CMS' 2027 outpatient pay proposal brings 340B, site-neutral changes, to hospitals' dismay

The Centers for Medicare and Medicaid Services’ annual outpatient hospital pay increase proposal has come with a potential major change to 340B drug payment rates and a continued push toward lower cost care outside of the hospital. 

The agency shared Thursday its proposed 2027 Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems rule. 

It outlines a net 2.4% rate increase for outpatient services and ASCs, reflecting a 3.2% projected hospital market basket increase and a 0.8 percentage point productivity adjustment. Combining the proposed rate with other policies being floated by the agency would bring an overall 1.9% increase, or $1.8 billion, in total payments over the 2026 calendar year (not including changes in enrollment, utilization and case mix), CMS calculated in the proposed rule.

Its plans earned immediate pushback from hospital industry groups over the “insufficient” proposed pay increases as well as the “shocking” and “destructive” changes to the 340B drug discount program: namely a cut in 340B reimbursements to 33.4% below average sales price, made budget-neutral through an accompanying 8.44% increase in non-drug service payments; and an increase from 0.5% to 3% of an annual OPPS conversion factor to non-drug items and services, greatly accelerating the agency’s effort to offset a prior $7.8 billion recoupment to 340B hospitals it was forced to make after previously reducing 340B rates contrary to law. 

“These proposals come at a particularly difficult time, as hospitals are caring for more and sicker patients while facing upticks in uncompensated care due to additional uninsured patients,” Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association, said in a statement. “Payment policies should recognize, rather than exacerbate, these pressures and protect access to comprehensive patient care and support long-term, sustainable improvements to the healthcare system.”

CMS Administrator Mehmet Oz, M.D., said the proposed changes ensures Medicare is paying “for the right care, in the right setting, at the right time. This proposed rule focuses squarely on patient affordability by strengthening our utilization management tools, aligning drug payments with actual acquisition costs, and removing site-of-care disparities that have unnecessarily driven up costs for millions of seniors.”

CMS’ proposed 340B rate cut follows a survey of hospitals’ drug acquisition costs that it said found “significant disparities between hospital acquisition costs” acquired inside and out of the discount program.” Lowering the rate is estimated to reduce Medicare drug payments by nearly $4.6 billion and beneficiary payments by $1.2 billion during the change’s first year, the agency said. A statutory requirement to make such changes budget neutral prompted CMS’ sweeping 8.44% non-drug service payment increase, though the agency wrote in the proposed rule that “for most 340B providers, the decreased 340B drug payments will outweigh the increased payments for non-drug services.” 

Maureen Testoni, president and CEO of 340B Health, which represents over 1,600 hospitals participating in the drug discount program, said the reimbursement cut will not achieve the administration’s spending and affordability goals, and “instead uses that revenue to pay more to non-safety net providers. This proposal is not about cutting costs for seniors, as they will face higher payments for non-drug Part B services.”

The heightened 3% conversion factor for CMS’ ongoing 340B remedy offset, meanwhile, is expected to reduce payments to affected providers by $2.3 billion in the 2027 calendar year. Hospitals have historically opposed plans to accelerate the offset—which they’ve described as a clawback against non-340B hospitals to correct CMS’ own mistake when implementing 2017’s unlawful rate cut—and did so again this week. 

“Ensuring payments more closely reflect hospitals' costs is an important step toward a fairer and more predictable payment system for all providers,” Charlene MacDonald, president and CEO of the Federation of American Hospitals, which represents for-profits, said. “CMS' proposed accelerated recoupment, however, runs counter to those same principles and would place an unnecessary financial burden on hospitals at a time when preserving access to care remains critical.”

Multiple associations painted the proposed rule’s 340B changes and other related policy decisions out of the administration as a threat to care delivery for underserved communities. 

“As HHS continues to remain silent on drug companies’ illegal claims data policies, moves forward with its misguided Rebate Program, and repeatedly supports the pharmaceutical industry in courts across the country, today’s actions make one thing clear: HHS has chosen to make healthcare more expensive for patients in rural and other underserved communities,” AHA’s Thompson said. “These proposals will undermine the ability of hospitals to maintain essential services and protect affordable access to care for those who depend on the 340B program.”

Outside of 340B, the proposed rule’s other major changes expand the agency’s push for patients to receive more care in outpatient settings, and to bring payments for certain services delivered at hospital outpatient departments in line with other settings. 

On the former, CMS wants to continue its three-year phase-out of the inpatient only list—a collection of procedures that were excluded from reimbursement at outpatient sites or ASCs—with another 638 removed services. Doing so “would allow more patients to choose outpatient surgical options while maintaining rigorous patient safety standards,” the agency said. 

On the latter, CMS is proposing to use a statutory authority to control unnecessary increases in outpatient service volume to apply the Physician Fee Schedule payment rates of some imaging services to off-campus provider-based departments. The agency, which made a similar move for drug administration services in last year’s rule, said the change would head off health systems’ consolidation incentives in order to deliver their care in higher cost settings, and is estimated to bring first-year reductions in Medicare Part B expenditures and beneficiary cost-sharing obligations of $260 million and $70 million, respectively. 

Thompson, in response to the imaging pricing change, said AHA was “concerned” about the proposal and reiterated the industry’s regular argument against site-neutral payment policies: that hospital outpatient departments serve more complex patients and must maintain more capabilities than the other lower cost sites of care. Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, called the proposal “yet another cut to Medicare payments that hospitals desperately need to stay open and serve their communities.”

The proposed rule brings other various changes to quality reporting programs for hospital outpatient departments and ASCs, a proposal to require prior authorization for eight botulinim toxin injection codes CMS said has seen a jump in claim volume, and called for public input on how best to standardize new requirements on hospital price transparency. 

The agency is accepting public comments on the 2027 calendar year proposed rule for 60 days, and typically finalizes the annual rule in late fall.