Regulatory and Legislative Impacts on Hospital Revenue: Key Changes Revenue Cycle Teams Must Know

In 2026, the Centers for Medicare & Medicaid Services (CMS) cut work relative value units (RVUs) by 2.5% on nearly 7,000 physician service codes, a change that touches about 91% of the services physicians bill to Medicare (1). And that's just one of many reimbursement changes that hospital finance and revenue cycle management (RCM) teams need on their radar as they look ahead to 2027.

Between the 2026 Medicare Physician Fee Schedule, a new mandatory episode-based payment model, expanding site-neutral payment rules, and a proposed 340B drug payment cut worth nearly $5 billion, there is a lot in the pipeline (2). This guide breaks down the most significant updates so you can plan ahead.

Medicare IPPS and OPPS Payment Updates for 2026

Medicare pays hospitals through two separate systems: one for inpatient care (the Inpatient Prospective Payment System, or IPPS) and one for outpatient care such as ER visits and same-day procedures (the Outpatient Prospective Payment System, or OPPS). Each year, CMS updates how much hospitals get paid under both.

For Federal Fiscal Year (FFY) 2026, CMS finalized a 2.6% payment update for hospitals that meet quality reporting and meaningful electronic health record (EHR) requirements. After budget-neutrality adjustments, that works out to a net 1.94% increase to the standardized base operating amount, the starting point for calculating DRG payments, raising it from $6,624.39 to $6,752.61 (3). Hospitals that fall short on quality reporting or EHR requirements will see a smaller increase or, in some cases, a net decrease of up to 0.7% (3).

On the OPPS side, hospitals also began repaying Medicare in 2026 for past overpayments tied to the 340B drug discount program: a previously finalized 0.5% annual reduction to OPPS payments for non-drug items and services took effect this year (4). CMS proposed quadrupling that offset to 2% to speed up repayment (5), but backed off after significant pushback (4). The idea didn't disappear, though: the 2027 proposed rule would raise the offset to 3%, and pair it with a new cut to payment for 340B-acquired drugs (6).

The 2026 OPPS final rule also began a three-year phase-out of Medicare's inpatient-only list, removing 285 mostly musculoskeletal procedures for calendar year 2026 and giving physicians greater flexibility to determine the clinically appropriate site of service (4). The list is going away in stages.

Medicare Physician Fee Schedule 2026

The Medicare Physician Fee Schedule 2026 sets how much Medicare pays physicians for the services they provide. Payment for each service is based on a conversion factor, a dollar amount that Medicare multiplies by the relative value units (RVUs) assigned to each procedure or visit type, reflecting the time, skill, and resources a service requires.

For 2026, CMS finalized two distinct conversion factors: $33.57 for clinicians in qualifying alternative payment models (a 3.77% increase over 2025) and $33.40 for everyone else (a 3.26% increase over 2025) (7). Part of the increase came from a temporary 2.5% pay bump passed by Congress, which expires after 2026 (1).

At the same time, CMS cut work RVUs by 2.5% for nearly 7,000 non-time-based service codes, arguing that these services have become more efficient to deliver (1). That cut touches about 91% of the services physicians bill to Medicare, and physicians who work mainly in hospitals or surgery centers (rather than private offices) will take a bigger hit: payment for facility-based services is dropping about 7% overall (1). A higher conversion factor doesn't mean a bigger check.

The TEAM Model

The Transforming Episode Accountability Model (TEAM) is a mandatory Medicare payment model that launched January 1, 2026, and holds hospitals accountable for the cost and quality of a full surgical episode (the procedure plus recovery). It doesn't replace fee-for-service billing with a single bundled payment: hospitals and other providers keep billing Medicare as usual, and CMS retrospectively compares total episode spending against a target price, reconciling the difference (8). The goal: reduce fragmented, duplicative care and cut avoidable readmissions and ER visits by making hospitals accountable for everything that happens after surgery, not just the procedure itself (8).

TEAM applies to five common high-cost procedures: lower extremity joint replacement, hip or femur fracture surgery, spinal fusion, coronary artery bypass graft, and major bowel procedures (3). Hospitals selected for TEAM take on financial responsibility for the full episode, from the anchor hospitalization or outpatient procedure through 30 days after discharge, for patients with Original Medicare (8). Under TEAM, the procedure is only the start.

Site-Neutral Payment Expansion

Site-neutral payment is one of the most significant Medicare reimbursement changes for 2026. The idea: Medicare should pay the same amount for the same service, no matter where it's performed. Today, these policies apply only to specific services in specific settings. But the list keeps growing.

Today, Medicare typically pays more for a visit or procedure when it happens in a hospital-owned outpatient department than in a private office, and CMS and Congress have been slowly narrowing that gap by applying site-neutral rates to specific services.

In 2026, CMS extended site-neutral pricing to certain drug administration services, including infusions, provided at off-campus, hospital-owned outpatient departments (what CMS calls 'excepted' off-campus provider-based departments) aligning payment with the lower rate paid to independent physician offices (9). For 2027, CMS has proposed going further: applying the same lower rate to certain imaging services (ultrasounds, plus CT scans and MRIs without contrast) performed at off-campus, hospital-owned outpatient departments (6). The gap keeps closing.

The No Surprises Act

The No Surprises Act took effect January 1, 2022, and protects patients from unexpected out-of-network bills, most commonly in emergencies or when a patient unknowingly receives care from an out-of-network provider at an in-network facility (10). When a provider and insurer can't agree on a payment rate for that kind of care, either side can request Independent Dispute Resolution (IDR), where a third party picks the most reasonable offer.

For hospitals and providers using this process, there's an administrative fee to file a dispute, and that fee has bounced around considerably. It rose as high as $350 in 2023 before a court challenge brought it back down, then settled at $115 per party. In June 2026, a new federal rule cut the fee to $15 for disputes initiated on or after June 11, 2026, making it economical to dispute even smaller underpayments (11). Note that the No Surprises Act does not apply to Medicare or Medicaid, since those programs have their own billing protections in place (10).

CMS Prior Authorization Interoperability Rule

In January 2024, CMS finalized a rule designed to make prior authorization faster and more transparent for insurers, including Medicare Advantage plans and Medicaid managed care plans (12). The requirements arrive in two waves, and the first is already here. Beginning in 2026, affected payers must issue prior authorization decisions within set timeframes (72 hours for expedited requests, seven calendar days for standard ones), give a specific reason for every denial, and publicly report their prior authorization metrics (12). By January 1, 2027, they must also have electronic prior authorization systems in place, so providers can submit requests and receive decisions through automated interfaces rather than faxes and portals (12).

The original rule left out one big category: prescription drugs. In April 2026, CMS proposed closing that gap with similar interoperability and prior authorization requirements for drugs; under the proposal, electronic prior authorization would be required starting October 1, 2027 (13).

How Coding Accuracy Directly Affects Reimbursement Under New Rules

So what does all of this mean for your coding operation? Amid these changes, getting coding right matters more than ever. With CMS applying efficiency adjustments to specific codes, expanding site-neutral rates by service type, and reconciling entire episodes of care under TEAM, payment increasingly depends on the exact services, site of care, and episode classification your codes convey. The codes drive more of the math than they used to.

CMS is also piloting technology-assisted prior authorization review, including AI and machine learning, for traditional Medicare, starting with select procedures in six states in 2026, with licensed clinicians (not algorithms) making the final non-payment decisions (14). Early research, though still limited, suggests AI-aided prior authorization in Medicare Advantage can be associated with higher denial rates, adding a new layer of scrutiny for hospitals to navigate (14). As coding technology and payer review both grow more automated, inconsistent coding is exactly the kind of pattern audits are built to catch.

How Autonomous Coding Helps Health Systems Navigate Regulatory Change

Coding-related denials rose 126% in 2024, according to MDaudit benchmark data, and new efficiency adjustments, site-neutral rates, and episode-based payment models like TEAM only raise the stakes. Autonomous medical coding solutions assign documentation-supported codes at the appropriate level of specificity, consistently across every encounter, which helps reduce coding-related denials. And while industry solutions typically apply universal coding logic, Nym's autonomous medical coding engine applies both standard guidelines (CMS, AMA, and payer-specific rules) and each customer's internal coding guidelines, keeping code assignment consistent as requirements change.

The results are measurable. One large health system reduced its radiology professional fee (ProFee) coding-related denial rate by 97% after implementing Nym's autonomous medical coding engine. In my experience, the teams that weather rule changes best are the ones whose coding output stays consistent while everything around them moves.

Discover how Nym's autonomous coding engine can help your team stay ahead of regulatory change. Request a demo and prepare your facility for new policies as they go into effect.

Sources

1. Henry, T.A. (11 December 2025). What to Expect From the 2026 Medicare Physician Fee Schedule. American Medical Association. Retrieved July 28, 2026, from https://www.ama-assn.org/practice-management/medicare-medicaid/what-expect-2026-medicare-physician-fee-schedule
2. American Hospital Association. (2 July 2026). CMS Proposes Increases to Medicare Hospital Outpatient Department Payment Rates, Site-Neutral and 340B Changes. Retrieved July 28, 2026, from https://www.aha.org/news/headline/2026-07-02-cms-proposes-increases-medicare-hospital-outpatient-department-payment-rates-site-neutral-and-340b
3. Wisconsin Hospital Association. (2025). Medicare IPPS Final Rule Payment Brief: Federal Fiscal Year 2026, Version 1. Retrieved July 28, 2026, from https://www.wha.org/getmedia/2841480b-ee53-42e0-8d0e-3a92f63ce568/Inpatient-PPS-Rule-Brief-FFY-2026-Final-Rule-v1_WHA-logo.pdf
4. Centers for Medicare & Medicaid Services. (21 November 2025). Calendar Year 2026 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Final Rule. Retrieved July 28, 2026, from https://www.cms.gov/newsroom/fact-sheets/calendar-year-2026-hospital-outpatient-prospective-payment-system-opps-ambulatory-surgical-center
5. UTHealth Houston, McGovern Medical School. 2026 CMS OPPS Proposed Rule. Retrieved July 28, 2026, from https://med.uth.edu/mshbc/coding-compliance-overview/2026-cms-opps-proposed-rule/
6. Basler, M. (2 July 2026). CMS Proposes Major CY 2027 OPPS/ASC Changes Targeting 340B Payments, Site-Neutral Policy, IPO List Phase-Out, and ASC Expansion. Applied Policy. Retrieved July 28, 2026, from https://www.appliedpolicy.com/cms-proposes-major-cy-2027-opps-asc-changes-targeting-340b-payments-site-neutral-policy-ipo-list-phase-out-and-asc-expansion/
7. Association of American Medical Colleges. (7 November 2025). CMS Releases 2026 Medicare Physician Fee Schedule, Quality Payment Program Rule. Retrieved July 28, 2026, from https://www.aamc.org/advocacy-policy/washington-highlights/cms-releases-2026-medicare-physician-fee-schedule-quality-payment-program-rule
8. Centers for Medicare & Medicaid Services. TEAM (Transforming Episode Accountability Model). Retrieved July 28, 2026, from https://www.cms.gov/priorities/innovation/innovation-models/team-model
9. Monahan, C.H., Davenport, K., Burleson, J., & Watts, K. (April 2026). What You Need to Know About Medicare Site-Neutral Payment Reform. Georgetown University Center on Health Insurance Reforms. Retrieved July 28, 2026, from https://chir.georgetown.edu/site-neutral-payment/medicare/
10. HealthInsurance.org, LLC. No Surprises Act. Retrieved July 28, 2026, from https://www.healthinsurance.org/glossary/no-surprises-act/
11. Davis Wright Tremaine. (June 2026). No Surprises Act Final Rule: Something for Everyone to Love, but Challenges Remain. Retrieved August 31, 2026, from https://www.dwt.com/insights/2026/06/no-surprises-act-final-rule-idr-updates
12. Centers for Medicare & Medicaid Services. CMS Interoperability and Prior Authorization Final Rule (CMS-0057-F). Retrieved August 31, 2026, from https://www.cms.gov/initiatives/burden-reduction/overview/interoperability/policies-regulations/cms-interoperability-prior-authorization-final-rule-cms-0057-f
13. Kyle, M.A. & Sachs, R. (8 May 2026). Understanding CMS's Proposed Rule Regarding Prior Authorization For Drugs. Health Affairs Forefront. Retrieved July 28, 2026, from https://www.healthaffairs.org/content/forefront/understanding-cms-s-proposed-rule-regarding-prior-authorization-drugs
14. Mackleby, G. & Marr, J. (4 February 2026). Medicare is Experimenting With Having AI Review Claims. USC Schaeffer Center for Health Policy & Economics. Retrieved July 28, 2026, from https://schaeffer.usc.edu/research/medicare-experiment-ai-prior-authorization/
15. Centers for Medicare & Medicaid Services. (15 April 2026). Team Participant List. Retrieved July 28, 2026, from https://www.cms.gov/team-model-participant-list