CMS plans to cut what Medicare pays hospitals for drugs bought through the 340B program and push site-neutral payment into a new category of outpatient services, two proposals that together would pull billions of dollars out of hospital outpatient revenue beginning in 2027.
The changes are part of the 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgery Center proposed rule, issued July 2 by CMS. The rule would affect roughly 3,500 hospitals and 6,400 ASCs.
“Medicare beneficiaries deserve a program that pays for the right care, in the right setting, at the right time,” CMS Administrator Dr. Mehmet Oz said in a news release framing the package around patient affordability and lower out-of-pocket costs. “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.”
Hospital groups condemned the rule within hours of its release, focusing their fire on the 340B and site-neutral provisions.
Nine things to know:
1. 340B drug payments would be slashed to average sales price minus 33.4%. Citing a hospital drug acquisition cost survey CMS conducted from Jan. 1 through April 7, the agency is proposing to pay for 340B-acquired drugs at the drug’s average sales price minus 33.4%, down from the current average sales price plus 6%. CMS estimates the change would cut Original Medicare drug payments by $4.55 billion and beneficiary drug payments by $1.15 billion in the first year. Because statute requires budget neutrality, CMS would raise outpatient payments for non-drug services by an equivalent amount, shifting dollars away from 340B hospitals and toward providers broadly.
2. The 340B “remedy” clawback would accelerate. Separately, CMS wants to accelerate its recovery of the $7.8 billion in extra non-drug payments hospitals received under the prior 340B policy from 2018 through 2022. The agency is proposing to raise the annual offset to the OPPS conversion factor from 0.5% to 3%, effective in 2027, excluding hospitals that enrolled in Medicare after Jan. 1, 2018. At that pace, CMS estimates the full recovery would be complete by 2029. Hospital groups have opposed compressing this timeline, and this proposal would do exactly that.
3. Site-neutral payment would expand to imaging. CMS is proposing to pay physician office rates for imaging without contrast — such as X-rays and MRIs — delivered in excepted off-campus provider-based departments. The agency estimates the change would reduce Medicare Part B spending by about $260 million in the first year — including $190 million in program savings and $70 million in lower beneficiary premiums — and cut beneficiary cost-sharing by about $70 million. Rural sole community hospitals would be exempt. This follows the 2026 rule’s extension of site-neutral rates to drug administration and signals that surgical services could be next.
4. Hospitals and ASCs would get a 2.4% pay bump. CMS proposes a 2.4% update to both OPPS and ASC payment rates for facilities that meet quality reporting requirements, based on a projected 3.2% market basket increase reduced by a 0.8 percentage point productivity adjustment.
5. The inpatient-only list keeps shrinking. In the second year of a three-year phase-out, CMS proposes removing 638 services from the inpatient-only list across 11 clinical families, including digestive, respiratory, urinary and maternity care. Paired with a proposed expansion of the ASC Covered Procedures List, the move gives physicians more latitude to shift cases to lower-cost outpatient and ASC settings.
6. New prior authorization would hit botulinum toxin injections. Pointing to a 42.8% jump in claim volume from 2017 to 2024 with no clear clinical explanation, CMS is proposing to require prior authorization for eight additional botulinum toxin injection codes in the hospital outpatient setting, projecting more than $17 million in net annual savings.
7. A price transparency request for information signals more requirements ahead. CMS is seeking comment on tightening machine-readable file standards, including how hospitals report contract mechanisms such as outlier payments, stop-loss provisions, rate tiering and carve-outs. The agency is also asking whether to modify or eliminate the deemed compliance policy for internet-based price estimator tools, a sign that stricter transparency mandates may follow.
8. Other provisions to watch. The rule would reweight the Overall Hospital Quality Star Rating to emphasize the Safety of Care measure group; let accrediting organizations check Emergency Medical Treatment and Labor Act administrative compliance during routine surveys, while CMS and the Office of Inspector General retain enforcement over patient care protections; and apply a cost-of-living adjustment to the nonlabor share of outpatient payments in Alaska and Hawaii, raising payments to those hospitals by an estimated $55 million.
9. Hospital groups slammed the rule within hours of its release. Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association, called the package a “continued assault on the 340B drug pricing program.” She said the proposed 33.4% cut would make drugs less affordable for vulnerable patients already facing higher premiums, coverage losses and rising drug prices.
Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, was similarly blunt, saying the rule “takes an axe to critical funding that supports essential hospitals” without regard for the patients they serve. She called the drug payment cuts unlawful and said CMS relied on a flawed methodology drawn from a survey covering less than a quarter of 340B-covered entities. She also said the site-neutral policy is another cut to Medicare payments that hospitals need to stay open and serve their communities, and urged CMS to reconsider.
CMS will accept public comments on the proposed rule for 60 days following its publication in the Federal Register.
Click here to access the 723-page proposed rule.
