CMS Releases the 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Final Rule

Key Takeaways:

• Major 340B changes: CMS reduces Medicare reimbursement for 340B drugs and accelerates recoupment of prior remedy payments.
• Continued shift to outpatient care: CMS removes 637 additional services from the Inpatient-Only list and adds 618 procedures to the ASC Covered Procedures List.
• New off-campus requirements: Expanded site-neutral payments and upcoming NPI and attestation requirements create new financial and operational considerations for hospitals.

On Nov. 6, the Centers for Medicare & Medicaid Services (CMS) published in the Federal Register the Calendar Year 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) final rule. This rule will generally take effect on Jan. 1, 2027, and will include multiple policy changes affecting payments under Medicare Part B.

Taken as a whole, the CY 2027 OPPS final rule reflects CMS’s continued effort to reshape where Medicare services are delivered, how much Medicare pays for them and how closely CMS oversees hospital outpatient operations. Although hospitals and ASCs will receive a 2.3 percent headline payment increase, that increase tells only part of the story. CMS is simultaneously pursuing substantial reductions in 340B drug reimbursement, accelerating recoupment of the prior 340B remedy, expanding site-neutral payment for certain services furnished by off-campus hospital departments, and continuing to move hundreds of procedures out of the inpatient setting and into outpatient hospitals and ASCs. At the same time, CMS is adding new enrollment and attestation obligations for off-campus departments, expanding prior authorization and experimenting with new payment approaches for software-based services. The result is a rule that CMS may characterize as promoting efficiency, site neutrality and patient choice but that also raises a more fundamental question: whether Medicare is truly modernizing outpatient payment or simply using an expanding collection of payment reductions and administrative requirements to push care toward the settings CMS prefers. For hospitals, the practical impact therefore will depend less on the nominal 2.3 percent update than on their particular mix of 340B drugs, off-campus services, procedures affected by the Inpatient-Only (IPO) list and ASC changes, and ability to absorb the rule’s growing operational requirements.

Highlights under the CY 2027 OPPS/ASC final rule include the following:

• OPPS Payment Update. CMS finalized a 2.3 percent outpatient department fee schedule increase for CY 2027 for hospitals that meet Hospital Outpatient Quality Reporting (OQR) Program requirements. The update reflects a 3.2 percent hospital inpatient market basket increase for inpatient services paid under the hospital inpatient prospective payment system, reduced by a 0.9-percentage-point productivity adjustment. Further, after incorporating the annual update and other conversion-factor adjustments, CMS established a CY 2027 OPPS conversion factor of $99.970 for hospitals that meet OQR Program requirements.

• ASC Payment Update. CMS finalized a 2.3 percent annual payment update for CY 2027 for ASCs that satisfy the Ambulatory Surgical Center Quality Reporting Program requirements. The increase reflects a 3.2 percent hospital inpatient market basket increase, reduced by a 0.9-percentage-point productivity adjustment. CMS also extended its use of the productivity-adjusted hospital market basket as the ASC update methodology for one additional year, through CY 2027, rather than reverting to the Consumer Price Index for All Urban Consumers. Applying the annual update and a 1.0018 wage-index budget-neutrality adjustment to the CY 2026 conversion factor of $56.322 produces a CY 2027 conversion factor of $57.721 for ASCs meeting quality reporting requirements.

• 340B Updates:

• Reimbursement Reductions. Medicare Part B will no longer pay Average Sales Price (ASP) plus 6 percent for 340B drugs and will instead pay Covered Entities ASP minus 28 percent for 340B drugs. CMS states that because of budget neutrality, these rate cuts will result in increasing aggregate OPPS payments for nondrug services by an equivalent amount. These rate reductions go further than what CMS previously did in 2018-2022. As with the 2018 rate cuts that were ultimately overturned by a unanimous U.S. Supreme Court, litigation could be coming to challenge these reimbursement changes.

• Accelerated 340B Remedy Recoupment. In 2023, to repay 340B Covered Entities for the previous attempt to cut rates, CMS finalized a remedy plan that included retroactively budget neutralizing the remedy payments by offsetting OPPS rates for nondrug payments. The original remedy plan was to use a 0.5 percent annual reduction for nondrug payments beginning in 2026, projected to recover the offset over approximately 16 years. However, the updated 2027 OPPS final rule increases that annual reduction to 2 percent, accelerating recovery of the same historical offset to recoup $7.8 billion by 2031.

• Off-Campus Provider-Based Departments: Attestation and NPI Requirements. Beginning Jan. 1, 2028, off-campus hospital provider-based outpatient departments (PBDs) must have a separate NPI and satisfy new attestation requirements to receive applicable Medicare payment. For PBDs furnishing services on or before Jan. 1, 2028 – including departments that previously received a provider-based determination from CMS – hospitals must submit an initial attestation demonstrating compliance with Medicare’s provider-based requirements by Dec. 31, 2027. For departments beginning services after Jan. 1, 2028, an initial attestation must be submitted within two years prior to delivery of services. Subsequent attestations will be required at intervals established by CMS, not to exceed five years. Hospitals should begin evaluating affected locations and preparing for related enrollment, billing and operational changes in advance of the 2028 effective date.

• Site-Neutral Payment for Off-Campus Imaging. CMS expanded its site-neutral payment policy for services furnished by excepted off-campus PBDs. Under the new policy, certain imaging services, including X-rays, ultrasounds, CT scans, MRIs and bone-density scans furnished without contrast, will be paid at a PFS-equivalent rate, approximately 40 percent of the full OPPS payment rate. Rural sole community hospitals are exempt from this expanded site-neutral policy. CMS estimates that the change will cut OPPS spending by approximately $260 million in CY 2027.

• IPO List. Under the policy adopted in the CY 2026 OPPS/ASC final rule, CMS continues to eliminate procedures from the IPO list as part of a planned three-year phaseout of the IPO list. The IPO list was originally created to require that certain services be provided in inpatient hospital settings under Medicare Part A, making them ineligible for reimbursement under OPPS. For CY 2027, CMS is eliminating an additional 637 services from the IPO list, including services from the following clinical families: auditory, digestive, endocrine, female genital, hemic and lymphatic systems, integumentary, male genital, maternity care and delivery, mediastinum and diaphragm, respiratory, and urinary. CMS has stated it expects that the remaining IPO services will be eliminated in 2028 but agreed with commenters that it “should wait to remove these more clinically complex and unique procedures, including neurological and cardiovascular procedures.”

• ASC Covered Procedures List. CMS continues its expansion of the ASC setting by adding to the ASC Covered Procedures List 618 procedures that the agency also finalized for removal from the IPO list. Although inclusion on the ASC Covered Procedures List permits Medicare payment when a procedure is performed in an ASC, it does not establish that every listed procedure is clinically appropriate for every patient or must be furnished in that setting, leaving that determination to the physician’s clinical judgment.

• Intensive Outpatient Programs. For the intensive outpatient program (IOP), CMS largely maintains the existing payment methodology. CMS will continue the current rate structure, with two IOP ambulatory payment classifications (APCs) for each provider type, covering days with three services and days with four or more services. For hospital-based IOPs, CMS will continue calculating the per diem payment rates using specified OPPS data that include both identified IOP days and other hospital outpatient days that contain the service codes and level of intensity necessary to qualify as an IOP day. Lastly, CMS will continue calculating IOP costs at 40 percent of the corresponding hospital-based costs for community mental health centers.

• Partial Hospitalization Program. For CY 2027, CMS finalized updated payment rates for the Partial Hospitalization Program (PHP). CMS will continue to use APC 5864, the payment rate for four or more hospital-based PHP services, as the maximum daily payment for certain outpatient mental health services. When the aggregate payment for specified outpatient mental health services furnished to a beneficiary on the same day would exceed the APC 5864 rate, Medicare will instead pay for those services through composite APC 8010 at the APC 5864 payment rate.

• Botulinum Toxin Prior Authorization. CMS is expanding Medicare’s prior authorization requirements for certain services furnished in hospital outpatient departments by adding eight additional botulinum toxin injection codes to the existing prior authorization program for dates of service on or after July 1, 2027. The relevant codes include CPT codes 64611, 64616, 64617, 64642, 64644, 64646 and 64647 as well as HCPCS code J0589. The expansion builds on CMS’s existing prior authorization requirements for botulinum toxin injections and reflects CMS’s concerns regarding increased utilization of these services.

• EMTALA Accreditation Surveys. CMS finalized a policy allowing hospital accrediting organizations (AOs) with deeming authority to evaluate hospitals’ compliance with specified Emergency Medical Treatment and Labor Act (EMTALA) administrative requirements during accreditation and reaccreditation surveys. AOs may assess administrative requirements under 42 C.F.R. § 489.20, including requirements related to EMTALA signage, maintenance of a central emergency department log, retention of transfer-related records for five years and maintenance of physician on-call lists. However, CMS and the Department of Health and Human Services Office of Inspector General retain their respective enforcement authorities.

• Software as a Medical Service and Algorithmic Laboratory Analysis. As discussed in more detail in our recent client alert, Digital Health and AI: Key Regulatory, Reimbursement and Policy Developments.CMS  established Software as a Medical Service (SaMS) as a new category for certain software-based clinical technologies and will generally use New Technology APCs as an interim OPPS payment pathway while it develops a longer-term methodology CMS has stated the 36 HCPCS codes designated as SaMS in CY 2027 that are currently paid separately under clinical APCs will be reassigned to New Technology APCs, which CMS has indicated will align closely with their current CY 2026 payment rates.  CMS also moved certain stand-alone software analyses of previously generated laboratory data, such as algorithmic analysis of genomic sequencing results, from the Clinical Laboratory Fee Schedule to OPPS, creating a separate hospital outpatient payment pathway for these emerging technologies.

BakerHostetler’s Healthcare team provides counsel to healthcare organizations nationwide regarding Medicare reimbursement and regulatory compliance.