For years, Medicare’s Inpatient Only (IPO) list spelled out which procedures could only be done in a hospital setting for safety reasons. CMS now argues that with new technology, less invasive techniques, and faster recovery times, many of those procedures can move to outpatient departments or surgery centers. In line with that view, CMS has proposed removing 285 musculoskeletal procedures from the IPO list in 2026 and eliminate the list altogether by 2028. This policy is expected to accelerate the shift to the outpatient setting and increase the scrutiny of inpatient claims. Hospitals will need to provide stronger clinical documentation to justify why certain procedures require inpatient admission, rather than being performed in a less costly outpatient setting. This opens the door for commercial payers to challenge these decisions and deny claims if they deem the inpatient stay medically unnecessary. 

This shift isn’t new. Outpatient surgeries already account for more than 60% of procedures nationwide and the share keeps climbing. Procedures like knee and hip replacements, once unthinkable outside an inpatient setting, are now routinely done in the outpatient setting. What we’re seeing is really an acceleration of a trend that’s been building for years: fewer overnight stays, more same-day recoveries. 

As a part of this transition, CMS has carved out an exemption from the “two-midnight rule” for these newly removed procedures. That rule requires a patient to stay at least two midnights in the hospital for the admission to count as inpatient. By holding off on that requirement, CMS is giving hospitals some breathing room, with the goal of reinstating the two-midnight rule for those procedures until CMS determines that the procedure is more commonly performed in the outpatient setting. But here’s the wrinkle: commercial insurers aren’t necessarily giving hospitals the same flexibility. 

Aetna recently stated it will be watching inpatient claims for these procedures more closely, even while CMS is still in its transition period. That’s a sign of what’s to come. As the IPO list shrinks, insurers are likely to follow Medicare’s lead, or even go a step further, questioning inpatient stays more aggressively. Hospitals may find themselves in the middle: trying to do right by patients who need inpatient care while also fending off claim denials and additional documentation requests. 

What won’t change is the need for acute care. There will always be patients who need the full resources of a hospital but the balance is shifting and quickly. Because of patient preferences, medical advances, and federal policy, the shift from the inpatient to the outpatient setting is only gaining momentum. For hospitals and health systems, the real task ahead is adapting to this new normal while protecting the integrity of inpatient care for those who truly need it.