Q1 2026 Healthcare Coding, Compliance and Payment Integrity Update

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Healthcare organizations entered 2026 facing substantial changes to Medicare reimbursement, coding requirements, prior authorization, outpatient services and fraud enforcement. Below are the developments most likely to affect health plans, providers and payment-integrity teams.

Medicare Physician Payments Increased, but Results Will Vary

CMS increased the 2026 Medicare conversion factor by:

• 3.77% for qualifying participants in advanced alternative payment models
• 3.26% for other physicians

The increases include a temporary 2.5% congressional adjustment, permanent MACRA updates, and a positive budget-neutrality adjustment. However, organizations should not assume that every physician or specialty will receive a comparable increase. CMS also finalized an efficiency adjustment affecting work relative value units and portions of physician time for certain non-time-based services.

Payment-integrity example

A health plan that updates only its conversion factor but does not load the revised RVUs could overpay or underpay affected services.

Claims teams should validate:

• Conversion factors
• Work RVUs
• Practice-expense RVUs
• Geographic adjustments
• Specialty-specific changes
• Advanced APM participation status

Source: https://www.ama-assn.org/system/files/2026-mpfs-final-rule-summary-analysis.pdf

New Hydrophilic Catheter Codes Require Order and Claims Updates

Effective January 1, 2026, CMS introduced three HCPCS codes specifically for hydrophilic urinary catheters:

• A4295: Straight-tip hydrophilic catheter
• A4296: Coude-tip hydrophilic catheter
• A4297: Hydrophilic catheter with insertion supplies

Previously, hydrophilic catheters were included within broader codes A4351, A4352 and A4353.

Providers may need a new standard written order when the existing order specifically identifies one of the older codes.

Claims example

A supplier continues billing A4351 for a hydrophilic straight-tip catheter after January 1, 2026.

Potential consequences include:

• Incorrect code assignment
• Denied or delayed claims
• Order-to-claim mismatches
• Inaccurate utilization reporting
• Incorrect fee-schedule application

Health plans should update DME edits to distinguish hydrophilic products from other catheter types and review claims billed under the older codes after the effective date.

Source: https://www.cgsmedicare.com/jb/pubs/news/2025/07/cope181960.html

G2211 Expanded to Home and Residence Services

CMS expanded HCPCS code G2211 so it may be reported with qualifying home or residence E/M services, including:

• 99341–99345
• 99347–99350

G2211 reflects the additional complexity associated with serving as the continuing focal point for a patient’s care or providing ongoing treatment for a serious or complex condition.

The code is not automatically payable simply because a home visit occurred.

Documentation should support:

• A longitudinal care relationship
• Ongoing management of a serious or complex condition
• Medical necessity
• A detailed assessment and care plan
• Consistent diagnoses
• Coordination of care

Coding example

A physician performs a home visit for a patient with advanced heart failure and documents continued medication management, coordination with specialists, and long-term oversight.

G2211 may be appropriate. By contrast, a one-time home visit for an isolated minor condition would generally not demonstrate the continuing relationship contemplated by the code.

Modifier 25 risk

G2211 generally cannot be billed when Modifier 25 is appended to the base E/M service, except in limited circumstances such as certain preventive services.

Health plans should review:

• G2211 billed with Modifier 25
• G2211 billed without evidence of longitudinal care
• Repeated G2211 utilization by provider
• G2211 submitted with inconsistent diagnoses

Source: https://www.ama-assn.org/system/files/2026-mpfs-final-rule-summary-analysis.pdf

CMS Expanded Ambulatory Surgical Center Procedures

CMS revised the Ambulatory Surgical Center Covered Procedure List criteria and removed 285 procedures from the inpatient-only list for 2026. Of those, 271 were added directly to the ASC Covered Procedure List. The expansion primarily affects musculoskeletal services. ASCs also received an average payment update of 2.6%, based on:

• A 3.3% inflation adjustment
• A 0.7 percentage-point productivity reduction

The ASC conversion factor increased to $56.322, compared with a hospital outpatient conversion factor of $91.415.

Payment-integrity example

A procedure previously payable only in an inpatient hospital may now be payable in an ASC. Claims logic that still applies the prior site-of-service restriction could incorrectly deny the claim.

The opposite risk also exists. A procedure’s removal from the inpatient-only list does not mean every patient is clinically appropriate for outpatient or ASC treatment.

Plans should review:

• Site-of-service edits
• Medical-necessity policies
• ASC fee schedules
• Procedure-to-facility compatibility
• Professional and facility claim alignment
• Procedures newly removed from the inpatient-only list

Source: https://www.cms.gov/newsroom/fact-sheets/calendar-year-2026-hospital-outpatient-prospective-payment-system-opps-ambulatory-surgical-center

Laboratory Claims Require Continued Modifier and System Review

CMS Common Working File Edit 8618 improperly denied certain CLIA-waived tests requiring Modifier QW. Claims denied because QW was missing should be reviewed and corrected when the service meets the applicable requirements.

Claims example

A provider bills a CLIA-waived test under an eligible CPT code but omits Modifier QW. The claim may be denied even though the laboratory and test otherwise qualify. Plans should distinguish between:

• A valid denial caused by a missing required modifier
• A system-generated denial caused by an incorrect edit
• A test not included on the CLIA-waived list
• A provider without the appropriate CLIA certification

This is an area where blanket reprocessing creates risk. Claims should be validated against the applicable test list, modifier requirements, and provider certification.

Source: https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfclia/search.cfm

FQHC and Rural Mental Health Rates Changed

For 2026, Medicare established the following Intensive Outpatient Program rates for Rural Health Clinics and Federally Qualified Health Centers:

• $319.38 per day for three or fewer services
• $418.45 per day for four or more services

The RHC payment limit per visit is $165 for applicable independent and provider-based clinics.

Billing example

An FQHC provides four qualifying IOP services during one day but submits the claim under the lower three-or-fewer-services payment category. That could result in underpayment. Conversely, billing the higher rate without four qualifying services could produce an overpayment and audit exposure.

Claims systems should validate:

• Number of qualifying services
• Date-of-service grouping
• Facility designation
• Revenue and procedure codes
• Duplicate daily payments
• Mental health and substance-use service combinations
  

HCPCS Invoice Requirements Were Reduced, Not Eliminated

Certain contractor-priced HCPCS codes no longer require submission of a paper invoice when the required information is entered in the claim narrative. The narrative must include:

• Invoice amount
• Quantity
• Drug or biological name
• Dosage or product size
• Route of administration, when applicable

Claims example

A provider bills six units of Q4176 but does not include the corresponding invoice amount or product information in the narrative field. The claim may be rejected as unprocessable even though a paper invoice is no longer required. The invoice amount must reflect the provider’s actual cost after:

• Discounts
• Rebates
• Refunds
• Credits
• Other adjustments

Health plans should not interpret the policy as permission to pay contractor-priced products without cost support.

Source: https://www.novitas-solutions.com/webcenter/portal/MedicareJH/pagebyid?contentId=00274129

Remote Patient Monitoring Remains a High-Risk Billing Area

OIG reported that approximately 43% of Medicare beneficiaries receiving remote patient monitoring did not receive all three principal service components:

1. Patient education and device setup
2. Device supply and data transmission
3. Treatment management

Remote physiological monitoring may involve metrics such as:

• Blood pressure
• Blood glucose
• Oxygen saturation
• Weight
• Other physiological data

Remote therapeutic monitoring captures certain non-physiological information and uses codes such as 98975, 98976, 98977, 98980, and 98981.



Audit example

A provider bills monthly device-supply and treatment-management services, but the record does not demonstrate that the patient transmitted the required data or received the necessary management time. Potential issues include:

• Missing device data
• Insufficient monitoring days
• Unsupported management time
• No documented order
• Duplicate RPM and RTM billing
• Billing for inactive patients
• Billing alongside incompatible services

OIG recommended stronger controls, including identifying the ordering provider, clarifying what data is being monitored, and monitoring companies with high RPM utilization.

Source: https://oig.hhs.gov/documents/evaluation/10001/OEI-02-23-00260.pdf

High-Cost Gene Therapy Requires Fractionated Billing Controls

Medicare approved HCPCS code J3403 for Encelto in the ASC setting for dates of service on or after October 1, 2025. The drug is payable only with:

• An appropriate ASC surgical procedure
• Place of Service 24
• Correct fractional units
• Modifier LU
• Modifier 76 on applicable subsequent claims

Because Medicare Part B systems limit the dollar amount entered on an individual claim, the total drug payment may require multiple claims.

For amounts of $499,999.99 or less, providers may submit five claims at 0.2 units each.

For amounts above $500,000, providers may submit ten claims at 0.1 units each.

Payment-integrity example

A provider submits five fractional claims, but the adjudication system identifies the later claims as duplicates. Without logic recognizing Modifier LU, Modifier 76, and the cumulative unit total, valid claims may be denied. The reverse risk is equally significant: improperly configured systems may pay more than one complete unit. Plans should verify:

• Total cumulative units do not exceed 1.0
• Place of Service is 24
• The related surgical procedure is present
• Modifiers are used correctly
• Duplicate logic accommodates valid fractional billing

Source: https://www.novitas-solutions.com/webcenter/portal/MedicareJH/pagebyid?contentId=00309192

Appeals Thresholds Increased

For appeals filed on or after January 1, 2026:

• The minimum amount in controversy for an Administrative Law Judge hearing increased to $200
• The threshold for federal district court review increased to $1,960

The amount in controversy is generally calculated after subtracting prior Medicare payments and applicable beneficiary cost-sharing.



Example

A provider disputes a $500 charge. Medicare paid nothing, and $100 is attributable to coinsurance.

The amount in controversy is $400, which exceeds the ALJ threshold but not the federal court threshold. Organizations should ensure appeal notices, workflows, and escalation rules reflect the updated limits.

Fraud Enforcement Continues to Escalate

Several major enforcement actions illustrate where regulators are concentrating their efforts.

$10.6 billion DME scheme

Federal prosecutors charged members of an alleged transnational organization with submitting more than $10.6 billion in fraudulent claims, primarily involving durable medical equipment.

Although Medicare prevented most of the requested payments, approximately $41 million was reportedly paid by Medicare and nearly $900 million by supplemental insurers.

A significant investigative signal came from beneficiaries who received explanations of benefits for products they never received.

Payment-integrity lesson

Member complaints and EOB discrepancies should be treated as actionable intelligence.

Plans should monitor:

• DME billed without related clinical encounters
• Sudden provider-volume increases
• Beneficiaries receiving identical products
• Out-of-area ordering providers
• Telemedicine-linked DME orders
• Billing for supplies members report never receiving

Source: https://www.justice.gov/usao-edny/pr/11-defendants-indicted-multi-billion-health-care-fraud-scheme-largest-case-loss-amount

Healthcare software executive sentenced

The CEO of a healthcare software company was sentenced to 15 years in prison and ordered to pay more than $452 million in restitution for participating in a scheme involving fraudulent doctors’ orders, telemedicine companies, DME suppliers, pharmacies, and marketers. The case demonstrates that technology platforms are not insulated from liability when their workflows facilitate unsupported orders, kickbacks or fraudulent claims.

Source: https://www.justice.gov/opa/pr/ceo-health-care-software-company-sentenced-1b-fraud-conspiracy

Kaiser Medicare Advantage settlement

Kaiser Permanente affiliates agreed to pay $556 million to resolve allegations involving invalid diagnosis codes submitted for Medicare Advantage risk-adjustment payments. The case reinforces the importance of validating that diagnoses are:

• Supported by the medical record
• Clinically relevant
• Properly documented
• Reported for the correct date of service
• Not carried forward solely to increase risk scores

Source: https://www.justice.gov/opa/pr/kaiser-permanente-affiliates-pay-556m-resolve-false-claims-act-allegations

What Healthcare Organizations Should Prioritize

The most immediate Q1 2026 priorities are:

1. Load current HCPCS, ICD-10-PCS, NCCI and fee-schedule files.
2. Test code-effective and termination dates.
3. Update G2211 and Modifier 25 logic.
4. Review newly eligible ASC procedures and site-of-service rules.
5. Audit RPM and RTM documentation and utilization.
6. Validate high-cost drug unit and modifier logic.
7. Review DME, telemedicine and risk-adjustment outliers.
8. Confirm appeal thresholds and laboratory modifier requirements.
9. Monitor provider billing across multiple claims and dates of service, not claim-by-claim alone.
10. Document every automated denial, reduction or pend with the applicable rule and supporting rationale.
    

Turning Regulatory Change into Payment Integrity

A coding update becomes a financial problem when it is not translated into operational claims logic.

PCG Software helps healthcare organizations evaluate claims across historical billing patterns, coding rules, provider behavior, and payment trends. Virtual Examiner® supports claims teams by identifying possible denials, reductions, pends, coding conflicts and fraud, waste and abuse indicators while preserving human review and final decision-making.

The objective is not to deny more claims. It is to make more accurate, defensible, and consistent payment decisions.