Health Care Authority Announces Payment Cuts to Achieve 1% MCO Premium Reduction

The 2025-27 operating budget enacted by the legislature directs the Health Care Authority (HCA) to reduce managed care organization (MCO) premium rates by 1% (approximately $90 million annually) starting on January 1, 2026.   Though listed in the budget as a MCO premium rate reduction, HCA is implementing cuts to provider payment rates and services effective January 1,2026 to enable the MCOs to obtain the needed reduction. The new rates will likely be posted in December. WSHA has been actively advocating with HCA to ensure hospitals do not bear a disproportionate amount of the cuts

HCA has provided a document detailing and explaining the cuts, which affect a variety of services and roll back payment rate increases provided in recent years. For hospitals, HCA is cutting the hospital outlier threshold formula which will reduce payments.  While HCA has finalized the list of services that will be subject to cuts, the dollar impact for each item has not yet been calculated or shared. We will provide more information as it becomes available. (Chelene Whiteaker, CheleneW@wsha.org or Andrew Busz, AndrewB@wsha.org)

CMS Releases Medicare 2026 Outpatient PPS Proposed Rule, Includes Impacts to Payment and Transparency

The Centers for Medicare & Medicaid Services (CMS) July 15 issued a proposed rule that would increase Medicare hospital outpatient prospective payment system (OPPS) rates by a net 2.4% in calendar year (CY) 2026 compared to CY 2025. However, the proposed rule also accelerates and increases the rate through 2032 that CMS will  clawback payments from the 340B settlement that will largely negate the marketbasket increase.

The rule also includes other reductions to payment for certain services and other provisions which will affect access to services and patient safety.  WSHA will be sending hospital-specific impact analyses of the changes to appropriate financial staff at member hospitals within the next few weeks.  Comments on the proposed rule are due by September 15.  WSHA plans to comment on the proposed rule and provide member hospitals with model comments in advance of the comment deadline.  Key provisions of the proposed rule include:

Marketbasket Increase. CMS proposes to update the OPPS conversion factor by 2.4% in CY 2026, which is based on a projected 3.8% market basket update reduced by a 0.8% productivity adjustment. We believe the increase does not adequately reflect increases in the cost of providing care and the productivity adjustment, which assumes cost savings due to increases in efficiency, is unrealistic.

Proposal to Expedite Recoupment Timeline Under 340B Remedy Rule. CMS was required to pay 340B hospitals for improper 30% payment reductions for drugs for 2018-2022 after the U.S. Supreme Court determined the cuts were unlawful. The amount of the reductions was distributed among all PPS hospitals as a rate increase.  CMS is proposing to recoup $7.8 billion from hospitals through a 2% rate decrease for a 6-year period rather than the .5% reduction over a 16-year period that had been previously finalized.

CMS indicated it is considering an alternative proposal that would recoup the funds with an even larger cut of 5%, over a 3-year period. Such a cut would be very significant, given the precarious financial state of many hospitals.

Hospital Drug Acquisition Cost Survey. CMS announced a notice of intent to conduct an acquisition cost survey of all hospitals for covered outpatient drugs, a step that would allow CMS to reinstate in 2027 the 340B payment reduction to 340B hospitals that was previously disallowed by the Supreme Court.  The results of the survey will determine the magnitude of the cuts, which may be greater or less than the 30% cut that was previously implemented.

Proposed Changes to the Inpatient-only List. Currently, there are 1,731 procedures/services included on the Inpatient Only (IPO) list. For CY 2026, CMS proposes to phase out the Inpatient Only List (IPO) list over three years. This would begin in CY 2026 with the removal of 285 mostly musculoskeletal type services and complete elimination of the IPO list by Jan. 1, 2029.  

Most procedures that are eliminated from the IPO list will be added to the Ambulatory Surgical Center (ASC) Covered Procedures List (CPL). We are concerned that elimination of the IPO list will reduce protection for fragile patients and enable insurers to require services to be performed in settings that may be unsafe for the complexity of the procedure or the patients’ medical condition.

Site Neutrality Provisions. For CY 2026, CMS proposes to impose a site-neutral payment reduction to drug administration procedures furnished in grandfathered off-campus provider-based departments. The drug administration ambulatory payment classifications (APCs) to which this policy would apply are APCs 5691, 5692, 5693, and 5694. There are currently 61 HCPCS codes describing various drug administration procedures that map to the four drug administration APCs.

The site-neutral payment rate proposed by CMS would be 40% of the regular OPPS payment rate, same as other services already subject to site-neutral reductions. CMS proposes to exempt rural sole community hospitals to be exempt from this site-neutral payment cut for drug administration services. In addition, CMS is seeking input on how to identify other services to which site-neutral payment reductions could potentially be applied, including on-campus clinic visits, which were previously exempted from the CY 2019 site-neutral clinic visit policy.

Hospital Price Transparency Changes. CMS proposes significant changes to the hospital price transparency requirements. First, CMS proposes hospitals provide calculation of various amounts payer-specific negotiated charges are based on a percentage or algorithm to replace “estimated allowed amount”, such as occurs with smaller hospitals with percent-of-charge agreements or low volume services. The new calculations include the tenth percentile allowed amount, median allowed amount, ninetieth percentile allowed amount, and count of all allowed amounts. We are concerned that the new requirements will increase the administrative burden but provide no helpful information for consumers.  The rule also would require the attestation of accuracy of the hospital’s posted files to be signed by the hospital CEO or other senior official and would significantly increase the civil monetary penalties for noncompliance. If finalized, the new data elements and attestation requirements would go into effect on Jan. 1, 2026. (Andrew Busz, andrewb@wsha.org).

CMS Releases Proposed Medicare Physician Fee Schedule Rule

The Centers for Medicare & Medicaid Services on July 14 released its calendar year 2026 proposed rule for the physician fee schedule. Beginning in CY 2026, CMS proposes to implement two separate conversion factors: 3.83% for qualifying alternative payment model participants and 3.62% for physicians and practitioners who are not qualified participants. These updates include statutory updates of 0.75% and 0.25% for the APM and non-factors, respectively, an update of 2.5% as required under HR1, and a 0.55% budget neutrality adjustment that CMS states is necessary to account for proposed changes in work relative value units.

Because of proposed changes to CMS’ RVU calculation methodology, the payment impact will vary based on the service performed and the service location. CMS is proposing a 2.5% efficiency adjustment reduction for many services.  Also, CMS is modifying the practice expense methodology which will generally result in increases for office-based services, but reductions for services provided in hospital or facility setting. CMS will accept comments on the proposed rule through Sept. 12. (Andrew Busz, andrewb@wsha.org)

CMS Releases Medicare Home Health Proposed Rule

The Centers for Medicare & Medicaid Services on June 30 issued its calendar year 2026 proposed rule for the home health prospective payment system. Under this proposed rule, home health PPS payments would decrease by 6.4%, after all policy changes, in CY 2026 compared to CY 2025.  The actual impact varies among WSHA members that operate home health and is generally smaller than the national average.  WSHA is sending hospital-specific impact analyses to members that provide home health services. The proposed rate includes a net 2.4% market basket update, an 8.3% reduction due to budget neutrality requirements of the Patient-Driven Groupings Model (PDGM), and a 0.5% reduction for high-cost outlier payments.

We are concerned about the magnitude of the cuts and potential impact on access to home health services, particularly patients needing care following discharge from hospitals. CMS will accept comments on the home health proposed rule until August 29. (Andrew Busz, andrewb@wsha.org).

CMS Announces WISeR Model Prior Authorization Pilot for Fee For Service Medicare -Includes Washington State

On June 27, the Centers for Medicare and Medicaid Services (CMS) announced a pilot for six states, including Washington State, which will require prior authorization requirements effective January 1, 2026.The pilot includes 17 areas of “low value” services that HHS says are sometimes overused and subject to abuse.
The pilot applies to services under original (fee for service) Medicare. The other states in the pilot are New Jersey, Ohio, Oklahoma, Texas, and Arizona. Under the WISeR (Wasteful and Inappropriate Service Reduction) model, CMS will contract with entities to provide prior authorization for specific services that have national coverage determination or local coverage determinations. If the pilot is successful, CMS may expand the program to additional states and services. The services are:

  • Electrical Nerve Stimulators (NCD 160.7)
  • Sacral Nerve Stimulation for Urinary Incontinence (NCD 230.18)
  • Phrenic Nerve Stimulator (NCD 160.19)
  • Deep Brain Stimulation for Essential Tremor and Parkinson’s Disease (NCD 160.24)
  • Vagus Nerve Stimulation (NCD 160.18)
  • Induced Lesions of Nerve Tracts (NCD 160.1)
  • Epidural Steroid Injections for Pain Management excluding facet joint injections (L39015, L33906, L39036, L39240, L39242, L36920, L38994, L39054)
  • Percutaneous Vertebral Augmentation (PVA) for Vertebral Compression Fracture (VCF) (L33569, L34106, L34228, L38201, L34976, L35130, L38737, L38213)
  • Cervical Fusion (L39741, L39799, L39770, L39758, L39762, L39793, L39773, L39788)
  • Arthroscopic Lavage and Arthroscopic Debridement for the Osteoarthritic Knee (NCD 150.9)
  • Hypoglossal Nerve Stimulation for Obstructive Sleep Apnea (L38276, L38307, L38398, L38387, L38310, L38312, L38385, L38528)
  • Incontinence Control Devices (NCD 230.10)
  • Diagnosis and Treatment of Impotence (NCD 230.4)
  • Percutaneous Image-Guided Lumbar Decompression for Spinal Stenosis (NCD 150.13)
  • Skin and Tissue Substitutes (LCDs below)—only applicable to MAC jurisdictions and states that have an active LCD in place
  • Application of Bioengineered Skin Substitutes to Lower Extremity Chronic Non-Healing Wounds (L35041)
  • Wound Application of Cellular and/or Tissue Based Products (CTPs), Lower Extremities (L36690)

WSHA has concerns regarding the program, particularly given the history of lack of accountability for similar programs in the past, such as the early Recovery Audit Contractor (RAC) programs. More information about the WISeR program is available on the CMS Website.  (Andrew Busz, andrewb@wsha.org)