Hospital margins are threatened as surgeries move outpatient

Surgeries have increasingly gone outpatient or moved to ambulatory surgery centers as technology like robotic-assisted surgery has made procedures easier and safer.

Starting this year, the Centers for Medicare and Medicaid Services (CMS) made a change that may speed up that transition even more.

CMS removed 285 mostly musculoskeletal procedures from the inpatient-only (IPO) list, a list of surgeries that are only reimbursable if done in an inpatient setting. That means these surgeries are now reimbursable if done outpatient, too.

The ultimate goal over the next three years, according to a CMS fact sheet, is to completely phase out the list, which contained about 1,730 procedures in 2025.

On one hand, this could bring value to patients and payers. Research has found the same procedure often costs less in the outpatient setting than inpatient. But experts say hospitals, on the other hand, may take a financial hit.

The big picture. Allison Oakes, chief research officer of analytics company Trilliant Health, told Healthcare Brew eliminating the IPO list will likely lead to more procedures being performed outpatient and fewer inpatient.

“Looking at historical data, we do know that when things come off the IPO list, they tend to migrate to the outpatient setting,” she said.

For instance, a September analysis by Trilliant found inpatient total knee replacements declined 17.9% after the procedure was removed from the IPO list in 2018.

When these procedures migrate, so does hospital revenue. According to Trilliant’s data, among the 285 procedures that are now eligible for outpatient reimbursement, hospitals could receive an average of $16,334 less per case when performed outpatient compared to inpatient.

“Strategically, what’s really important is that every single hospital is understanding how much of their volume and revenue is imperiled by this migration and making sure that they have an outpatient strategy in play,” Oakes said.

This change could accelerate a shift toward outpatient that has been happening for years, motivated by an emphasis on value-based care. Outpatient services grew from making up 28% of all hospital revenue in 1994 to 47% in 2016, per Deloitte.

Questions remain. CMS said in a November 2025 press release announcing the change that physicians should be allowed to decide the best site of care for their patients.

Research suggests that many procedures can still be performed safely in the outpatient setting. A 2023 study of nearly 6.5 million patients found that, generally, physicians chose to limit outpatient procedures to low-risk patients, and that patients who got outpatient surgeries had lower 30-day mortality and morbidity rates than those who got the same surgery inpatient.

But trade group the American Hospital Association (AHA) opposed the “blanket” elimination of the IPO list in a September 2025 letter, instead urging CMS to consider the appropriateness of each procedure individually.

AHA also pointed to potential “financial and administrative burden” from the change.

“Determining the appropriate billing codes for 1,731 procedures previously on the IPO list over a three-year period would not only require greater scrutiny but would also be an overwhelming effort, likely leading to large numbers of payment denials or delays if not managed correctly,” the association wrote.

Trilliant CEO Hal Andrews added hospitals have a “tough road ahead.”

“I don’t think there’s any way to keep migration [to outpatient] from happening,” he said.

Hospitals’ “best chance” is to build up their outpatient offerings and ensure surgeries migrate to a setting they own, rather than going to their competitors, he said.

CMS did not respond to a request for comment.