, but medical necessity review still applies.
3. Greater responsibility for UM teams, to ensure formal protocols:
Apply the Two Midnight Rule consistently.
Assess medical necessity for outpatient procedures.
Support physicians in determining appropriate status for patients who may ultimately require two midnights of care.
4. Hospitals should also monitor the associated financial impacts of the site of service changes:
Whether a procedure remains on or has been removed from the IPO List.
Whether documentation supports inpatient payment when appropriate.
OPPS vs Inpatient Prospective Payment System (IPPS) reimbursement differences.
APC assignment for former IPO procedures.
History Matters! CMS previously attempted to eliminate the IPO List in 2021, then reinstated it in 2022. The current phaseout represents CMSs renewed and decisive commitment to the elimination of the IPO List.
Summary
The dissolution of the IPO List is a major change, but it also offers an opportunity for care delivery to better reflect clinical advances and patient individuality. Hospitals that proactively educate providers, strengthen documentation processes, and refine UM operations will be best positioned for success as CMS moves toward site flexibility, cost efficiency, and patient centered surgical care.
Understanding these potential changes will allow providers to focus their attention on application of the Two-Midnight rule for those procedures removed from the IPO List, ensuring development of patient selection criteria as to which patients are appropriate candidates for outpatient procedures with subsequent policies and protocols. Staff education as to appropriate criteria and necessary documentation for claims eligible to be paid under either the IPPS or OPPS is key to preventing adverse site-of-service determinations while ensuring appropriate reimbursement for services rendered.
SunStone Consulting offers comprehensive services geared to assist hospitals and health systems in evaluation and navigation of this ever-changing regulatory environment. If you have any questions, please contact Vonda Moon, Senior Principal at vondamoon@sunstoneconsulting.com or Joli Fitzgibbons, Senior Director at jolifitzgibbons@sunstoneconsulting.com.
References:
CY2026 Hospital Outpatient Prospective and Ambulatory Surgical Center Payments Systems; Quality Reporting Programs; Overall Hospital Quality Star Rating; Hospital Price Transparency; and Notice of Closure of a Teaching Hospital and Opportunity to Apply for Available Spots Final Rule: https://public-inspection.federalregister.gov/2025-20907.pdf