CMS’ CY 2027 OPPS and PFS Proposed Rules Include Major Changes to Reimbursement for 340B Hospitals, Data Reporting, and Digital Health

In July 2026, the Centers for Medicare & Medicaid Services (CMS or Agency) published two of their annual proposed rules: the CY 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Proposed Rule (OPPS-ASC Proposed Rule) and the CY 2027 Medicare Physician Fee Schedule Proposed Rule (PFS Proposed Rule). These proposals include several significant policy and payment changes, including substantial reductions in reimbursement for 340B-acquired drugs in the hospital outpatient setting and changes to Medicare reimbursement methodologies for Evaluation and Management (E/M) services and digital health services, including remote patient monitoring services and telehealth, among other items. The Agency also proposes several changes to CPT codes, PFS practice expense inputs, and OPPS Ambulatory Payment Classification (APC) assignments and payment rates for established services. Stakeholders should review relevant proposals, including changes to APC assignments and payment rates in the OPPS Addendum, and consider providing input through comments. Comments on the OPPS-ASC Proposed Rule are due August 31, and comments on the PFS Proposed Rule are due September 14.

OPPS Proposed Rule Provisions

1. 340B Program

CMS proposes significant updates affecting 340B reimbursement, including:

• Reduced Payments for 340B-Acquired Drugs. For CY 2027 and subsequent years, CMS proposes to reduce payment for drugs that hospitals acquire through the 340B Program from the current rate of average sales price (ASP) plus 6% to ASP minus4%. CMS states that this proposal is based on the results of the Medicare OPPS Drugs Acquisition Cost Survey of hospitals that it completed earlier this year, which CMS plans to publish on the OPPS website. CMS anticipates that the proposed reduction “will collectively reduce beneficiary copayments by an estimated $1.15 billion for CY 2027.”[1]

CMS proposes to exempt rural sole community hospitals, children’s hospitals, and Prospective Payment System (PPS)-exempt cancer hospitals from the payment reduction. Drugs with transitional pass-through status are also excluded from the proposal. CMS would implement the proposed cuts through the use of modifiers and notes that the reimbursement cut will only apply if a hospital purchased the drug at the 340B price, as designated by the use of the modifier.

The proposal follows CMS’ previous effort to reduce payment for 340B-acquired drugs. Beginning in 2018, CMS reduced payment for such drugs from ASP plus 6% to ASP minus 22.5%. Hospitals challenged that policy, and, in American Hospital Association v. Becerra, 596 U.S. 724 (2022), the Supreme Court unanimously held that CMS lacked statutory authority to vary payment rates based on hospitals’ 340B status without first conducting the statutorily required survey of hospitals’ acquisition costs. Following the decision, CMS restored payment for 340B-acquired drugs to ASP plus 6% and ultimately provided approximately $7.8 billion in lump-sum payments to remedy the unlawful payment reductions for CYs 2018 through 2022. The proposed ASP minus 33.4% rate therefore represents an even larger reduction than the ASP minus 22.5% rate invalidated by the Supreme Court. Unlike its prior policy, however, CMS now relies on the results of its hospital acquisition-cost survey as the statutory basis for establishing a 340B-specific payment rate.

Notably, CMS proposes to retain the current reimbursement of ASP plus 6% for non-340B acquired drugs despite the survey results generally indicating lower hospital acquisition costs than current payment rates. CMS notes that it continues to assess the results of the survey to determine whether further updates are needed to OPPS payment policies for drugs in the coming years.

• 340B Remedy Offset. Following the Supreme Court’s 2022 decision in American Hospital Association v. Becerra, CMS provided approximately $7.8 billion in lump-sum payments to account for the decreased payments CMS made to 340B hospitals from 2018 through 2022. CMS initially implemented the offset through an annual 0.5% reduction to the OPPS conversion factor beginning in CY 2026. For CY 2027, CMS proposes to accelerate its efforts to “offset” the $7.8 billion in repayments by increasing the annual reduction from 0.5% to 3%, effective January 1, 2027. CMS states that accelerating this timeline will help “better ensure that the reduction in payments to each hospital approximates the amount by which that hospital was overpaid.”[2]

2. Diagnostic Radiopharmaceuticals

The OPPS Proposed Rule includes policies addressing reimbursement of diagnostic radiopharmaceuticals, including:

• MUC-Based Reimbursement. CMS proposes to continue its policy of reimbursing diagnostic radiopharmaceuticals with a per-day cost above the applicable threshold — which would be $665 for 2027 — by using such products’ Mean Unit Cost (MUC). CMS continues to find that the ASP data available is “not usable for payment purposes” and states that it continues to believe MUC “would be an appropriate proxy . . . ” for determining payment for these products.
• Voluntary ASP Reporting. CMS proposes to maintain voluntary ASP reporting for diagnostic radiopharmaceuticals paid under OPPS for CY 2027. To encourage manufacturers to submit ASP information for their products, CMS states that it intends to publish an ASP Reporting Framework for Diagnostic Radiopharmaceuticals on the OPPS website, although it does not specify when the framework will be released.

3. Skin Substitutes

In the CY 2026 OPPS Final Rule, CMS made substantial changes to sheet skin substitute reimbursement that we described in previous Sidley Alerts (here and here). At that time, CMS set the reimbursement for nearly all skin substitutes at $127.14 per cm². This year, CMS stated that “we do not believe we have sufficient data upon which to propose a revised payment rate . . . .[and] that updating the payment rates for CY 2027, before the impacts of the payment policy are reflected in the CY 2026 claims . . . could result in payment disruptions or introduce unnecessary volatility.”[3]

PFS Proposed Rule

1. Payment Updates

CMS proposes to reduce the CY 2027 PFS conversion factor following the expiration of the temporary 2.5% statutory payment increase enacted for CY 2026. CMS proposes a conversion factor of $33.1693 for qualifying Alternative Payment Model (APM) participants, a 1.19% decrease from CY 2026, and $32.8409 for nonqualifying APM participants, a 1.68% decrease. Although the proposed conversion factors reflect the applicable statutory payment updates and a positive budget neutrality adjustment, the expiration of the temporary payment increase results in an overall reduction in physician payment rates for CY 2027.

2. Medicare IRA Inflation Rebate Updates

CMS proposes several technical but important revisions to the Medicare Prescription Drug Inflation Rebate Program for both Medicare Part B and Part D. While many of the proposals are characterized as clarifications, if finalized, they would affect manufacturers’ inflation rebate calculations and, for the first time, create a new reporting obligation for providers and suppliers that qualify as 340B covered entities.

• Medicare Part B Updates. CMS proposes to amend the definition of “first marketed date” at 42 C.F.R. § 427.20 to establish a hierarchy of data sources for determining a drug’s first marketed date when ASP reporting data are unavailable.[4] The “first marketed date” is a critical component of the Medicare Part B Drug Inflation Rebate Program because it determines the benchmark period used to calculate inflation-adjusted payment amounts for subsequently approved drugs. Under current regulations, CMS generally determines the first marketed date using ASP data reported by manufacturers, but recognizes that ASP data may not always be available.[5]

Accordingly, CMS proposes to codify a hierarchy of data sources that would govern when ASP data are unavailable.[6] Specifically, CMS would continue to rely on ASP data where available, but if the first marketed date is missing from ASP data for any NDC-11 associated with the relevant billing and payment code, CMS would instead identify the date using an alternative public source, such as the FDA’s NDC Directory.[7] If the first marketed date is unavailable in both ASP data and the NDC Directory, CMS proposes to default to the FDA approval date listed in the Orange Book or Purple Book.[8]

• Medicare Part D Updates. CMS proposes for the first time to require providers and suppliers that qualify as 340B covered entities to report Part D claims to the Medicare Part D Claims Data 340B Repository beginning with claims having dates of service on or after January 1, 2027.[9] Currently, covered entities may voluntarily submit claims data to the Repository but are not required to do so. According to CMS, transitioning from voluntary to mandatory reporting would provide more complete and reliable data and improve the Agency’s ability to identify 340B-discounted units that must be excluded from Part D inflation rebate calculations.[10] Under the proposal, covered entities would be required to submit specified claim-level information on a quarterly basis, and certify that the submission is complete and accurate.[11]

3. Reimbursement Methodology Changes

CMS proposes several changes to the methodology used to calculate practice expense (PE) relative value units (RVUs), which account for the direct and indirect costs associated with furnishing physician services. Because PE RVUs are calculated on a relative and budget-neutral basis, these methodological changes would result in reimbursement increases for some services and decreases for others. Stakeholders should carefully review the Addenda to the Proposed Rule to understand how relevant codes are affected.

• Practice Expense Methodology. CMS proposes several changes to the methodology for calculating indirect PE RVUs. Most significantly, CMS proposes to calculate indirect PE using both work RVUs and clinical labor RVUs for nearly all services, replacing a methodology that CMS believes has historically advantaged certain diagnostic and imaging services. CMS also proposes to phase out use of the indirect practice cost index, which relies heavily on specialty-level expense survey data collected in 2007. CMS states that these increasingly outdated data have produced “unpredictable and counterintuitive results” and may limit the effect of more recent code-level data. To mitigate year-to-year volatility resulting from these changes, CMS proposes a stabilization adjustment that generally would limit annual increases or decreases in a code’s PE RVUs to 5%.[12]
• Reconsideration of AMA/RUC Role in Physician Payment. CMS is seeking comment regarding the role of the American Medical Association (AMA) in developing CPT codes and the recommendations of the AMA/Specialty Society Relative Value Scale Update Committee (RUC), which historically have played a significant role in CMS’ valuation of physician services. CMS notes longstanding concerns regarding reliance on recommendations from a private organization and specialty societies that may have a financial interest in the resulting payment rates. CMS seeks input on potential alternatives to the current CPT and RUC processes, including whether CMS could develop a more objective valuation process and whether alternative coding or payment systems could supplement or replace the current CPT framework.[13]

4. Skin Substitutes

In the CY 2026 PFS Final Rule, CMS stated that it would continue to direct Medicare Administrative Contractors to determinate appropriate payment rates for non-sheet form skin substitutes. However, CMS has since “come to believe that, on the balance, the resource costs per cm² for non-sheet form skin substitutes is consistent with the resource costs associated with those associated with sheet form skin substitutes.”[14] Accordingly, CMS proposes to align reimbursement for non-sheet form skin substitutes with reimbursement for sheet form skin substitutes, resulting in a payment rate of $127.14 per cm².

5. Remote Patient Monitoring and Telehealth

In the last several PFS rulemakings, CMS has established payment for Remote Patient Monitoring (RPM) and Remote Therapeutic Monitoring (RTM). Citing a report issued by the U.S. Department of Health and Human Services Office of Inspector General that flagged billing, coding, and reimbursement irregularities in the RPM and RTM context, CMS has put forward proposals that would tighten the standards for initiating and furnishing these monitoring services, including:

• Established Patient Requirements. CMS currently requires RPM services be furnished to established patients. CMS now proposes to require the same for RTM, explaining that limiting reimbursable RTM services to established patients would ensure “the practitioner would possess information needed to understand the current medical status and needs of the patient prior to ordering RTM services” and “use the results of [RTM] to manage the patient under a specific treatment plan or therapy plan of care.”[15]
• Initiating Visit Requirements. CMS proposes to require an initial face-to-face visit before RPM and RTM services can be reimbursed by Medicare. The initial visit that can be in-person or telehealth, but the practitioner would be required to discuss RPM or RTM services with the patient during the visit. This requirement would not apply to CPT codes that are not separately payable.[16]
• Supervision Requirements. CMS notes that many physicians and providers outsource RPM and RTM services to third-party companies and that some vendors “cold call” patients to solicit them to enroll in RPM and RTM services. To CMS, “[p]rovision of these services by entities having only a loose association with the treating practitioner can detract from longitudinal, patient-centered care.”[17] CMS therefore proposes “to only allow payment for RPM or RTM services when furnished by clinical staff employed by the practice,” rather than by an outsourced third-party.[18]
• Revaluation of Codes and Bundling. CMS proposes to reduce reimbursement for multiple RTM and RPM codes.[19] CMS further proposes bundling multiple RTM and RPM services in single codes to ensure all components are consistently provided.[20]
• CMS proposes to add five new HCPCS G-codes to the Medicare Telehealth Services List, including codes for advance care planning, shared medical appointments, certain pediatric speech-language services, and management of vaccine adverse effects. If finalized, these services would be separately payable under the PFS. In addition, CMS proposes to implement statutory extensions of certain Medicare telehealth flexibilities through the end of 2027 and establishes new modifiers for certain services furnished through virtual telehealth platforms and “incident to” a practitioner’s professional service.[21]

6. Other Changes

• E/M Updates. CMS proposes several changes to Medicare reimbursement under E/M codes, which reimburse physicians and other practitioners for providing non-procedural services, such as medication management, history taking, physical exam, and care coordination.
• Payments for Counseling on Clinical Trials. CMS notes that “[t]ime and administrative burden are documented as the top barrier to conversations between physician and patients about participation in clinical trials in virtually every survey.”[22] To address this barrier, CMS proposes to reimburse for physician or other practitioner time spent on clinical trial counseling.
• Request for Information (RFI) on “Redesigning Primary Care to Make America Healthy Again”. As part of a broader RFI on primary care reform, CMS requests information in several other areas, including: (a) feedback on how to reconsider the “relative undervaluation” of primary care services in the PFS under the current paradigm of outpatient office E/M visits; (b) creating new codes to distinguish between different types of E/M visits; and (c) use of artificial intelligence in primary care.[23]

[1] 91 Fed. Reg. 41734, 41891 (July 7, 2026).

[2] Id. at 41872.

[3] Id. at 41896.

[4] 91 Fed. Reg. 43842, 44006–44007.

[5] Id. at 44006.

[6] Id.

[7] Id.

[8] Id.

[9] Id. at 44012.

[10] Id.

[11] Id. at 44013.

[12] Id. at 43844–51.

[13] Id. at 43952–53.

[14] Id. at 43895.

[15] Id. at 42892.

[16] Id. at 43892.

[17] Id.

[18] Id. at 43893.

[19] Id. at 43893–94.

[20] Id. at 43894–95.

[21] Id. at 43863–65.

[22] Id. at 43912–13.

[23] Id. at 43936–39.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.