CMS Finalizes New Medicare Regulations for 2026

Overview of Changes to Outpatient Services

The Centers for Medicare & Medicaid Services (CMS) has finalized a regulation that includes an increase in Medicare reimbursement for outpatient services in 2026. The reimbursement will rise by 2.6%, which incorporates a 3.3% hospital market basket increase, offset by a 0.7 percentage point productivity adjustment. This adjustment marks a slight increase from the 2.4% initially proposed by CMS this summer.

Focus on Price Transparency

The new rule mandates that hospitals provide more detailed information about their pricing to enhance cost transparency for patients. Additionally, it aims to implement site-neutral payment policies, ensuring that hospital outpatient departments receive the same reimbursement rates as physician offices.

Statements from CMS Officials

Chris Klomp, CMS deputy administrator and director of the Center for Medicare, emphasized that the agency continues to reform Medicare payments. He stated, “We continue to advance Medicare payment reform by advancing policies that help prevent services from unnecessarily being performed in hospitals when they can be safely provided in less intensive settings, streamlining hospital billing systems, and ensuring patients receive transparent, accurate pricing information.”

Industry Response to Payment Rule

Hospital groups have criticized the finalized payment rule, describing it as insufficient in light of ongoing financial pressures such as inflation and workforce shortages. The healthcare sector has also expressed concerns about the limited time available to comply with the new regulations. The finalization of the rule was delayed due to a funding impasse related to Affordable Care Act subsidies, which led to a six-week government shutdown. Soumi Saha, senior vice president of government affairs at Premier, highlighted that the compressed implementation timeline creates operational chaos for hospitals.

Site-Neutral Policies and Inpatient Only List

Reimbursement Changes for Outpatient Departments

Currently, hospital outpatient departments receive higher reimbursements for providing the same services as freestanding physician offices. Critics argue this drives up costs for patients and Medicare. The new regulation will allow off-campus outpatient departments owned by hospitals to receive the same reimbursement rates as physician offices for drug administration services. This change is projected to reduce outpatient spending by $290 million in 2026.

Phasing Out the Inpatient Only List

The CMS is also planning to phase out the inpatient only list, which dictates which surgical procedures must be performed in hospitals, over the next three years. The agency will begin this process by removing 285 mostly musculoskeletal procedures next year. The American Hospital Association (AHA) criticized the site-neutral policy changes, asserting they overlook the complexities of care delivery in hospital outpatient departments.

Enhancements in Price Transparency

Requirements for Hospitals

The finalized regulation requires hospitals to disclose actual pricing information rather than estimates. Hospitals must post prices in a standardized format, enabling patients to understand the cost of their care. They will be required to provide the median allowed amount for services along with the 10th and 90th percentile allowed amounts in a machine-readable format. Although the regulation takes effect on January 1, enforcement will begin on April 1.

340B Drug Discount Program Adjustments

Changes to Clawback Plans

The CMS has decided against accelerating the clawback of funds in the 340B drug discount program, which provides discounts on outpatient drugs for providers serving low-income patients. Following a Supreme Court ruling that deemed a previous policy change illegal, the CMS had to issue $9 billion in payments to affected hospitals. To maintain budget neutrality, the CMS had proposed a 2% reduction in reimbursement for non-drug services starting next year, but after feedback, it has retained the 0.5% reduction for now, with plans for a larger reduction in 2027.

Concerns from Hospital Associations

Ashley Thompson from the AHA expressed gratitude for the decision to maintain the 340B clawback at its current rate but voiced concerns over the intention to accelerate the timeline for future reductions.

Changes to Hospital Star Ratings

New Policies on Quality Metrics

The CMS has finalized a policy ensuring that hospitals performing in the lowest quartile for safety metrics will not be eligible for a 5-star rating in quality measurements. Starting in 2027, hospitals with safety scores in the lowest quartile will automatically receive a 1-star downgrade. Additionally, the CMS will revise quality reporting requirements by removing certain burdensome health equity and COVID-19 vaccine metrics and will introduce a new measure assessing emergency department wait times.