LUGPA Policy Update - CMS Proposes Major Changes to 340B Drug Payments and Hospital Outpatient Reimbursement

July 2026

At a Glance

What Happened: CMS has released the CY 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Proposed Rule (CMS-1850-P), a 737-page document that updates Medicare payment policies and rates for hospital outpatient departments (HOPDs) and ASCs.

Key proposals include:

• Reducing Medicare payment for separately payable drugs acquired through the 340B Drug Pricing Program from Average Sales Price (ASP) +6% to ASP -33.4%, based on data from the comprehensive OPPS drug acquisition cost survey finalized in the CY 2026 rule. CMS estimates this would reduce Medicare drug spending by approximately $4.55 billion and beneficiary drug cost-sharing by $1.15 billion (total ~$5.7 billion) in 2027.
• Maintaining budget neutrality by increasing payments for non-drug OPPS services (via a substantial increase to the conversion factor).
• Accelerating the prior 340B remedy offset for non-drug services by increasing the annual OPPS conversion factor reduction from 0.5% to 3% until the $7.8 billion offset is recovered (estimated by CY 2029).
• Expanding site-neutral payment policies to certain imaging services (without contrast) in excepted off-campus provider-based departments (PBDs), applying Physician Fee Schedule-equivalent rates. This is estimated to reduce Part B spending by ~$260 million in the first year.
• Completing the phase-out of the Inpatient-Only (IPO) list by removing the remaining 637 procedures, making them eligible for payment in HOPDs when clinically appropriate, and updating the ASC Covered Procedures List to expand procedures safely performed in ASCs.
• Implementing requirements for off-campus PBDs to use distinct National Provider Identifiers (NPIs) and submit periodic attestations.

Certain hospitals (e.g., Critical Access Hospitals, rural emergency hospitals, sole community hospitals, PPS-exempt cancer hospitals, and children’s hospitals) would be exempt from the 340B payment reduction.

Why It Matters

This proposal represents one of the most significant federal changes to 340B reimbursement since the Supreme Court overturned CMS’s earlier 340B payment policy. CMS now relies on newly collected hospital acquisition-cost survey data showing substantial disparities in acquisition costs for 340B drugs, providing what it views as the statutory basis for acquisition-cost-based reimbursement.

If finalized, the changes would substantially reduce the financial margins hospitals receive from administering 340B drugs, while redistributing savings across other outpatient services. This could reduce incentives for hospitals to acquire physician practices and further promote site-neutral payments across care settings—priorities LUGPA has long advocated.

The rule also advances broader goals of expanding access to lower-cost settings, such as ASCs, and addressing site-of-service payment disparities.

LUGPA Perspective

LUGPA sees these proposals as a positive step toward site neutrality. CMS’s expansion of site-neutral payments to additional imaging services and completion of the IPO list phase-out demonstrate clear intent to reduce payment disparities between hospital outpatient departments and independent practices/ASCs. Though only proposed at this stage, the rule aligns with LUGPA’s longstanding advocacy for fairer competition and more efficient care delivery.

How It Could Affect LUGPA Members

For independent urology practices, the proposal could:

• Reduce financial incentives for hospital acquisition strategies tied to 340B drug margins.
• Advance CMS’s movement toward site-neutral payment policies, supporting fairer competition between independent physician offices and hospital outpatient departments.
• Help narrow reimbursement disparities between independent practices and HOPDs.
• Expand opportunities for urologic procedures to be performed safely and efficiently in ASCs through IPO list elimination and ASC list updates.

Hospitals and 340B stakeholders are expected to mount strong opposition, so the final rule remains uncertain. Exemptions for certain rural and specialized hospitals may limit the scope for some facilities.

LUGPA Takeaway

The proposed rule aligns closely with LUGPA’s longstanding advocacy priorities: promoting site-neutral payments, curbing hospital consolidation incentives, and supporting independent physician practices and ASCs as high-quality, lower-cost care settings.

LUGPA will thoroughly review the proposed rule, submit formal comments to CMS during the public comment period, and continue advocating to ensure the interests of independent urology practices and their patients are protected in the final rule.

The proposed rule can be found at this link. The CMS press release is posted here, and a fact sheet can be found here.