On Tech Ethics Podcast – Understanding the CMS Proposed Rule for Hospital Outpatient and Ambulatory Surgical Centers

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1. Podcast Introduction (00:00:03) Host introduces the podcast, guest host Andra Popa, and guest Eric Tower.
2. Eric Tower’s Background (00:01:34) Eric describes his healthcare law practice and the multifaceted nature of his work.
3. Overview of the 2026 Medicare OPPS/ASC Rule (00:02:42) Eric provides a high-level summary of the proposed rule and its significance.
4. Site Neutral Payment Policies Explained (00:06:26) Discussion of site neutral payment policies and their impact on hospitals and practice models.
5. Future of Hospitals Under the New Rule (00:08:58) Exploration of how hospitals may change, with examples from cardiology and personal experience.
6. Podcast Promotion Break (00:11:09) Brief promotion for another CITI Program podcast by Alexa McClellan.
7. High-Risk Patients and Payment Models (00:11:28) Discussion on how high-risk patients are considered in payment models and system challenges.
8. Elimination of the Inpatient Only (IPO) List (00:12:42) Impact of removing the IPO list on patient care, surgical techniques, and technology adoption.
9. Impact on Patient Care and Ambulatory Settings (00:15:30) How changes will affect patient experience, outcomes, and the shift toward ambulatory care.
10. Preparing Hospitals and Providers for Change (00:17:24) Advice for hospitals and providers on adapting to the new rule and future care models.
11. Eric’s Experience with Hospital Integration (00:20:19) Eric shares his background in hospital-physician integration and value-based care evolution.
12. Medicare Innovation Center and Payment Reform (00:22:00) Discussion on ongoing payment model innovation and the future of value-based care.
13. Capital Projects and Rural Healthcare Concerns (00:23:27) Concerns about hospital capital expenditures and the impact on rural healthcare.
14. Podcast Conclusion and Resources (00:24:57) Host wraps up the episode, thanks guests, and promotes CITI Program resources.

Daniel Smith: Welcome to On Tech Ethics with CITI Program. I’m joined today by my colleague and guest host Andra Popa. Andra, can you tell our audience a bit about yourself?

Andra Popa: Yes. I’m the Assistant Director of healthcare content, and my background is in healthcare consulting for in particular Medicare coverage analyses.

Daniel Smith: Wonderful. And our guest today is Eric Tower, who is a partner at the law firm, Blank Rome. Eric serves as a trusted advisor to healthcare clients on a wide range of corporate transactional and operational matters. He’s well versed in handling mergers and acquisitions, joint ventures, fraud and abuse compliance, physician practice acquisitions, financing, litigation, and corporate governance matters.

Today we are going to explore the Centers for Medicare and Medicaid services proposed rule for the 2026 hospital outpatient prospective payment system and ambulatory surgical centers. This proposed rule introduces sweeping changes from site neutral payment policies and the elimination of the inpatient only list to important updates around device intensive procedures. Together these shifts could reshape how surgery is delivered, including advances in surgical techniques and related technologies.

Before we get started, I want to quickly note that this podcast is for educational purposes only. It is not designed to provide legal advice or legal guidance. You should consult with your organization’s attorneys if you have questions or concerns about the relevant laws and regulations that may be discussed in this podcast. In addition, the views expressed in this podcast are solely those of our guest. And on that note, welcome to the podcast, Eric.

Eric Tower: Hi. Thank you.

Daniel Smith: It’s great to have you. So I just briefly introduced you, but can you tell us more about yourself and your work at Blank Rome?

Eric Tower: Sure. It’s a pretty multifaceted practice focusing exclusively on healthcare. A lot of it is innovation and developments in the healthcare field, value-based care, different payment structures, evolving strategies. Really, we’re in an era of flux in healthcare generally. So I’ve been covering a lot of ground there for providers of all different types. And the great thing about healthcare is it brings together a lot of different aspects of the practice of law. So mergers and acquisition, there’s corporate law, there’s tax, there’s tax-exempt reimbursement, fraud and abuse litigation.

When people call up, they’re looking to solve a business problem. And that involves a lot of different aspects of law. And it also involves understanding how the business works and meeting them where they are to provide advice so that they can progress forward. And that’s what I really find enjoyable about it, and that’s where I focus my practice.

Andra Popa: And can you provide a high level overview of the 2026 Medicare Outpatient Prospective payment system, ASC or Ambulatory Surgical center rule?

Eric Tower: Well, if we take a step back, and it’s interesting you would ask just the global, I was actually talking with someone today and I said at a high level, one way I view it is we’re just not going to pay for some of this stuff anymore. And you take the politics out and various different organizations that might be disadvantaged. And what you’re really seeing is we’re going to start over in a lot of respects. And so sure, there are some things that are rather anodyne. We’re going to update how people get paid, the conversion factors, that type of thing.

But more deeply what we’re seeing is really breaking down some of the old barriers. So historically, hospitals have been advantaged as far as they get paid more than other types of enterprises for performing the same service. And the idea there is hospitals have a lot of carrying costs, life safety code, staffing, a lot of expenses that other entities don’t have.

What’s happened over time is in some cases people can go into a building, say in a strip mall and they can get a service done and it says on the door St. Elsewhere, and they get a bill as if they were in the hospital, even though they’re not technically in licensed hospital space the way you and I might see it. And that’s led to a lot of inequalities. So you get physicians, you get ambulatory surgery companies, you get imaging centers who all say, “Wait a second, I get paid a fraction of what the hospital does, and I’m doing the exact same thing.” And you do have consumer groups who say, “Wait a second, hospitals are going around buying these entities up, and they’re starting to treat them as if their hospitals and then patients are getting hit with these big bills.”

And one of the big things that I see in these regs is the government is saying after years of going back and forth about this, enough is enough. So we’re going to have what we call site neutral. It’s not going to matter where you get a particular service. What’s going to matter is what we think it should cost in general, and we’re going to pay the same across the board. That obviously has certain segments within the healthcare industry quite upset for, I think fairly good reasons because when you sit there and you build out your infrastructure and your cost structure predicated upon what things have been previously, and then you change the rules as hospitals would tell you right out from under them, all of a sudden they’re left with this cost structure and this basis, and they’ve got enormous debt. Margins at the hospital level are low single digits if at all positive. And they’re casting about looking for, well, what do we do here?

They employ a lot of physicians. The idea behind the physicians was so that the hospitals could provide the continuum of care that naturally led to patients finding their way back to the hospitals. But if the hospitals are no longer making any money on those procedures, are the hospitals going to carry those physicians? It really, this 2026 rule to me has the potential to be incredibly significant, and I haven’t really seen a lot of discussion around it. There are a lot of other aspects, but that’s the one that really has seized a lot of my attention at this point.

Daniel Smith: So you mentioned the site neutral policies and also the continuum of care. So just to go a bit deeper on that, can you talk a bit about how site neutral payment policies could impact inpatient or hospital-based care and existing practice models?

Eric Tower: Sure. Well, right now, the site neutral care is fairly limited, although I think everyone I’ve talked to believes it will expand more broadly in the future. It’s limited to the infusion services that they’re doing this for 2026. And what that means is instead of getting paid a whole lot of money for someone to go to the hospital for infusion services, the hospitals are going to get paid the same amount as your ambulatory infusion centers or your physician practices.

A lot of activity in the oncology space is predicated upon that site of service differential. I’m not going to talk about some of the other advantages health systems have that are also a little bit on the chopping block, which is the favorable drug pricing they get for serving low income individuals. If it’s a hospital that does that a lot known as the 340B program, although there is a lot of talk about addressing that program as well.

But what it means is that these practices that the hospitals have acquired, typically oncology practices that have fed patients into the hospital for oncology services. Now the hospitals, they’re unlikely to make any significant money off this or their money will be reduced, I should say. And going forward, there’s an open question as to whether it’s even going to be financially viable to provide infusion services on a regular basis in the hospital setting as compared to these other settings.

What that’s going to mean is hospitals might want to restructure how they relate to their physicians, how they contract, how they even plan, how they build out their hospital space. It’s been predicated on we can open these units and license them as hospital space and get paid more for them, but if that’s getting taken away, that’s really going to change the underlying economics.

And it’s important to keep in mind that when you’re already on tight margins, if you take away one of the mainstays of hospital reimbursement, which is that heavy oncology piece, you’re really moving the hospitals into a gray zone where a lot of other stuff becomes open to question about how they go forward.

Andra Popa: What will hospitals of the future look like in light of this new rule?

Eric Tower: Yeah, it’s the whole gamut of services. At least in my mind, I always think of the three big centers that keep a lot of hospitals going are oncology, cardiology, and orthopedics. If you look at these rules, they’re directly coming in at least two out of the three. We can talk about ortho in a little bit, and I’d even say years ago was doing some work for the American College of Cardiology, and I went into then HCFA to discuss the idea that maybe we can implant stents somewhere other than on the campus of a hospital with an open heart program. Well, where can you get a stent today? You can get a stent, I mean, in my mind it’s a gross exaggeration, but just about anywhere. The change is coming and it’s going to be impossible to confine this stuff to the walls of a hospital.

A few years ago, my father had a heart valve implanted, an artificial heart valve at the Cleveland Clinic, and after about half an hour into the surgery, I got paged and they said, “Hey, Eric, settle up your parking fee and bring your stuff. The doctor wants to talk to you.” And I turned to my mother. My father was 95, so I thought the worst. And I’m like, “He’s dead.” It turns out he’d had the surgery, it was done all in 45 minutes. He was the third turn of the OR suite that day. And by the way, it was still morning and they were moving on.

Well, the question is if you can do this for a 95-year-old male, how long is that even going to be a hospital service? And I think that’s the open question for all of this is as we look to the future, what is a hospital going to look like and what are they going to do? And this is the opening salvo to me of much broader changes to what a hospital’s going to look like. By 2030, I think we’re going to be dealing with an entirely different conception of what hospital services are, certainly by 2040.

Alexa McClellan: I hope you’re enjoying this episode of On Tech Ethics. If you’re interested in hearing conversations about the research industry, join me, Alexa McClellan for CITI’s other podcast called On Research with CITI Program. You can subscribe wherever you listen to podcasts. Now, back to the episode.

Andra Popa: What about high-risk patients? For example, Medicare Advantage takes into account of high-risk patients, but shouldn’t this also be taking into account patients that might need more resources?

Eric Tower: I mean, sure they should. One of the problems you get with Medicare Advantage that’s come to light more recently is how people code for the HCCs, right? And so there’s been a lot of gaming in the system. The government to this day, at least on the hospital side, maintains outlier payments for high-cost patients. Is that totally going to go away? I doubt it. I can’t predict how people are going to implement this. I do think that you’re likely to have some of those high-cost situations, but the other thing that you’re likely to hear too is going to be, well, we’re averaging this out, so you might do better with some patients and worse than others, but with a certain volume, you should be fine.

That does resonate with me to a certain extent, but it also depends on having a high enough patient base that you can spread that risk over. How we get to that endpoint at the end of the day, I think is a very good question, which is undoubtedly why you’re asking it.

Daniel Smith: So speaking of the orthopedics, as you mentioned, I believe that this rule proposes to remove some services including many spine procedures. So can you talk about how that elimination of the IPO list could improve patient care and support advances in surgical technique and related technologies?

Eric Tower: Sure. Well, today there are certain procedures that can only be done in a hospital. Period. They’re getting rid of that to a large degree. So it’s going to be more up to the individual physician to determine the best site of care for the patient. And I realize a lot of people think that hospitals are the best place to go for certain complex procedures. With advances in technology, more and more people are saying, “Well, maybe we don’t need all the bells and whistles. It’s just as safe.” And in fact, some people would tell you it’s safer to get your procedures done outside of the hospital than it is to actually go to the hospital and go through everything. It’s more convenient for the patient. It’s less stressful. Having worked with a lot of ASCs, a lot of them are very good at getting the patients back to the house very quickly and very safely. So there is that aspect to it.

One area that I’ve actually had some of my clients complain about has been, “Gee, if I’m running this in a surgery center, we’re not getting paid for it.” People actually get a lot more money. And so if I implant a device in an ASC, I’m not getting as much. It’s not on the surgical component. It’s actually the reimbursement of the device itself. So this new rule is going to allow high cost devices to get them implanted in ASCs, which I think a lot of people outside of the industry might question, like why would you want to do this? Why wouldn’t you want this in a hospital?

But when you consider ASCs, you don’t stay overnight. The patients come in, they’re taken care of. It’s very convenient. The quality is now level set that the current payment system kind of almost discriminated against ASCs in providing these. And what that meant is they weren’t going to move up the chain. They weren’t going to be able to provide the same high quality services that they could, and there’s literally no reason why they shouldn’t be able to other than they weren’t going to get paid for it, which is a little absurd. I think many people would view that. So the idea here is to encourage the development of new technologies and the adoption of new technologies, and I think most people would want to do that.

Andra Popa: What type of impact do you think this will have on patient care? We spoke a little bit about this already.

Eric Tower: Well, look, the thing about hospitals when you go into a hospital, some of them are entire city blocks or multiple city blocks and you’re shunted around from department to department. They’re set up for workflows that are convenient for the hospitals. And I don’t want to sound too critical of hospitals because they definitely serve a very important purpose. But the truth is when you’re a patient and you go in there, you have to exist within the way that hospital operates.

When you go to more ambulatory settings, ASCs, physician office, any of the other number of different environments where people can deliver care, those tend to center a lot more around the patient and the patient experience. And the truth is, the longer you spend in a hospital, the more likely you are to get sick. And that’s a literal fact. So I really do believe that a lot of this is important and it will improve health outcomes and especially as we continue to encourage innovation. And again, I don’t want to criticize hospitals, but when you’ve got a status and your whole existence is built up around a way of doing business, it does tend to make you a little more reluctant to adopt new technologies and to change your workflows. And that’s human nature more than anything.

You’ve got a lot of sunk costs and you’ve got an existing workforce. You don’t want to go around just firing people or shuttering entire wings of your hospital. But the truth is, I think as this rule highlights, something’s got to change. The rule is designed to frankly, in my mind at least, to force that change.

Daniel Smith: So from your perspective, what can hospitals and providers do to help prepare for that change and this potentially incoming rule?

Eric Tower: Well, I think the rule in an implicit way highlights one of the difficulties that is faced here, which is when we talk about hospitals getting paid more, particularly for high cost devices, for example. Some payers that I know have refused to add ASCs to their network, they make it hard to add other physicians. If I had my crystal ball going forward, I’d say, “Look, we’re not going to get rid of hospitals, but what we need is hospitals to serve as a hub and then work with other types of entities.”

The hospitals need to accept they’re not going to be all things to everyone, but they can serve as the focal point for contracting for the delivery of care. And they can effectively begin creating networks that provide the ability to get care in the lowest cost environment that’s convenient for the patient and is of really high quality. And they can do all that, but I don’t think what they can do is provide everything in a given geography.

And if you talk to some old school hospital executives, they will say, our primary or even our secondary service area is our target, and I want to control everything in that market. Absolutely. I think someone’s got to get real and just say, “Look, we can’t do this anymore.” What we can do is we can provide the really high level intensive care that you can’t get anywhere else. We can cover a lot of specialties, we can coordinate a huge amount of care, and we can begin positioning to help people take risk, which is something…

We talk about value-based care. I think there’s a real role for hospitals there in coordinating these networks and helping revolutionize how people get paid. So we’re not getting paid on a unit basis. By the same token, we’re not incentivizing people to go to the hospital for every last little thing they have where you’re going to get sucked for a big bill. I tell my own family… My daughter hurt her ankle playing soccer. I’m not taking her to the emergency department for that. We’re going to either a physician office or an orthopedic urgent care center where we’re not going to get hit for that huge facility fee.

That’s just knowing how the game works and knowing how the bills work. Over time, hospitals are going to have to begin to accept that they can’t set things up to hit people with those bills, but they’ve also got to make sure that they’ve got the medical staff and the ability to provide that care if need be. So that means they’re going to have to partner with people up and down the continuum. And that’s just where I see the future.

Andra Popa: We didn’t explain it, but your background was as general counsel of a extremely large hospital center in the Illinois area. So you’ve seen the evolution of this, correct?

Eric Tower: Well, I wasn’t general counsel, but I was one of the lawyers, but it was one that was an early pioneer. I am pretty sure I was in the room when clinical integration between physicians and hospitals was created. And then Lee Sacks, who’s a real pioneer in the area, came to the realization that we shouldn’t be constantly fighting over rates with payers. So we evolved into this environment where we take risk for the patients from the payers. And by that it means if our costs come in below, we found a way to split the difference with the payers, which was value-based care. And that’s continued.

I mean, if you’re on one of these strict systems where you show up at the hospital and they drop a bill, the incentive is to drop lots of bills. By dint of where I sat for a number of years, I came to the realization that that’s not good for anyone. And if you look at this rule, this rule is the extension of that into the Medicare program, even on a so-called fee-for-service basis. So now we’re not even talking about taking risk. We’re just saying, if you go to the hospital, we’re not going to pay you more for this. That is the next step in the continuum of reforming how people get paid, which in turn is going to reform how services get provided.

Andra Popa: I was also wondering, I know they’re continuing the work at the Centers for Medicare and Medicaid Innovation Center. They’re trying to continue various payment models, and they haven’t come out with anything yet. But what do you think about that?

Eric Tower: Yeah, I’d say this, anytime someone’s getting paid, there are ways to bend the system to advantage you. But I would say this as well. Some people say, oh, the legislation lately is just so hostile to the Affordable Care Act and everything it stands for, but innovation is continuing. Payment reform is continuing. And I think when you look at the so-called triple aim in value-based care, that’s not going away. If anything, it’s accelerating as this rule demonstrates.

The truth is the innovation’s going to continue and it has to continue. We spend over 20% of GDP on healthcare at this point. It’s just not viable to continue. And just as you’re seeing a lot of turmoil, I guess, in artificial intelligence, you’re going to see that in healthcare.

As a matter of fact, I had a conversation today with an entrepreneur in the AI space doing some stuff that’s going to revolutionize healthcare, and it’s going to change delivery. It’s going to change consumer orientation, and it’s going to change how people get paid. So that’s just going to continue.

Andra Popa: We don’t know. But what’s going to happen with all these capital projects? There’s these huge multi-million dollar hospitals going up still that are gigantic capital expenditures for nonprofits. What’s going to happen? They just-

Eric Tower: Yeah, you’re right. And that’s why hospitals are very worried. And I’ve had conversations with a number of people. The one big beautiful bill took out a trillion dollars I guess, in Medicaid, but they’re also creating this 50 billion fund for rural healthcare. And I’ve talked to a lot of consultants, a lot of bankers, a lot of people who basically say, “Well, that’s a drop in the bucket.” And if something, again, doesn’t change, rural healthcare is really going to be damaged.

I don’t know if that’s true or not. That’s word on the street, but I wouldn’t view all this as being the last word to how things shake out. I think there’s more to come. Capital projects. People tend to find a way to use things that they’ve developed, whether it’s a sunk cost. I think one of the things you’re seeing with this proposed rule and other things are fine, you figure it out, but we’re not going to pay for it the way that we historically have. So I wish I could tell you what the future holds. I can’t, but I’m pretty confident people are going to find something to do with a lot of this stuff.

Daniel Smith: Well, I think that’s a wonderful place to leave our conversation for today. So thank you again, Eric.

Eric Tower: Thank you.

Daniel Smith: If you enjoyed today’s conversation, I encourage you to check out CITI Program’s, other podcasts, courses and webinars. As technology evolves, so does the need for professionals who understand the ethical responsibilities of its development and use. CITI Program offers ethics focused self-paced courses on AI and other emerging technologies, cyber security, data management, and more. These courses will help you enhance your skills, deepen your expertise, and lead with integrity. If you’re not currently affiliated with a subscribing organization, you can sign up as an independent learner. Check out the link in this episode’s description to learn more. And I just want to give a last special thanks to our line producer, Evelyn Fornell and production and distribution support provided by Raymond Longaray and Megan Stuart. And with that, I look forward to bringing you all more conversations on all things tech ethics.