Insights

CMS Proposal May Increase Inpatient Admission Scrutiny for IPO-Removed Services

CMS proposes removing 638 services from the Medicare Inpatient-Only List for CY 2027, allowing inpatient or outpatient reimbursement and potentially increasing scrutiny by commercial and Medicare Advantage payors

By Elizabeth (Liz) Key and Leslie C. Murphy

07.28.26

Just six months after finalizing the removal of 285 procedures from the Medicare Inpatient Only (IPO) List for CY 2026, which focused largely on musculoskeletal procedures, the Centers for Medicare & Medicaid Services (CMS) has proposed a significantly larger and broader set of IPO removals in the CY 2027 OPPS/ASC Proposed Rule released July 2, 2026. Effective January 1, 2027, CMS proposes removing 638 additional procedures from the IPO List across a wider range of surgical services, eliminating nearly half of the remaining IPO procedures and permitting Medicare reimbursement for those procedures in either inpatient or outpatient settings. CMS describes the proposal as part of its broader effort to phase-out the IPO List over a three-year period and provide physicians greater flexibility in determining the appropriate site of service.

The proposed removals may also increase scrutiny of inpatient admissions by commercial and Medicare Advantage plans, which may rely on the elimination of IPO List status to argue that certain procedures should not be performed on an inpatient basis, even though CMS continues to state that removal from the IPO List does not require outpatient treatment in every case.

A Brief Regulatory Timeline of Changes to the IPO List

The IPO List has undergone substantial policy reversals over the last several years:

CY 2000 OPPS Final Rule (HCFA-1005-FC): The IPO List is established to identify procedures Medicare will only reimburse when performed in the inpatient hospital setting with a valid inpatient order.
CY 2021 OPPS Final Rule (CMS-1736-FC): CMS finalizes a three-year phase out of the IPO List, beginning with removal of approximately 300 primarily musculoskeletal procedures.
CY 2022 OPPS Final Rule (CMS-1753FC): CMS adds most of the 300 procedures back to the IPO List after significant stakeholder opposition. CMS acknowledges that the record did not support outpatient performance for many removed procedures.
CY 2023 OPPS Final Rule (CMS-1772-FC): CMS makes incremental changes to the IPO List by removing fewer than 12 procedures.
CY 2026 OPPS Final Rule (CMS-1834-FC): CMS resumes a three-year phase-out of the IPO List, beginning with the removal of 285 mostly musculoskeletal services for CY 2026. CMS's CY 2026 stated rationale differs from its CY 2022 reversal because CMS no longer frames the policy as a code-by-code removal under the previously codified criteria. Instead, CMS proposes finalizing elimination of the IPO List itself over a three-year transition period, citing continued evolution in medical practice and innovation since the COVID-19 public health emergency.

CY 2027 OPPS/ASC Proposed Rule Removes 638 Additional Procedures From the IPO List

For CY 2027, CMS proposes removing 638 additional services from the IPO List effective January 1, 2027. If finalized, the proposal would eliminate nearly half of the remaining IPO services and remove the inpatient-only restriction for a substantially broader range of procedures than in prior years. Unlike prior IPO removals that centered largely on musculoskeletal procedures, the CY 2027 proposal reaches across numerous clinical categories, including digestive, endocrine, respiratory, urinary, maternity, and reproductive health services.

CMS explains that removal from the IPO List would permit Medicare reimbursement for these services in either the inpatient or outpatient setting when outpatient care is clinically appropriate. CMS does not propose to require outpatient treatment for all affected services and continues to recognize that site-of-service determinations should depend on physician clinical judgment and the patient's individual circumstances.

Comments on the proposed rule are due August 31, 2026.

What the IPO List Phase-Out Means for Hospital Reimbursement

As CMS continues to remove procedures from the IPO List, hospitals may face increased payor scrutiny of inpatient admissions for procedures no longer designated as inpatient only. The reimbursement implications will likely vary across commercial payors and Medicare Advantage plans.

For commercial payors, the impact will depend largely on contract language, medical necessity criteria, and utilization management policies. Even so, the IPO List has long functioned as an important benchmark supporting inpatient admission for many procedures. As more services come off the list, hospitals may encounter increased prior authorization requirements, medical necessity challenges, and denials tied to site-of-service.

For Medicare Advantage plans, the analysis is somewhat different because Medicare Advantage organizations must cover inpatient admissions consistent with Medicare coverage standards, including Medicare's inpatient admission framework under the Two-Midnight Rule at 42 C.F.R. § 412.3(d). As a result, removal from the IPO List does not eliminate the need to show that inpatient admission was medically reasonable and necessary under Medicare's broader inpatient admission standards, including the physician's expectation that the patient will require medically necessary hospital care spanning at least two midnights, or another valid basis for inpatient admission.

Hospitals should also be aware that the Traditional Medicare medical review protection for services removed from the IPO List on or after January 1, 2021, remains in effect as codified at 42 C.F.R. § 412.3(d)(2). That provision exempts claims for such services from certain medical review activities until the Secretary determines that the service or procedure is more commonly performed in the outpatient setting than the inpatient setting. CMS also confirmed in the CY 2026 OPPS Final Rule that it would continue the existing exemption for CY 2026 and subsequent years until the Secretary makes that determination. This protection should help limit certain Traditional Medicare site-of-service challenges.

Importantly, hospitals should expect increased payor arguments that removal from the IPO List supports outpatient billing for procedures no longer designated as inpatient only. That position overstates the effect of the proposed rule. Removal from the IPO List permits Medicare reimbursement in the outpatient setting when clinically appropriate, but it does not eliminate the need for a patient-specific medical necessity analysis or require outpatient treatment in every case.

For IPO-Removed Procedures, Inpatient Documentation Will Become Increasingly Important

As additional services are removed from the IPO List, physician judgment and contemporaneous documentation will play an even greater role in supporting inpatient reimbursement. CMS continues to emphasize that IPO removal does not mandate outpatient treatment. Instead, hospitals and physicians must be prepared to demonstrate why inpatient admission was medically reasonable and necessary for the specific patient at the time of admission.

Hospitals should focus on ensuring that the medical record documents the patient specific factors supporting inpatient care, including:

the patient's comorbidities, overall clinical condition, and perioperative risk;
the likelihood of complications or the need for intensive monitoring or treatment following the procedure;
the expected need for hospital-based postoperative care or monitoring; and
documentation of the physician's expectation that the patient would require hospital care consistent with the Two-Midnight Rule, when applicable, and the clinical factors supporting that expectation.

As procedures come off the IPO List, hospitals will be less able to rely on the procedure itself to support inpatient status and more dependent on documentation showing why inpatient care was medically necessary for the individual patient.

How DWT Can Help

DWT's managed care disputes & litigation team works with hospital revenue cycle and legal teams on site-of-service disputes, medical necessity challenges, and level-of-care denials involving procedures removed from the IPO List.

+++