Looking Forward to 2026: What CDI Leadership Needs to Know

The biggest impacts to clinical documentation integrity (CDI) professionals for the 2026 fiscal year (FY) will not be associated with updates to the ICD-10-CM code set or the Inpatient Prospective Payment System (IPPS).

The biggest impacts will have to do with impending policy changes to Medicare and Medicaid. In my last article, I discussed Medicaid and uninsured patient volumes. This week, I want to discuss another threat to hospital patient volume: changes in the Medicare Inpatient-Only List.

Section 1833(t)(1)(B)(i) of the Social Security Act allows the Centers for Medicare & Medicaid Services (CMS) to define services appropriate for payment under the Outpatient Prospective Payment System (OPPS). The Medicare Inpatient-Only (IPO) List is part of the OPPS as Addendum E, which lists procedures by Current Procedural Terminology (CPT) codes. CPT codes with a status indicator of “C” are included in the IPO. These services are only covered by Medicare when billed on an inpatient claim. Procedures are designated as inpatient only due to:

• The nature of the procedure;
• The typical underlying physical condition of patients who require the service; and
• The need for at least 24 hours of postoperative recovery or monitoring before the patient meets discharge criteria.

The IPO reflects procedures that are customarily performed on an inpatient basis for the Medicare population, because it would be less safe (or appropriate) in the outpatient setting. As such, these procedures would not be reasonable and necessary under Medicare rules as outpatient procedures. The IPO is updated annually, but few procedures are removed from the list each year. In 2025, there were only minor changes to the IPO: one procedure was removed and three were added. However, as medical practice evolves and incorporates technology, more procedures can be safely and appropriately performed in the outpatient setting.

The proposed OPPS rule for 2026 states, “For CY 2026, we propose to phase out the IPO List over three years, beginning with the removal of 285 mostly musculoskeletal services for CY 2026. (p. 16).” Currently there are approximately 1,731 services on the IPO. The factors being used to determine which procedures should be removed from the IPO List include:

• Most outpatient departments are equipped to provide the service or procedure to the Medicare population;
• The simplest service or procedure described by the code may be performed in most outpatient departments;
• The service or procedure is related to codes that CMS has already been removed from the IPO;
• CMS determines that the service or procedure is being performed in numerous hospitals on an outpatient basis; and
• CMS determines that the service or procedure can be appropriately and safely performed in an ambulatory surgical center (ASC), and is specified as a covered ambulatory surgical procedure, or CMS has proposed to specify it as a covered ambulatory surgical procedure.

The proposed rule acknowledges that it will generally be less expensive to provide these services in the outpatient setting, compared to the inpatient setting. As CDI professionals, we know surgical MS-DRGs pay higher than medical MS-DRGs, and as operating margins continue to tighten, the loss of surgical volume could be problematic for many hospitals.

Unfortunately, because the OPPS uses CPT codes rather than ICD-10-PCS, it is very difficult to crosswalk the procedures that will be eliminated to the corresponding MS-DRG. But I think I found one: MS-DRGs 466 to 468, Revisions to Hip or Knee Replacements without a CC/MCC (complication or comorbidity/major complication or comorbidity), with a CC, or with an MCC. Claims that were previously billed under MS-DRG 468, Revisions to Hip or Knee Replacements without a CC/MCC, are most likely to be appropriate for the outpatient setting. It has an average reimbursement rate of almost $20,000, with a 2025 relative weight of 2.6232, a geometric mean length of stay (GMLOS) of 1.5 days, and an arithmetic mean LOS of 1.8 days.

One possible way to determine which surgical MS-DRGs are most likely to see volume shift to the outpatient setting is identifying those with a GMLOS less than or equal to two days. Procedures on the IPO are not required to meet the Medicare Two-Midnight Rule, which is used by Medicare contractors to determine which claims are generally payable under Medicare Part A. Although I am referring to Medicare Part A, which is associated with traditional Medicare, the IPO also applies to Medicare Advantage (MA) beneficiaries, as does the Medicare Two-Midnight Rule. Providers will likely have a difficult time supporting a two-midnight expectation for every Medicare beneficiary who would have fallen into a surgical MS-DRG with a short GMLOS.

As most CDI professionals know, surgeons are notorious for poor documentation. Their history and physical is often limited to the surgical complaint. Insufficient documentation that fails to reflect the patient’s existing comorbidities (e.g., morbid obesity with a BMI > 40, chronic diastolic heart failure, chronic kidney disease stage 3a, etc.) could make it difficult for these claims to demonstrate inpatient medical necessity.

Musculoskeletal procedures are among the most common MS-DRGs for a majority of hospitals. Hospitals should make a case study out of total knee arthroplasty and total hip arthroplasty, which were removed from the IPO several years ago. The National Patient and Procedure Volume Tracker by StrataSphere® for 12/31/24 demonstrates that hospitals are already losing both inpatient and outpatient volume in this service line. Inpatient primary knee replacement is down 21.2 percent in 2024, compared to 2023, while outpatient is down 8.1 percent during the same period. Inpatient primary hip replacement is down 3.8 percent and outpatient is down 5.3 percent when comparing 2024 rates to 2023. Definitive Healthcare reports a 304-percent increase in knee arthroplasty (replacement) claims in the ASC setting since 2018.

As stated in the proposed OPPS rule for 2026, “removal of a service from the IPO has never meant that a beneficiary cannot receive the service as a hospital inpatient – as always, the physician should use his or her complex medical judgment to determine the appropriate setting on a case-by-case basis.” However, many providers, and surgeons in particular, are not great at documenting a patient’s comorbidities that could support a reasonable two-midnight expectation. Documentation will have to include more than a focus on the surgical complaint, going forward.

The loss of surgical MS-DRGs as procedures are removed from the IPO will likely result in an overall lower case mix index (CMI), even though CC and MCC rates are likely to increase. This is a byproduct of healthier surgical patients (those without CCs) moving to the outpatient setting. CDI leaders should develop tools that monitor changes in surgical volumes so they can explain a corresponding decrease in both the surgical and overall CMI that is unlikely to be offset by the increase in higher-acuity surgical patients.