CMS Proposes Major 2026 Medicare Rule Changes Affecting Inpatient Care and Outpatient Surgery
A recent audit by the Department of Health and Human Services Office of Inspector General (HHS-OIG) on Sunflower Home Health, a home care agency in Cleveland, Mississippi, revealed zero errors out of 100 claims reviewed for coverage, medical necessity, and billing compliance. This perfect audit outcome is unprecedented compared to prior audits revealing error rates of 10-20%. Despite this achievement, Sunflower Home Health has ceased operations, highlighting inconsistencies in the home care sector and Medicare Advantage (MA) plan audits where overpayments continue without similar closures.
Reports from hospital utilization review leaders note an increasing trend of inpatient admission denials post-approval by MA plans during hospitalization. These denials stem from payment integrity departments, not medical necessity, raising concerns over payer practices, especially as some MA plans managed by large regional health systems exhibit similar patterns to national insurers. These practices challenge reimbursement processes and necessitate appeals and CMS complaints when denials are unjustified.
The Centers for Medicare & Medicaid Services (CMS) 2026 outpatient rule proposes significant changes, including eliminating the inpatient-only list, with broad implications for hospital admissions and payment structures. Observation payments are projected to increase by $40.36 in 2026, affecting hospital revenue streams and operational planning.
CMS also plans to add nearly 600 surgical procedures to those authorized for ambulatory surgery centers (ASCs) in 2026. Notably, CMS will discontinue assessing surgeries for ASC suitability based on current exclusion criteria such as extensive blood loss or involvement of major blood vessels. The revised criteria will focus solely on whether the patient typically requires overnight active medical monitoring.
This shift means that complex procedures, including surgeries traditionally inpatient-only like thigh amputations, could occur in ASCs without immediate access to specialized hospital resources such as blood transfusions or cardiology support. The change raises concerns about patient safety and readiness to handle complications in outpatient surgical settings.
Emerging federal contractor activities, including from Recovery Audit Contractors (RACs) and Unified Program Integrity Contractors (UPICs), are increasingly scrutinizing wound care claims, particularly those involving costly skin substitute treatments, reflecting heightened compliance and fraud detection efforts in Medicare.
Updates to the FY26 Inpatient Prospective Payment System (IPPS) include revisions to ICD-10 coding, MS-DRG methodologies, and incorporation of new technology add-on payments (NTAPs). These changes influence hospital coding, billing accuracy, and reimbursement practices for Medicare providers.
Educational sessions and masterclasses are available, led by experts, to help healthcare providers navigate complex regulatory changes, including the inpatient-only list elimination and the Two Midnight Rule, ensuring compliance and optimized revenue capture amid evolving Medicare policies.
Overall, these developments underscore a shifting Medicare landscape characterized by increased scrutiny on billing practices, expansion of outpatient surgical services, and evolving payment policies. Insurance professionals must adapt operational and compliance strategies accordingly to mitigate denials, manage audit risks, and align with CMS policy directions.