The Demise of the Inpatient-Only List Begins

It finally happened!

The Centers for Medicare & Medicaid Services (CMS) finally released the 2026 Outpatient Prospective Payment Final Rule on Friday at 4:15 pm, delaying my Friday night dinner out with my wife by several hours.

And the final rule really had no surprises.

Of course I went right to the section on the changes to the Two-Midnight rule to see what CMS did. As expected, CMS went ahead and finalized the plan to eliminate the inpatient only list over the next three years just as they proposed with the removal of 285 musculoskeletal-related surgeries and several miscellaneous procedures.

CMS also finalized their proposal to greatly expand the number of procedures allowed at ambulatory surgery centers (ASCs) by adding 560 procedures to the covered procedure list including procedures such as tracheostomy, mediastinoscopy, laparoscopic radical prostatectomy, many cardiology and electrophysiology procedures, and of course all the musculoskeletal procedures.

Now as I have mentioned in the past, I did send CMS many questions about their proposed rule. And sadly they did not provide any great answers. But let me review some of their clarifications that are pertinent to listeners.

First, they did address the terribly outdated 3-day skilled nursing facility (SNF) rule for SNF access and, as when they removed total knee arthroplasty from the patient only list, they once again stated that patients having outpatient surgery are not expected to require SNF care after their surgery. In other words, once again they are telling us, in their indirect way of offering guidance, that if a patient requires care in a skilled nursing facility after a surgery, the patient may be admitted as inpatient and kept for three days to get access to the Part A benefit.

But let me remind you that the reason must be clinically valid, such as lack of home support or limitations of their home environment, and not simply patient preference, and there must be documentation of those factors.

They also stressed that surgeries not on the inpatient only list can be performed as inpatient or outpatient based on the patient’s medical conditions and needs. In fact, they even went as far as to state “It would be a misinterpretation of CMS payment policy for providers to create policies or guidelines that establish the outpatient setting as the baseline or default site of service for a procedure based on its removal from the IPO list.”

That’s right— CMS actually said outpatient is not the default setting. They went on to say that “the specific decision about the most appropriate care setting for a given surgical procedure is a complex medical judgment made by the physician based on the beneficiary’s individual clinical needs and preferences.”

So we can continue to apply the case-by-case exception to all surgeries, once again ensuring that the high risk factors are not only documented but are also clinically valid. I did ask CMS to please expound upon this and provide examples, mainly so that we can defend our decisions with the Medicare Advantage plans that we know will be reluctant to approve one day high risk inpatient admissions, but they declined.

And finally, as in the past, they are prohibiting denials on admission status for surgeries removed from the list until it is more commonly performed as outpatient. But this does not mean you can just continue to admit everyone as inpatient until they start auditing. I would hope no compliance officer would allow a policy that circumvents a federal regulation simply because the risk of getting caught is low.

Remember, the Two-Midnight rule is not a calendar and a crayon; there must be medical necessity for hospital care for all days, and care provided for convenience or delays in care cannot be counted and of course the case-by-case exception must be clinically valid. And let me remind you all that a qui tam lawsuit is a great way to fund your retirement.

Finally, the real good news is that everything I taught during my September RACmonitor webcast on this issue—now available on demand at RACMonitor.com— stands as taught.

No retraction necessary.