Hospitals to Face Reimbursement and Compliance Changes Under CMS Proposed Rule

The Centers for Medicare & Medicaid Services (CMS) has issued the Calendar Year (CY) 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Proposed Rule. The proposed rule includes significant payment and policy proposals that will affect hospitals participating in Medicare.

Among the many proposed changes, two of the proposals will likely have significant operational and financial impact for hospitals.

First, CMS proposes a substantial reduction in Medicare reimbursement for outpatient drugs acquired by the 340B Drug Pricing Program (340B Program or 340B), based on results from a recently completed hospital acquisition cost survey. Second, CMS proposes implementing the new provider-based department (PBD) attestation requirements mandated by the Consolidated Appropriations Act, 2026 (CAA 2026), creating a new compliance obligation for hospitals operating provider-based outpatient departments.

While these proposals remain subject to public comment through August 31, 2026, hospitals should begin evaluating the financial, operational, and compliance implications now, including through assessment of their current PBD inventories and modeling the financial impact of the proposed 340B payment changes.

PROPOSED CHANGES TO MEDICARE PAYMENT FOR 340B-ACQUIRED DRUGS

CMS Proposes Survey-Based Reimbursement for 340B-Acquired Drugs

Perhaps the most consequential proposal in the CY 2027 OPPS Proposed Rule is CMS’s proposal to fundamentally change Medicare payments for separately payable drugs acquired through the federal 340B Program. This has been attempted in the past.

This proposal follows years of litigation over CMS’s prior efforts to reduce Medicare reimbursement for 340B-acquired drugs. Beginning in CY 2018, CMS reduced payment for most separately payable 340B drugs to average sales price (ASP) minus 22.5%. The 2018 payment reduction was met with heavy resistance and litigation from the American Hospital Association and others, who argued that CMS lacked the statutory authority for such an action.

In 2022, the US Supreme Court in American Hospital Association v. Becerra agreed with hospitals and invalidated the payment reduction because it was implemented without first conducting an acquisition cost survey, a required element under the applicable statute. 596 U.S. 725 (2022).

Specifically, section 1833(t)(14)(D)(ii) of the Social Security Act authorizes the Secretary of Health and Human Services (HHS) to periodically conduct surveys of hospitals’ acquisition costs for specified covered outpatient drugs and to use those survey results in establishing Medicare payment rates.

Most recently, Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, directed HHS to conduct a survey under this authority, which was conducted between January 1 and April 7, 2026. Based on these survey results, CMS is proposing to reimburse 340B-acquired drugs at ASP minus 33.4%, replacing the current reimbursement methodology of ASP plus 6%.

In the proposed rule, CMS contends that the CY 2027 proposal addresses the deficiency identified by the Supreme Court by relying on the acquisition cost survey completed earlier this year. According to CMS, the survey demonstrated substantial differences between hospitals’ acquisition costs for 340B drugs and drugs purchased outside the 340B Program, including instances in which Medicare beneficiary cost-sharing exceeded the amount that hospitals paid to acquire the drug.

The proposal is likely to generate significant stakeholder comments, particularly regarding CMS’s survey methodology, including whether the survey data accurately reflects hospitals’ acquisition costs and whether the proposed payment reduction appropriately accounts for variation across hospital types, drug purchasing arrangements, and the expressed mission of the 340B Program: “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” H.R. Rept. No. 102-384(II), at 12 (1992).

OPPS-exempt hospitals (e.g., critical access hospitals, rural emergency hospitals, and Maryland hospitals), cancer hospitals, children’s hospitals, and rural sole community hospitals are among those excepted from the revised 340B drug payment policy.

Budget Neutrality Produces Higher Payments for Nondrug Services

CMS estimates that the proposal would reduce Medicare payments for 340B-acquired drugs by approximately $4.55 billion and reduce Medicare beneficiary cost-sharing by approximately $1.15 billion during CY 2027. Because the OPPS statute requires budget neutrality, CMS proposes to redistribute the payment reductions associated with the 340B proposal through increased reimbursement for nondrug outpatient services.

Specifically, CMS estimates the proposed reduction in 340B drug reimbursement would result in an 8.44% increase in the conversion factor for nondrug services under the OPPS reimbursement methodology. This rides on the heels of CMS’s 2023 Final Remedy Rule that is still being implemented with conversion factor adjustments to correct the 2018 overturned 340B payment adjustment.

Continued 340B Remedy Offset

The proposed rule also revisits CMS’s ongoing implementation of its remedy rule adopted following the American Hospital Association litigation over the agency’s prior 340B payment policy.

In its 2023 remedy rule, CMS restored approximately $9 billion in underpayments resulting from the stricken 340B reimbursement policy while simultaneously adopting a prospective budget-neutral offset applicable to nondrug OPPS services beginning in CY 2026.

In the CY 2026 OPPS Final Rule, CMS implemented a prospective offset to recover approximately $7.8 billion in nondrug payments made during CYs 2018 to 2022 by reducing the OPPS conversion factor for affected hospitals by 0.5% annually. The new proposed rule now seeks to accelerate that recovery by increasing the annual reduction from 0.5% to 3% beginning in CY 2027, with the agency estimating that the recovery would be completed by CY 2029.

Accordingly, the net financial impact will vary considerably among hospitals depending on their payer mix, outpatient drug utilization, and the relative proportion of revenue derived from separately payable drugs versus other OPPS services.

Practical Considerations for Hospitals

Hospitals participating in the 340B Program should carefully evaluate how the proposal financially impacts the following:

• projected reductions in outpatient drug reimbursement;
• the extent to which increased payment for nondrug OPPS services offsets those reductions;
• operational implications for pharmacy and revenue cycle functions;
• the adequacy of internal systems used to identify 340B-acquired drugs for billing purposes;
• whether changes to drug purchasing, charge capture, or claims processing workflows may be necessary if the proposal is finalized; and
• the submission of potential comments and challenges to CMS’s survey methodology and assumptions.

CMS PROPOSES NEW PBD ATTESTATION REQUIREMENTS

Statutory Background

The CY 2027 OPPS Proposed Rule also proposes changes to the provider-based regulations implementing Section 6225 of the CAA 2026, establishing new attestation requirements applicable to off-campus outpatient departments of a provider.

Historically, hospitals or health systems (referred to as “main providers”) were not required to submit provider-based attestations. Instead, main providers could voluntarily seek formal CMS determination that an off-campus department qualified for provider-based status or would otherwise maintain documentation demonstrating compliance and furnish such documentation to CMS upon request.

Beginning in 2028, Section 6225 will require each off-campus PBD to submit a current provider-based attestation demonstrating that the department satisfies the provider-based requirements in addition to maintaining its own unique National Provider Identifier.

Proposed Attestation Process

The CY 2027 OPPS Proposed Rule implements the new statutory attestation requirement by establishing a standardized process for hospitals to demonstrate that each of their off-campus PBDs satisfies the provider-based requirements.

Under the proposal, the main provider will be required to submit a separate attestation for each off-campus PBD within the two years before billed services are delivered and every five years thereafter. CMS also intends for the attestations to be standardized across Medicare Administrative Contractor (MAC) jurisdictions, with a corresponding review and validation process. CMS has indicated that the information collected will also be used to support program integrity efforts and to facilitate more consistent oversight of provider-based billing across Medicare.

CMS proposes multiple changes to the provider-based regulations to implement these changes. These changes include the addition of a new definition in Section 413.65(a)(2) for an “Off-campus outpatient department of a provider” and the incorporation of updated elements in Section 413.65(e) to codify the new requirements for such locations.

Importantly, Section 6225 of the CAA 2026 defines an “off-campus outpatient department of a provider” as being neither on the campus of the main provider nor within the distance specified in the definition of campus of a remote location of a hospital. These changes are designed to clarify the departments affected by the new statutory requirement.  

Operational Implications

The proposed rule confirms that submission, rather than acceptance, by the January 1, 2028 deadline is the requirement for new provider-based attestations. Specifically, for all off-campus outpatient departments providing services on or before January 1, 2028, CMS proposes that initial attestations must be submitted between January 1, 2026 and December 31, 2027.

For new off-campus outpatient departments that begin providing services after January 1, 2028, hospitals must submit an attestation within the two years before billed services are delivered. While the proposal does not substantively revise the underlying provider-based regulations, it could require significant compliance efforts for health systems with large outpatient networks.

Preparing for the proposed attestation requirements may require coordination among legal, reimbursement, compliance, finance, and operational personnel to verify provider-based status across the health system. Hospitals operating multiple outpatient departments should consider:

• inventorying all existing PBDs;
• ensuring documentation supports provider-based status;
• identifying any departments that may have been operating under historical provider-based determinations that should be revalidated; and
• establishing processes for timely submission and maintenance of required attestations.

Under the proposed attestation review framework, hospitals must be “prepared to provide” evidence supporting compliance with the provider-based rules. Health systems that have grown through acquisition or that operate large networks of outpatient facilities may face particularly significant administrative burdens in validating historical provider-based determinations.

Ensuring legacy or grandfathered status for PBDs that were not previously attested under the voluntary system may present challenges, and hospitals should be prepared to present evidence of historical PBD status to prevent MAC from assigning the new mandatory attestation date and the “initial” enrollment of the PBD. Additional clarity from CMS regarding the effective date for PBDs, particularly those who may not have previously submitted a voluntary attestation, would be welcomed in the final rule.

Health systems contemplating future acquisitions may also wish to evaluate how provider-based status diligence and post-closing integration processes should be updated in light of the proposed attestation requirements.

KEY TAKEAWAYS

The CY 2027 OPPS Proposed Rule contains numerous payment and policy updates, but the proposed 340B reimbursement methodology and new PBD attestation requirements are likely to receive substantial attention during the comment period.

Hospitals participating in the 340B Program should carefully evaluate the financial implications of CMS’s proposed survey-based payment methodology and accelerated remedy offset. Health systems should begin assessing their PBD inventories and compliance processes in anticipation of the proposed attestation requirements.

Comments on the proposed rule are due August 31, 2026.