6.4 IPPS Contrast, the Inpatient-Only List, and OCE Edits

IPPS Contrast, the Inpatient-Only List, and OCE Edits

Quick Answer: The Inpatient Prospective Payment System (IPPS) pays acute care hospitals a single Medicare Severity Diagnosis-Related Group (MS-DRG) payment for an inpatient stay. OPPS can assign multiple APCs to one outpatient record. CMS's CY 2026 OPPS/ASC final rule phases out the inpatient-only (IPO) list over 3 years, beginning with 285 mostly musculoskeletal procedures removed for CY 2026. The Integrated Outpatient Code Editor (I/OCE) edits the outpatient claim, assigns APCs and status indicators, and applies packaging and discounting.

Why a hospital outpatient exam still tests IPPS

AAPC's Taking the COC exam page lists payment methodologies as 13 questions covering Medicare Parts A–D, Medicare as secondary payer, OPPS and IPPS, and UB-04 / CMS-1500 completion. The COC is a facility outpatient credential, not CIC. IPPS still appears because the same hospital bills both systems, the same patient can flip from observation to inpatient, and IPO-list procedures sit on the border.

This independent OpenExamPrep section teaches that contrast for COC study. It does not claim AAPC or CMS review or partnership.

MS-DRG versus APC, in coder language

CMS's FY 2026 IPPS fact sheet (CMS-1833-F, July 31, 2025) states that CMS pays acute care hospitals for inpatient stays under IPPS. Subject to adjustments, the hospital receives one payment per case based on the MS-DRG assigned at discharge. Diagnosis, procedures, and severity drive the MS-DRG. Extra imaging on day 3 does not generate a second DRG.

CMS's I/OCE overview draws the outpatient contrast directly: unlike the inpatient system that assigns a patient to a single DRG, multiple APCs can be assigned to one outpatient record. If a patient has multiple outpatient services during a visit, total payment is the sum of the individual payments for each payable service, after packaging and discounting.

The matching 2.6% headline is not a coincidence: OPPS uses the IPPS market basket. The penalty math differs. IQR failure cuts one-fourth of the IPPS annual update. OQR failure cuts 2 percentage points off the OPPS update. Do not swap those penalties on a COC item.

IPPS still uses diagnosis and procedure codes, including ICD-10-PCS for inpatient procedures. OPPS procedure coding for HOPD surgery is CPT/HCPCS. A coder who drops an ICD-10-PCS code onto a 13X outpatient claim is in the wrong code set.

Observation is not an MS-DRG. Hours in G0378 on a 13X claim are OPPS. If the physician admits the patient as inpatient, the hospital uses inpatient billing and IPPS, subject to the two-midnight framework and any IPO-related review rules below.

The inpatient-only list and the three-year phase-out

CMS created the IPO list when OPPS began in 2000 for procedures typically provided only in the inpatient setting. Those HCPCS carry SI C: not paid under OPPS; admit and bill as inpatient.

CMS-1834-FC finalizes a 3-year phase-out of the IPO list, beginning with removal of 285 mostly musculoskeletal procedures for CY 2026. MM14361 repeats that count and points to Table 7. Removal does not mean every Medicare patient must have the surgery as outpatient. It means Medicare may pay the service under OPPS in the HOPD when the physician determines the outpatient setting is clinically appropriate.

CMS also finalized continuation of the two-midnight medical review exemption for procedures removed from the IPO list, until the Secretary determines the service is more commonly performed for the Medicare population in the outpatient setting than the inpatient setting. Utilization review staff should not treat a newly removed code as an automatic outpatient mandate, and they should not treat it as still SI C.

Device pass-through pairings move with IPO changes. MM14361 adds CPT 27280 to device code C1737 pairings because of IPO removals, and it removes several CPT codes from C1601 pairings because those procedures remain IPO (SI C). When a procedure stays C, outpatient device-pass-through pairing instructions do not apply.

ASC Covered Procedures List — related, not identical

The ASC Covered Procedures List (CPL) is the list of procedures Medicare will pay in an ASC. It is not the IPO list. CMS-1834-FC revised general standard criteria, moved five general exclusion criteria into nonbinding physician safety considerations, and added 289 procedures to the ASC CPL. CMS also added 271 codes that were removed from the IPO list for CY 2026. Those two additions are separate counts; do not add them into one invented "560 IPO removals" figure.

ASC payment uses a different conversion factor and relative-weight scale, even when CMS starts from OPPS APC weights. Section 6.1's 2.6% ASC update is the rate update, not a promise that every HOPD APC amount equals the ASC payment.

What the Integrated Outpatient Code Editor actually does

CMS's I/OCE page lists the software's jobs when it processes a claim:

• Edit submitted data for accuracy
• Assign APCs
• Assign CMS-designated status indicators
• Assign payment indicators
• Compute discounts when applicable
• Determine claim disposition from generated edits
• Determine whether packaging applies
• Determine payment adjustments when applicable

The I/OCE then returns information to the Pricer. It functions on a single claim (no cross-claim memory), accepts up to 450 line items, and orders lines by date of service. A flag marks the claim OPPS versus non-OPPS. Institutional outpatient claims, including some non-OPPS hospitals, route through the integrated editor, but not every edit applies to every bill type.

CMS incorporates National Correct Coding Initiative (NCCI) Procedure-to-Procedure (PTP) edits into the OCE for OPPS. CMS's NCCI page states those PTP edits apply to outpatient hospital services. Medically Unlikely Edits (MUEs) also apply; outpatient hospital MUE values can differ from practitioner MUE values. CMS's MLN booklet on medical review notes that OCE edits and NCCI edits are different systems: NCCI as used for physicians sits in the Physician Fee Schedule world, while OCE is the OPPS facility engine — even though many NCCI pairs are inside the OCE.

High-level facility edits COC candidates should recognize

This is not an I/OCE software specification. It is the edit families a hospital outpatient coder is expected to resolve:

An edit can deny or reject a line while still allowing the rest of the claim to process. Line denials are appealable; they are not a green light to resubmit the identical line without a correction. Hospitals must still code correctly even when no edit exists yet for a new CPT.

Candidate scenario: SI C on a 13X claim after the 2026 removals

Nadine's orthopedic scheduler books a Medicare patient for a musculoskeletal procedure in the HOPD on February 10, 2026. Last year the code was SI C. Nadine does not guess. She opens the CY 2026 Addendum B / MM14361 Table 7. If the code is among the 285 removed procedures, OPPS can pay in the HOPD when the physician chooses that setting, and two-midnight review exemption policy continues under the final rule. If the code is not on the removal list, it remains IPO: submitting it on TOB 13X will produce an I/OCE inpatient-only edit, and the correct resolution is inpatient admission and IPPS billing — not a modifier that "makes C pay outpatient."

If the same procedure is also on the ASC CPL because it was one of the 271 IPO-removed codes added to the list, an ASC could bill it too. Presence on the ASC CPL still does not convert an SI C code that CMS has not removed.

Putting the four sections together on one record

A same-day musculoskeletal surgery removed from the IPO list in CY 2026 can now appear on a 13X claim. Status indicators still decide whether each line is S, T, N, J1, or S1. Packaging thresholds still decide whether a $90 drug packages at $140. If the surgeon also scheduled the case in an ASC, the ASC CPL additions (289 plus 271 IPO-removed codes) decide whether that setting is payable at all. The I/OCE will still PTP-edit the pair of procedure codes. Payment methodology on the COC is that whole path, not a single acronym.

CMS pages for IPO, IPPS, and the editor

• CMS-1834-FC fact sheet (IPO phase-out; ASC CPL)
• FY 2026 IPPS fact sheet (CMS-1833-F)
• Integrated Outpatient Code Editor
• MM14361 (285 IPO removals; device pairing changes)
• NCCI for Medicare (PTP in the OCE)