Payment policy changes proposed by the Centers for Medicare and Medicaid Services in July are being roundly condemned by health systems, with industry groups telling the agency in recently submitted public comments that its plans will damage care delivery and, in the case of a new 340B rate cut, are “straightforwardly unlawful.”
The proposed 2027 Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems rule ruffled plenty of feathers upon its unveiling.
Between its net 2.4% annual rate increase, “site-neutral” cuts to imaging-without-contrast services furnished off-campus and a pay reduction for drugs acquired through the 340B program from 6% above average sales price (ASP) to 33.4% below ASP, among other proposed changes, several industry groups told the agency that its plans would hammer hospitals right as coverage and supplemental payment reductions from the One Big Beautiful Bill Act begin to take effect. They also questioned whether the adjustments would achieve CMS’ stated goal of reducing health spending and beneficiary costs, and noted that some of the changes would benefit for-profit hospitals at the expense of safety-net facilities.
Those critiques were amplified in public comments, the submission window for which closed on Monday.
340B rate changes
Chief among the complaints was the 340B rate change, which the American Hospital Association (AHA), America’s Essential Hospitals (AEH) and the Association of American Medical Colleges (AAMC) told the agency does not align with statute (setting the stage for potential litigation should CMS move forward).
The groups disagreed with the agency that an “invalid” survey it conducted of hospitals’ costs to acquire the drugs would meet the legal bar for a rate variance under statute—a key issue that led the Supreme Court to toss a 2017 attempt at a similar policy. The survey, they wrote, included data from 23.1% of 340B hospitals and 29.8% of total hospitals and aggregated acquisition costs for all drugs, respectively falling short of statutory requirements for a survey to reach a “large” sample of hospitals and to vary payments by hospital group.
AEH added that it believed the proposed cuts to 340B hospital outpatient drug payments met the bar to be considered arbitrary and capricious, due to its “irreconcilably flawed” survey and because it didn’t consider “any other hospital characteristics [beyond 340B status] that may cause variation in hospital acquisition costs.”
AHA, AEH and AAMC also took issue with a proposal to further extend the proposed reimbursement cuts to drugs furnished at nonexcepted off-campus departments, for which they said the agency also lacked authority, “let alone do so in a non-budget neutral manner” as proposed with an estimated impact of $920 million in lost payments for 340B hospitals, the AAMC wrote.
In contrast, most of the 340B cuts—which amount to $4.85 billion by CMS’ estimate, but by AEH’s about $5.6 billion—are required to be budget neutral and so are bringing an 8.44% increase in non-drug service payments. That means some hospitals are getting an overall cut (disproportionate share hospitals, for instance, an estimated 5.8% net reduction in OPPS revenue per CMS) while others like for-profits that don’t participate in 340B are expecting net increases (7.4%).
That adjustment has led the Federation of American Hospitals (FAH), which represents for-profits, to stand as the rare industry group throwing its weight behind the proposed 340B rate change.
“The proposal follows the direction Congress gave the agency, reduces beneficiary cost-sharing and directs Medicare dollars to smaller and rural hospitals, and it does so without increasing Medicare spending,” the group wrote in its comment letter. “FAH urges CMS to finalize it.”
AAMC and AEH contested FAH and CMS’ framing of the policy in regard to beneficiary cost sharing, with the former writing that “because CMS is increasing payments for nondrug items and services by the same amount, in the aggregate, Medicare beneficiaries would pay the same amount of coinsurance, just on different services.” AEH wrote that would “likely” increase overall beneficiary cost sharing due to the hospitals being most detrimentally impacted also serving a higher portion of dually eligible patients.
Similarly, the groups opposing the rate change urged CMS to consider the financial impacts of reducing payments to 340B program participants, especially alongside other policy and industry changes affecting the program.
“Unsurprisingly, many 340B hospitals have informed the AHA that these proposed cuts—a roughly 40% reduction from current reimbursement rates—are not sustainable,” AHA wrote. “If this rule is finalized, these hospitals will be forced to trim important patient services, shutter expensive service lines altogether, consider integration with more financially stable hospitals, or even close their doors.”
AMGA, in its comment letter, did not go so far as to describe the rate decrease as unlawful, but called on CMS to reconsider or at least phase-in the changes, and to provide more information “regarding the representativeness and methodology of the acquisition cost survey."
Accelerated 340B offset
Another 340B-centric change floated in the proposed rule relates to the fallout of a 340B rate cut CMS tried to implement nearly a decade ago. The change, found unlawful by the Supreme Court, triggered a $7.8 billion recoupment to 340B hospitals that CMS, in order to remain budget neutral, implemented a 16-year plan to offset with a multiyear conversion factor to hospital payments.
The offset, often referred to by hospital groups as a clawback against non-340B hospitals triggered by CMS’ own mistake, could be accelerated under the proposed OPPS rule from 0.5% to 3%. The hospital groups, this time including FAH, urged the agency to reconsider.
The for-profit hospital representative wrote that the recoupment financially threatens rural hospitals and sole community hospitals, and that an acceleration “would further advantage Medicare Advantage organizations, whose capitated rates reflect only the 0.5 percent reduction while the larger reduction would flow through to their payments to hospitals.”
The AHA—while often drawing parallels between the policy change that triggered the recoupment and the newly proposed rate cut—said that CMS’ new justification for the accelerated recoupment conflicts with the agency’s earlier stated concerns over how hospitals may be affected by the pay cut, and “has seemingly dropped out of the equation entirely.”
“HHS has acknowledged that hospitals are not to blame for this situation,” AHA wrote. “…Full responsibility means recognizing that hospitals should not be punished for HHS’ mistakes—many years after HHS made those mistakes—by having to return funds that they have long since spent, at a time when their finances are already being squeezed more and more every day. These hospitals certainly should not have to do so on a faster timeline than they were originally promised, based on arbitrarily chosen criteria that in no way accounts for the burdens they will suffer under this revised clawback schedule.”
Site-neutral payment for imaging without contrast services
CMS proposed leaning on its statutory authority to control unnecessary increases in outpatient service volume so that it may apply the Physician Fee Schedule payment rates for some imaging services to off-campus provider-based departments—the latest in a push toward site-neutral payment policies that CMS said would reduce health systems’ consolidation incentives. The agency also said it expects the plan to trigger first-year reductions in Medicare Part B expenditures and beneficiary cost-sharing obligations of $260 million and $70 million.
The hospital groups renewed their opposition to such policies, writing that CMS’ proposed change doesn’t account for the higher Medicare burden hospital outpatient departments face compared to independent physician offices. AAMC warned that doing so is likely to reduce access to care, “particularly for the most complex patients,” and that the policy doesn’t reflect “the greater licensing, accreditation and regulatory requirements for hospitals.”
Similar to the proposed 340B rate cut, the hospital groups also asserted that CMS does not have the authority to extend the site-neutral pay policy to excepted hospital outpatient departments, and particularly not to do so in a non-budget-neutral manner.
2.4% net increase
Of course, no annual payment schedule update would be complete without grievances over the year-to-year net increase.
The proposed rule’s 2.4% reflects 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 result in an overall 1.9% increase, or $1.8 billion, in total payments over the 2026 calendar year, per CMS.
The AHA, in its letter, said it was concerned that the increase “is not adequate given the unrelenting financial headwinds hospitals and health systems face,” and called on the agency to work with Congress to either reduce or eliminate the 0.8 percentage point productivity adjustment.
AEH cited years of underpayment and called for CMS to consider “alternative data sources to better reflect the true cost pressures facing hospitals.” AAMC concurred, and urged the agency to consider how the “insufficient” increase for hospitals grappling with higher supply and labor costs would compound with the concurrent 340B rate cut.
Other proposed policy changes and issues highlighted in the hospital groups' comment letters included:
- opposition to CMS' ongoing pivot away from the inpatient-only list of procedures
- calls to reconsider the use of prior authorization for certain outpatient services, or to implement safeguards prior to expansion
- requests to reduce the burden and increase the implementation guidelines for National Provider Identifier (NPI) and attestation requirements for hospitals' off-campus provider-based departments
- responses to a hospital price transparency Request For Information that requested CMS work to limit administrative burdens for providers