Annual updates to the Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System set outpatient payment rates and policy in Medicare. In the calendar year 2026 proposed rule, the Centers for Medicare and Medicaid Services (CMS) reintroduced a proposal to phase out the Inpatient Only (IPO) List and make changes to the ASC Covered Procedures List (CPL).

While physicians, hospitals, and other stakeholders await the publication of the final rule in the fall, Avalere Health provides the history of these policies and the results of an analysis of recent Medicare claims to assess the relationship between CMS policy and site of care (SOC) trends in Medicare.

History

In 2000, CMS introduced the IPO List, a list of Current Procedural Terminology (CPT) codes for services that Medicare only reimburses when performed in the hospital inpatient setting. Historically, a code has been included on the IPO List when CMS determines that its complexity or intensiveness warrants the level of care available in the inpatient setting, or when CMS determines that prolonged follow-up care is typically required (i.e., when a physician expects the admission to last at least two nights in the hospital, known as the two-midnight rule). CMS publishes any updates to the IPO List each year as part of the annual rulemaking process for the OPPS rule, which is typically finalized and published each November and effective January 1 of the following calendar year.

Since 1982, CMS has identified select procedures as eligible for reimbursement when performed in an ASC. For that purpose, CMS maintains the ASC CPL, also published annually as an addendum to the OPPS rule. This list includes all procedures for which CMS will reimburse when performed in an ASC. CMS includes a procedure on the ASC CPL when it believes there is sufficient evidence of clinical appropriateness and safety in the ASC setting. A procedure’s removal from the IPO List does not automatically entail its addition to the ASC CPL; typically, a period of several years elapses, during which CMS monitors the transition of volume to the hospital outpatient department (HOPD) and evaluates clinical and safety outcomes. Most procedures are then added to the ASC CPL, although some remain performable only in the hospital outpatient and inpatient settings.

While the IPO List mandates that a procedure must be performed in the inpatient setting, the ASC CPL indicates that a procedure may be performed in an ASC; it is up to the physician to consider each patient’s risk factors to determine whether that patient should undergo a given procedure in an ASC or a different setting.

In addition to the relevant clinical factors, the cost and reimbursement differential between settings of care for the same procedure makes the maintenance of the IPO List and the ASC CPL a salient regulatory question. Figure 1 shows the recent history of CMS’s rulemaking with respect to the IPO List and the ASC CPL. It is worth noting that changes to the IPO List and ASC CPL may affect the level of regulatory authority CMS exercises over Medicare. While such changes have occurred under both Democratic and Republican administrations, the two proposals to eliminate of the IPO List were put forward by the two Trump administrations.

Figure 1. CMS Rulemaking Pertaining to the IPO List and the ASC CPL

Sources: CY 2021 OPPS Final Rule; CY 2022 OPPS Final Rule; CY 2026 OPPS Proposed Rule

Analysis

To investigate the effect of CMS’s strategy with respect to the IPO List and ASC CPL, Avalere Health used 100% Medicare fee-for-service utilization data from 2018 through 2024 to assess shifts in SOC for select procedures. Musculoskeletal (MSK) procedures, and especially total joint replacements (TJRs), represent an informative case study for SOC shifts for several reasons:

• MSK procedures are extremely common; each year, millions of patients, including hundreds of thousands of Medicare beneficiaries, undergo TJRs.
• Advancements in surgical technique and clinical standards have allowed TJRs to be performed safely across the full spectrum of SOCs.
• TJRs were recently removed from the IPO List and added to the ASC CPL, a timely test case for the impact of regulatory decision-making on clinical realities.
• MSK procedures represent a material cost burden on Medicare, and strategies that mitigate that burden may reduce Medicare expenditures and suggest cost-saving strategies in other specialties.

Results and Discussion

Table 1 shows the three main CPT codes for TJRs.

Table 1. Total Joint Replacement CPT Codes, IPO List Status, and ASC CPL Status

Recent Medicare utilization trends demonstrate the immediate impact of CMS rulemaking. Figure 2 shows the total Medicare utilization of the main TJR CPT codes by SOC over the period from 2018 through 2024 to demonstrate how meaningfully—and how quickly—volume can shift to lower-acuity SOCs.

Figure 2. Site-of-Care Shifts for Total Joint Replacements, 2018–2024

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Note: Percentages may not add to 100% because of rounding. If this occurs, or if the Medicare data show non-inpatient volume for a code during a year it appears on the IPO List, that volume may be attributable to place-of-service coding errors, procedures performed on an emergent basis, and/or other extenuating factors not recoverable from aggregated claims data.  For 2023 and 2024, the Medicare 100% dataset reports utilization for the population of Medicare beneficiaries diagnosed with COVID-19 in that year. Avalere Health analyzed utilization of the three main TJR codes in both 2023 and 2024 and found that all SOC breakdowns for the COVID-19 population were within 1 to 3% of the values for the total Medicare FFS population as presented above.

Taken together, the SOC shifts for the three TJRs—representing nearly 1.5 million procedures in 2024—demonstrate a consistent change in clinical behavior in response to CMS regulations. For example:

• During the first year a procedure was removed from the IPO List, a material portion of the total volume shifted to the HOPD (28% to 69%).
• During the first year a procedure appeared on the ASC CPL, a modest proportion of the total volume shifted to the ASC (5% to 15%).
• By the end of the roughly five-year period that followed and/or encompassed a code’s removal from the IPO List and subsequent addition to the ASC CPL, 85–92% of total Medicare procedure volume occurred in the outpatient settings (HOPD and ASC).

The overlapping timelines of SOC restrictions for the three TJRs offer insights into physicians’ willingness to provide care in lower-acuity settings. For example, the first TJR code to be removed from the IPO List was 27447 (TKA). In 27447’s first year off the IPO List (2018), less than a third of all volume shifted to the HOPD; the following year, more than half of all volume still occurred in the inpatient setting. By contrast, for 27130 (THA) and 23472 (TSA)—the second and third TJR codes to be removed from the IPO List, in 2020 and 2021, respectively—more than 50% of all volume immediately shifted to the HOPD in the code’s first year off the IPO List. Similarly, in 27447’s first year on the ASC CPL (2020), only 5% of all volume occurred in the ASC, but in 23472’s first year on the ASC CPL (2024), 15% of all volume occurred in the ASC. The accelerating pace of SOC shift suggests that over time physicians became increasingly willing to move procedures to lower-acuity settings when CMS reimbursed for it. While the analysis does not control for differences in patient acuity or other clinical factors, the data still suggest a growing tendency to perform procedures in lower-acuity SOCs when possible.

Overall Utilization Trends

The total Medicare volume of all three TJRs increased between 2018 and 2024. For TKAs, it grew from 585,834 to 809,459 (a 5.5% compound annual growth rate [CAGR]); for THAs, it grew from 275,916 to 456,023 (an 8.7% CAGR); and for TSAs, it grew from 98,810 to 212,516 (a 13.6% CAGR). Together, the number of procedures increased from 960,560 to 1,477,998 (a 7.4% CAGR). In other words, these SOC shifts happened during a period of net utilization growth, and the increase in the relative proportion of procedures occurring in the HOPD and the ASC is not an artifact of underlying utilization trends.

Looking Ahead

The increased utilization of TKA, THA, and TSA procedures, especially when considered alongside consistent and accelerating trends in the movement of these procedures to lower-acuity SOCs, makes TJRs a uniquely instructive case study of the potential impact of CMS regulatory changes on clinical and financial realities for patients and providers.

As the Medicare data show the magnitude and immediacy of the SOC shifts that CMS regulation can induce for surgical procedures, providers and facility operators should consider which of their key procedures may be impacted by SOC optimization, as well as the operational and financial complexities that come with such shifts. Comments on the proposed OPPS rule—which includes removal of the IPO List and significant modifications to the ASC CPL—are due to CMS by September 15, 2025, and the final rule is expected to be released in November.

To learn more about SOC dynamics in Medicare, as well as other policy and market trends, connect with us.