CMS Issues Sweeping CY 2027 Hospital OPPS/ASC Final Rule

The CY 2027 OPPS/ASC Final Rule shows CMS continuing to use annual payment rulemaking to advance broader Medicare policy objectives. Although CMS finalized a 2.3 percent increase in OPPS and ASC payment rates, for many providers that increase is offset by lower reimbursement for certain outpatient drugs, expanded site-neutral payment and accelerated recovery of prior budget neutrality adjustments. The rule's financial impact will therefore vary considerably by provider type, service mix, participation in the 340B Drug Pricing Program and outpatient utilization.

CMS will replace the long-standing Medicare payment methodology for most 340B-acquired drugs with an acquisition cost-based approach, paying such drugs at average sales price (ASP) minus 28 percent – rather than the proposed ASP minus 33.4 percent – based on its recent drug acquisition cost survey, while continuing to pay non-340B drugs at ASP plus 6 percent. CMS also increased the annual OPPS conversion factor reduction tied to the 340B remedy from 0.5 percent to 2 percent, significantly accelerating recovery of prior budget neutrality payments. Together, these are the most significant changes to Medicare outpatient drug reimbursement since 2022.

The final rule also continues CMS' long-standing movement toward site-neutral payment by expanding Physician Fee Schedule (PFS)-equivalent payment rates to additional imaging services furnished in off-campus PBDs and by continuing the multiyear elimination of the IPO List. CMS further expanded the ASC Covered Procedures List (CPL), revised device and drug pass-through payment policies, maintained current payment methodologies for Partial Hospitalization Programs (PHP) and Intensive Outpatient Programs (IOP) and established new payment policies for Software as a Medical Service (SaMS).

Finally, CMS finalized several operational and compliance changes affecting hospitals, including expansion of the Medicare Hospital Outpatient Department (HOPD) Prior Authorization Program, new PBD attestation requirements, integration of certain Emergency Medical Treatment and Labor Act (EMTALA) administrative reviews into accreditation surveys, and requests for information (RFIs) regarding hospital price transparency and domestic procurement of personal protective equipment (PPE) and essential medicines. Collectively, these policies illustrate CMS' continued focus on balancing payment modernization with program integrity, transparency and value-based purchasing objectives.

Key Takeaways

• CMS finalized a 2.3 percent increase in OPPS payment rates for CY 2027. ASC payment rates would also increase 2.3 percent for facilities meeting quality reporting requirements.
• CMS finalized reducing Medicare payment for 340B-acquired drugs from ASP plus 6 percent to ASP minus 28 percent, while continuing payment at ASP plus 6 percent for non-340B drugs.
• CMS increased the annual 340B remedy budget neutrality adjustment from 0.5 percent to 2 percent, accelerating recoupment by approximately CY 2031.
• CMS removed 637 additional procedures from the IPO List as part of the second phase of its three-year elimination strategy.
• CMS added 618 procedures removed from the IPO list to the ASC CPL.
• Site-neutral payment policies expand to include certain imaging services without contrast furnished in off-campus PBDs.
• Nine devices received new pass-through payment status, while CMS added exceptions to its proposal to eliminate the alternative pathway for future device pass-through applications.
• Pass-through payment status for 49 drugs, biologicals and radiopharmaceuticals expires on December 31, 2026, and continues through CY 2027 for 60 others.
• As a first step in developing a comprehensive payment methodology for SaMS technologies, CMS will assign SaMS technologies to new technology Ambulatory Payment Classifications (APCs).
• CMS finalized the continuation of temporary, separate payment for qualifying non-opioid pain relief treatments during the final year of the statutory authority.
• Eight additional botulinum toxin injection procedures are subject to prior authorization for dates of service beginning on or after July 1, 2027.
• Accrediting Organizations (AOs) will incorporate review of certain EMTALA administrative requirements into routine accreditation surveys.
• CMS did not finalize any new policies in response to RFIs regarding hospital price transparency and potential payment incentives supporting domestically manufactured PPE and essential medicines but may consider comments received in future rulemaking.

Overview of the Final Rule

Throughout the final rule, CMS emphasizes three overarching objectives, including:

• aligning Medicare payment more closely with provider acquisition costs
• reducing incentives that encourage furnishing services in higher-cost settings
• strengthening utilization management and program integrity

Many of these policies build on CY 2025 and CY 2026 rulemaking, signaling a multiyear agenda. Stakeholders should evaluate both their immediate financial impact and what they suggest about the future direction of outpatient payment policy.

Final Payment Updates

OPPS Payment Update

CMS finalized a 2.3 percent increase in OPPS payment rates for CY 2027. The update reflects a 3.2 percent hospital market basket increase, reduced by a 0.9-percentage-point productivity adjustment as required under current law. CMS estimates that total OPPS payments – including beneficiary cost sharing and estimated changes in enrollment, utilization, and case mix – will reach approximately $114.4 billion in CY 2027, representing an increase of approximately $11 billion compared to estimated CY 2026 payments.

Hospitals that fail to satisfy Hospital Outpatient Quality Reporting Program (Hospital OQR) requirements will continue to receive a two-percentage-point reduction in the annual payment update by applying a reporting factor of 0.9804. CMS also finalized a two-percentage-point 340B remedy offset for affected providers, discussed later in this alert, which CMS estimates will reduce OPPS payments by approximately $1.6 billion in CY 2027 and further reduce payments for many hospitals beyond the standard annual update.

CMS estimates that the combined impact of the finalized policies would result in an overall 1.7 percent increase in OPPS payments across providers. However, aggregate estimates mask significant variation among hospitals. For example, CMS estimates a 2.7 percent decrease for major teaching hospitals and a 4.2 percent decrease for hospitals with a disproportionate share patient percentage above 35 percent, compared to a 7.7 percent increase for rural sole community hospitals. Facilities participating in the 340B program, organizations with substantial outpatient pharmacy utilization and providers affected by expanded site-neutral payment policies may experience payment changes that differ substantially from the national average.

Because of the revised 340B methodology, accelerated 340B remedy offset and expanded site-neutral policies, many providers may offset or exceed the benefit of the annual update. Hospitals should assess the rule's cumulative impact across all outpatient service lines rather than focusing only on the conversion factor increase.

ASC Payment Update

CMS finalized its proposal to continue using the hospital market basket as the annual update factor for the ASC payment system for one additional year, through CY 2027. Accordingly, ASCs that meet the requirements of the ASC Quality Reporting (ASCQR) Program will receive a 2.3 percent payment update for CY 2027, and facilities that fail to satisfy quality reporting requirements will receive a two-percentage-point reduction.

CMS otherwise maintained the existing ASC rate setting methodology and payment policies; conversion factors and estimated spending are discussed in the ASC Payment System section below.

Wage Index and Conversion Factor

CMS finalized adopting the FY 2027 Inpatient Prospective Payment System (IPPS) post-reclassified wage index for OPPS payment, while maintaining long-standing policies governing the labor-related share, the 5 percent cap on annual wage index decreases, the frontier state floor and low-wage index transitional policy.

CMS finalized a CY 2027 OPPS conversion factor of $99.970, reflecting the annual payment update together with multiple budget neutrality adjustments, including:

• wage index adjustments
• cancer hospital payment adjustment
• Alaska and Hawaii cost-of-living adjustment
• outlier adjustments
• transitional pass-through adjustments
• the final 340B drug payment budget neutrality adjustment

Hospitals failing OQR requirements will receive a reduced conversion factor of $98.011 through application of the reporting ratio.

Hospital Outlier Payments

CMS finalized maintaining its policy of targeting 1 percent of total OPPS payments for outlier payments. To achieve this target, CMS increased the fixed-dollar threshold from $6,225 to $7,150 (proposed at $7,100) while maintaining the existing 1.75 multiple-threshold methodology. For community mental health centers furnishing PHP and IOP services, CMS made no substantive changes to existing outlier payment policies.

Rural Sole Community Hospitals (SCHs) and Cancer Hospitals

CMS finalized continuing several long-standing payment adjustments designed to support providers serving vulnerable populations.

Specifically, CMS will:

• continue the 7.1 percent payment adjustment for Rural SCHs
• maintain the existing payment adjustment methodology for the 11 PPS-exempt cancer hospitals, targeting a payment-to-cost ratio (PCR) of 0.88 for CY 2027 – the weighted average PCR of other OPPS hospitals (0.89) minus the statutory one-point reduction; hospital-specific adjustments range from 5.3 percent to 52.9 percent, finalized at cost report settlement; transitional outpatient payments continue to be applied last
• continue existing rural protections applicable to certain off-campus PBDs

OPPS APC Policies

CMS finalized numerous technical updates to the OPPS APC system that collectively affect payment rates, coding assignments and reimbursement for outpatient services. Though many of these policies are routine annual maintenance updates, several include meaningful revisions affecting specific technologies and procedures.

Quarterly Healthcare Common Procedure Coding System (HCPCS) Updates

CMS continued its long-standing quarterly HCPCS update process. The CY 2027 final rule includes final APC assignments for:

• April 2026 HCPCS updates
• July 2026 HCPCS updates
• January 2027 current procedural terminology (CPT) codes received in time for publication

October 2026 HCPCS updates and new January 2027 Level II HCPCS codes receive interim assignments in the final rule, which are subject to comment and will be finalized in the CY 2028 OPPS/ASC final rule.

2-Times Rule Exceptions

Under Section 1833(t) of the Social Security Act (SSA), CMS annually evaluates compliance with the "two-times rule," which generally requires that services assigned to the same APC exhibit comparable resource costs. Using updated CY 2025 claims data, CMS identified 28 APCs exceeding the statutory threshold – 24 identified in the proposed rule and four newly identified. Rather than reassign services, CMS finalized exceptions for all 28 APCs, concluding that existing clinical and resource similarities justify maintaining current assignments.

New Technology APCs

CMS finalized several notable changes affecting New Technology APCs. Among the most significant are:

• updated payment assignments for several emerging technologies, including liver histotripsy, renal histotripsy, systems to bypass blocked arteries in the lower body and non-invasive transcranial magnetic stimulation treatment code.
• graduation of cardiac Positron Emission Tomography (PET)/Computed Tomography (CT) procedures into standard clinical APCs
• consolidation of sacroiliac joint fusion coding
• continued interim payment methodology for SaMS technologies

CMS also finalized a new payment status indicator (O1) for SaMS, reflecting the agency's recognition that software-based technologies require a distinct payment framework while permanent reimbursement methodologies continue to evolve.

Universal Low Volume APC Policy

CMS finalized continuing its Universal Low Volume APC policy for clinical and brachytherapy APCs with fewer than 100 single claims. Nine APCs qualify for the policy during CY 2027, including five brachytherapy APCs and four clinical APCs. CMS continued using modified rate-setting methodologies designed to improve payment stability where claims volume remains insufficient to support standard APC calculations.

APC-Specific Payment Changes

CMS finalized numerous APC-specific coding and payment revisions, including changes affecting:

• nuclear medicine imaging
• breast and lymphatic surgery
• hypoglossal nerve stimulation
• permanent prostatic urethral stents
• sacral neuromodulation
• drug-eluting coronary stents
• cardiac contractility modulation
• endovascular revascularization procedures

Although these revisions affect relatively narrow categories of services, APC-specific reassignment can significantly influence reimbursement for providers specializing in these procedures. Hospitals, physician groups and manufacturers should carefully review whether final APC assignments appropriately reflect current clinical practice and associated resource costs.

Device Pass-Through Payment Policies

One of the more significant technology-related policies involves CMS' continued refinement of transitional device pass-through payment. CMS addressed 13 complete applications for CY 2027 (after withdrawing six of the 19 applications received) and approved nine devices for pass-through status. CMS finalized all seven devices preliminarily approved during the quarterly review process and approved two additional applications. CMS denied four applications because the technologies did not satisfy the newness, device category eligibility or substantial clinical improvement criteria.

Perhaps more significant, CMS finalized in the FY 2027 IPPS/LTCH PPS final rule, with modification, the elimination of the Alternative Pathway for device pass-through applications received on or after October 1, 2026. Unless specifically exempted, future applicants must demonstrate substantial clinical improvement under the traditional statutory framework. Applications submitted by September 30, 2026, may still be evaluated under the Alternative Pathway, and CMS adopted a limited exception for devices that received FDA Breakthrough Device designation by September 30, 2026, and marketing authorization for the covered indication; such devices may continue to apply under the Alternative Pathway for CY 2028 and CY 2029 if CMS receives a complete application by March 1, 2028.

This policy could substantially affect manufacturers introducing innovative technologies into the Medicare market. The Alternative Pathway has provided a more predictable route to temporary pass-through payment for certain breakthrough devices. Although the limited exception eases the transition, eliminating that pathway may make it considerably more difficult for emerging technologies to obtain transitional reimbursement, potentially increasing the importance of robust clinical evidence demonstrating meaningful improvements over existing standards of care.

Drugs, Biologicals, Radiopharmaceuticals and Device Payment Policies

The CY 2027 Final Rule includes numerous updates to OPPS payment for drugs, biologicals, radiopharmaceuticals and medical devices. Alongside routine pass-through and packaging updates, CMS finalized the most significant restructuring of Medicare outpatient drug reimbursement in recent years by revising payment for drugs acquired through the 340B Program, with substantial implications for hospitals, manufacturers, specialty pharmacies and other stakeholders.

Drug and Biological Pass-Through Payment Policies

CMS finalized continuing its long-standing methodology governing transitional pass-through payment for drugs, biologicals and radiopharmaceuticals.

For CY 2027, CMS finalized:

• expiration of pass-through status for 49 drugs and biologicals by December 31, 2026
• termination of pass-through status during CY 2027 for 28 additional products whose three-year eligibility period expires
• continuation of pass-through status for 60 drugs and biologicals through CY 2027, including 15 products approved since the proposed rule

Products whose pass-through status expires will continue to receive either packaged payment or separate payment, depending upon whether their estimated daily cost exceeds the applicable packaging threshold. CMS will continue paying separately payable pass-through drugs using the statutory ASP methodology – generally ASP plus 6 percent.

CMS also estimates total pass-through spending for CY 2027 at approximately $260.4 million (up from $195.3 million in the proposed rule), representing only 0.23 percent of projected OPPS spending and therefore well below the statutory 2 percent limitation requiring prospective reductions.

Packaging Policies for Non-Pass-Through Drugs and Biologicals

CMS finalized maintaining its long-standing packaging methodology for non-pass-through drugs, biologicals and radiopharmaceuticals.

For CY 2027, CMS finalized a:

• $135 packaging threshold for drugs, biologicals and therapeutic radiopharmaceuticals
• $635 packaging threshold for diagnostic radiopharmaceuticals

Products falling below the applicable threshold generally would be packaged into the payment for the associated outpatient procedure, and products exceeding those thresholds would continue receiving separate payment unless otherwise packaged by policy.

CMS also finalized continuing existing policies that package certain categories of products regardless of cost, including anesthesia drugs and drugs functioning as surgical or diagnostic supplies. Separately payable non-pass-through drugs will generally continue receiving payment at ASP plus 6 percent, subject to 340B-acquired drug cuts as discussed below, with existing wholesale acquisition cost (WAC)- and average wholesale price (AWP)-based methodologies remaining available where ASP information is unavailable.

Payment Methodology for Separately Payable Diagnostic Radiopharmaceuticals

CMS finalized its proposal to continue using mean unit cost (MUC) as the basis for paying separately for diagnostic radiopharmaceuticals with per-day costs above the packaging threshold (finalized at $635 for CY 2027). CMS notes that the MUC, derived from 2025 hospital claims data, reflects the actual average cost reported by hospitals and is considered a more accurate proxy for real-world pricing than alternatives such as WAC or AWP.

Though MUC will remain the primary payment basis for CY 2027, CMS encourages manufacturers to voluntarily report ASP for their diagnostic radiopharmaceuticals. CMS notes that ASP reporting is not mandatory under OPPS but states there could be "potential value in the use of ASP data for payment purposes for diagnostic radiopharmaceuticals when reported correctly and by all manufacturers." CMS will also publish an ASP reporting Framework for Diagnostic Radiopharmaceuticals on the Medicare Hospital Outpatient PPS website.

CMS also finalized the payment rate for new diagnostic radiopharmaceuticals that exceed the packaging threshold for diagnostic radiopharmaceuticals – and do not have pass-through status, and are without claims data – at ASP plus 6 percent until MUC is available. If ASP is unavailable, CMS will pay WAC plus 3 percent during the initial sales period (and WAC plus 6 percent thereafter), or 95 percent of AWP if WAC is also unavailable.

Payment for Skin Substitute Products

CMS finalized no substantive changes to the payment methodology for sheet-form skin substitute products for CY 2027, opting instead to maintain the payment framework finalized in the CY 2026 OPPS/ASC Final Rule while additional utilization and claims data become available.

Beginning January 1, 2026, CMS implemented a significant restructuring of payment for skin substitute products by separately paying these products as incident-to supplies across physician offices, HOPDs and ASCs. CMS also established three payment categories based on weighted average per-unit acquisition costs derived from ASP, MUC, WAC or AWP, depending on data availability.

In the CY 2027 Final Rule, CMS reiterated that it does not yet have sufficient claims experience reflecting the CY 2026 payment reforms to appropriately recalibrate the payment rates for the three skin substitute APCs. CMS explains that CY 2026 claims will form the basis for future rulemaking and that revising payment rates before those data are available could introduce unnecessary payment volatility and disrupt beneficiary access.

Accordingly, CMS finalized maintaining the existing payment methodology and APC payment rate of $127.14 per square centimeter for all sheet-form skin substitute products for CY 2027, despite commenter requests for rates between $478 and $715.45 per square centimeter. In response to comments, CMS also finalized separate payment for applying non-sheet form skin substitutes by assigning HCPCS codes G0681 and G0683 to APCs 5053 and 5054, respectively, while continuing to package the non-sheet products themselves. CMS indicates it expects to revisit payment rates during CY 2028 rulemaking after more complete claims data become available.

Medicare Outpatient Drug Acquisition Cost Survey

The foundation of CMS' 340B payment reform is an acquisition cost survey conducted pursuant to Section 1833(t)(14)(D)(ii) of the SSA.

From January 1 through April 7, 2026, CMS surveyed OPPS hospitals regarding acquisition costs for separately payable outpatient drugs purchased between July 1, 2024, and June 30, 2025. The survey requested National Drug Code (NDC)-level acquisition cost information for drugs purchased through both the 340B program and traditional purchasing channels.

Approximately 43.6 percent of the 4,494 survey-eligible hospitals responded, and approximately 29.8 percent submitted usable acquisition cost information. After refining the population to 3,147 hospitals with relevant outpatient drug volume, CMS calculated a 41.4 percent reporting rate (53.3 percent of non-340B hospitals and 28.6 percent of 340B hospitals). CMS notes that many hospitals declined participation through coordinated form-letter responses objecting to the survey itself.

Among hospitals providing usable data, CMS found:

• hospitals acquired non-340B drugs at approximately 2.7 to 2.8 percent above ASP
• hospitals acquired 340B drugs at approximately 33.4 percent below ASP, while 340B ceiling prices were, in aggregate, approximately 28 percent below ASP

CMS concluded these findings provide sufficient evidence to establish acquisition cost-based reimbursement under the authority provided by Section 1833(t)(14)(D)(ii) of the SSA.

The acquisition cost survey represents the legal and policy foundation for CMS' 340B payment methodology. Although CMS concluded that the survey satisfies the statutory "large sample" requirement, questions regarding survey response rates, representativeness, hospital purchasing variation and statutory authority are likely to continue to receive significant attention from hospitals, manufacturers and congressional stakeholders.

Payment for 340B-Acquired Drugs

The most consequential policy in the CY 2027 Final Rule is CMS' revision of Medicare reimbursement for drugs acquired through the 340B Drug Pricing Program.

Currently, separately payable outpatient drugs generally receive payment at ASP plus 6 percent, regardless of whether they are acquired through the 340B program.

Beginning January 1, 2027, CMS finalized:

• paying 340B-acquired drugs at ASP minus 28 percent (rather than the proposed ASP minus 33.4 percent), based on 340B ceiling price data and informed by the survey results
• continuing payment for non-340B drugs at ASP plus 6 percent
• requiring all separately payable drugs to be identified through new billing modifiers

In adopting the slightly smaller cut, CMS cited "commenters' concerns that a payment rate of ASP minus 33.4 percent would result in too significant of a payment reduction and would inhibit beneficiary access to these drugs." CMS estimates this policy will reduce OPPS payments for 340B-acquired drugs by approximately $4.65 billion in CY 2027, redistributed in a budget-neutral manner through an approximately 7.5 percent increase in payment for non-drug items and services. CMS also estimates that beneficiary copayments for drugs will decline by approximately $1.1 billion.

CMS finalized exemptions for rural sole community hospitals (SCHs), children's hospitals and prospective payment system (PPS)-exempt cancer hospitals, as well as for vaccines, drugs with transitional pass-through payment status and non-opioid pain management drugs. Exempt providers will continue receiving payment generally equal to ASP plus 6 percent. Responding to a comment about competition with pass-through products, CMS did not propose a specific policy solution but did "remind readers that dispensing or furnishing drugs solely to take advantage of differences in reimbursement structures, rather than based on the patient's medical needs, may raise concerns under applicable federal fraud and abuse laws. Such conduct may also implicate section 1156(a)(1) of the SSA, which states that items and services provided by a hospital for which payment may be sought under Medicare "will be provided economically and only when, and to the extent, medically necessary."

CMS also finalized applying the policy to 340B-acquired drugs furnished in nonexcepted off-campus PBDs, maintaining that leaving those departments unadjusted would create a site-of-care payment incongruity and could produce "significant perverse incentives" to acquire drugs under the 340B Program and furnish them there.

CMS stated that the ASP minus 28 percent rate, calculated from ceiling prices weighted by OPPS data, could be updated regularly (perhaps annually), presumably without a new survey each year. CMS also stated that the statute requires it only to "take into account" the hospital acquisition cost survey data. It does not require the Secretary to apply the actual data from the survey to set payment rates.

Finally, in maintaining ASP plus 6 percent payment for non-340B drugs, CMS stated that non-340B acquisition costs were more heterogeneous and the gap from payment less clear than for 340B drugs. CMS continues to analyze survey data against claims billing patterns, assess nonrespondent billing patterns and consider how group purchasing organization (GPO) discounts could factor into future rulemaking.

Billing Modifier Changes

To operationalize the new reimbursement methodology, CMS finalized revised outpatient billing requirements.

Beginning January 1, 2027:

• Modifier JG will identify 340B-acquired drugs subject to the payment reduction.
• Modifier TB will identify exempt 340B drugs that continue receiving ASP plus 6 percent payment.
• A new modifier, "ND," will identify all separately payable non-340B drugs.

Under the final rule, every separately payable outpatient drug claim will require one of these three modifiers, including claims from excepted and nonexcepted off-campus PBDs. CMS declined commenter requests to delay implementation, noting that providers have 12 months after the date of service to file claims.

Relationship to the Medicare Part B Inflation Rebate Program

CMS also finalized conforming revisions to regulations governing the Medicare Part B Inflation Rebate Program to reflect the 340B payment methodology. CMS amended the regulatory text so that billing units reported with the "TB" modifier or successor 340B modifiers are excluded from rebate calculations. Manufacturers should review these revisions carefully to evaluate any downstream implications for rebate calculations or reporting requirements.

Accelerated Recovery of the 340B Remedy

Separate from the reduction in payment for 340B-acquired drugs, CMS also finalized significantly accelerating recovery of the budget neutrality adjustment associated with recent U.S. Supreme Court decisions related to the 340B program.

Following the Court's decision, CMS issued the CY 2024 Remedy Rule providing lump-sum payments to affected hospitals while implementing a 0.5 percent annual reduction to the OPPS conversion factor beginning in CY 2026 to preserve statutory budget neutrality.

CMS finalized increasing that reduction from 0.5 percent to 2 percent annually beginning January 1, 2027, rather than the proposed 3 percent, in recognition of hospitals' concerns.

Under the final policy:

• The adjustment applies only to hospitals enrolled before January 1, 2018.
• Recovery will continue until approximately $7.8 billion has been recouped.
• CMS estimates repayment will conclude in CY 2031 rather than extending to approximately CY 2041 under the prior methodology.

CMS explains that the accelerated recovery better aligns repayment with the period when the original payment policy remained in effect and shortens the duration of annual budget neutrality adjustments.

Hospital Outpatient Services and Other OPPS Payment Policies

In the CY 2027 OPPS/ASC final rule, CMS finalized several modifications affecting hospital outpatient payment policy, including payment for clinic visits and critical care services, PHPs, IOPs, the continued elimination of the IPO List, expansion of site-neutral payment policies and establishment of a new payment framework for SaMS. Though many of these policies build upon policies finalized in prior rulemaking cycles, together they continue CMS' broader effort to modernize outpatient payment and encourage care in lower-cost settings when clinically appropriate.

OPPS Payment for Hospital Outpatient Visits and Critical Care Services

CMS finalized its proposal to maintain its existing payment policies for outpatient clinic visits, emergency department visits and critical care services.

Specifically, CMS will continue to:

• pay HCPCS code G0463 furnished by excepted off-campus PBDs at 40 percent of the OPPS payment rate
• maintain current payment policies for emergency department visits and critical care services
• exempt off-campus PBDs operated by Rural SCHs from the reduced payment policy

Continued Elimination of the IPO List

CMS continues its three-year strategy to eliminate the Medicare IPO List, which historically identified procedures Medicare would cover only in the inpatient setting because of clinical complexity, anticipated length of stay or patient safety considerations.

Beginning with CY 2026, CMS initiated a phased elimination of the IPO List after concluding that advances in surgical technology, anesthesia, perioperative care and postoperative recovery have substantially expanded the range of procedures that may be safely performed on an outpatient basis.

During CY 2026, CMS removed 285 procedures from the IPO List.

For CY 2027, CMS finalized its proposal to remove an additional 637 procedures, representing approximately one-half of the 1,438 procedures remaining on the list, as the second phase of the IPO List elimination. Finalized removals include procedures involving:

• auditory system
• digestive system
• endocrine system
• female genital system
• hemic and lymphatic system
• integumentary system
• male genital system
• maternity care and delivery
• mediastinum and diaphragm
• respiratory system
• urinary system

CMS explains that these clinical families were selected because they most readily align with existing APC payment methodologies. The remaining neurologic, cardiovascular and transplant procedures are expected to be removed during the third and final phase of IPO elimination in CY 2028. Although the removals were finalized as proposed, CMS reassigned certain removed procedures to higher APCs in response to comments. For example, necrotizing soft tissue debridement codes moved from APC 5053 to APC 5054, and lung resection codes moved from APC 5182 to APCs 5183 and 5184. CMS declined, however, to establish additional APC levels for CY 2027 to accommodate the significant volume of procedures newly eligible for OPPS payment, stating it will instead monitor claims data and consider further APC restructuring, including the possible creation of new or comprehensive APCs for removed services, in future rulemaking.

CMS also declined several other commenter requests related to the elimination timeline and process, including:

• CMS declined to remove additional procedures ahead of schedule, deferring those requests to future rulemaking cycles.
• CMS declined to reinstate its prior removal criteria or adopt alternative review methods for identifying which procedures are ready for outpatient migration, emphasizing that physician judgment and existing clinical safeguards are sufficient.
• CMS declined requests to remove additional cardiovascular codes ahead of the planned CY 2028 phase three.
• CMS clarified that certain codes excluded from the CY 2027 removals are being deleted outright by the AMA, rather than retained on the IPO List.

Importantly, CMS reiterated that IPO removal does not require that a procedure actually be performed in the outpatient setting; physicians retain discretion to use clinical judgment in determining the appropriate site of service. CMS also reaffirmed existing beneficiary and provider protections tied to IPO removal:

• Procedures removed from the IPO List on or after January 1, 2021 remain exempt from two-midnight site-of-service claim denials and Recovery Audit Contractor (RAC) review until outpatient utilization for that procedure exceeds 50 percent in a single calendar year.
• Medicare Advantage plans must continue to comply with the two-midnight benchmark and may not require outpatient care solely on the basis that a procedure has been removed from the IPO List. CMS noted it may issue additional guidance to Medicare Advantage plans on this point in the future.

The continued elimination of the IPO List represents one of CMS' most significant structural reforms to outpatient payment policy. Hospitals should evaluate not only the reimbursement implications of these changes but also potential impacts on surgical scheduling, physician practice patterns, care coordination, staffing and outpatient capacity. Manufacturers of technologies used in affected procedures should similarly assess how expanded outpatient coverage may influence utilization and market access.

Expansion of Site-Neutral Payment Policies

CMS finalized without modification its proposal to further expand site-neutral payment by applying PFS-equivalent payment rates (40 percent of the OPPS rate) to certain imaging services furnished in excepted off-campus PBDs, implemented in a non-budget neutral manner and without a phase-in.

Building upon the CY 2019 policy applicable to clinic visits and the CY 2026 expansion affecting drug administration services, CMS now extends the policy to imaging services without contrast for CY 2027 and subsequent years.

Specifically, CMS will apply PFS-equivalent payment rates to:

• APCs 5521-5524 (Imaging Without Contrast)
• APC 8004 (Ultrasound Composite)
• APC 8005 (CT/CTA Without Contrast Composite)
• APC 8007 (MRI/MRA Without Contrast Composite)

CMS estimates these changes will reduce Medicare spending by approximately $190 million while decreasing beneficiary cost sharing by approximately $70 million, producing approximately $260 million in combined savings during CY 2027. CMS finalized its proposal to exempt rural SCHs, which will continue to receive the full OPPS rate for these services.

CMS declined several commenter requests to narrow the policy's scope, including requests for a phase-in period, service-specific exemptions – such as for preventive, screening and oncology-related imaging – and additional provider-type exemptions beyond rural SCHs.

This policy continues one of CMS' longest-running payment reform initiatives, and CMS appears to be building a framework it can extend to additional service categories; it noted it may consider the Medicare Payment Advisory Commission's recommendation to extend site-neutral payment to on-campus departments. Hospitals should view the imaging policy as another step toward broader site-neutral reimbursement, not an isolated adjustment.

SaMS

Recognizing the rapid evolution of software-enabled clinical technologies, CMS largely finalized its proposed policies to advance these services. First, the agency renames "Software as a Service (SaaS)" to SaMS to better distinguish healthcare software from traditional information technology services.

While still working on a broader payment policy, CMS finalized policies to:

• designate 36 HCPCS codes as SaMS technologies (see Table 83 of the final rule)
• reassign certain services into New Technology APCs
• create the O1 new payment status indicator
• continue separate APC payment while CMS develops a permanent reimbursement methodology

In response to comments, CMS declined to expand the scope of the new policy to include non-device clinical decision support at this time but will consider expanding and further clarifying the scope of the SaMS policy for future rulemaking.

CMS modified its proposal to reassign certain codes currently paid under the Clinical Laboratory Fee Schedule into the OPPS because the associated technologies more closely resemble software-based clinical services than traditional laboratory testing. Instead of 10 HCPCS codes, CMS will assign 14 SaMS analyses performed on laboratory tests to new technology APCs.

Cost-of-Living Adjustment for Alaska and Hawaii

CMS finalized applying a cost-of-living adjustment (COLA) to the non-labor share of OPPS payments for hospitals in Alaska and Hawaii for CY 2027 and future years.

The final policy will:

• adopt the COLA factors finalized in the FY 2027 IPPS/LTCH PPS final rule
• utilize U.S. Department of War (DOW) Overseas Cost-of-Living Allowance (OCOLA) data
• remove the existing 25 percent payment cap
• maintain budget neutrality

CMS clarified that the COLA applies to the non-labor portion of wage-adjusted payments and to the full payment amount for services without a wage-adjustable portion, such as separately payable drugs.

Cardiac Rehabilitation, Intensive Cardiac Rehabilitation and Pulmonary Rehabilitation Furnished in the Home

CMS also incorporated statutory changes enacted under the Consolidated Appropriations Act (CAA) of 2026, permitting cardiac rehabilitation, intensive cardiac rehabilitation and pulmonary rehabilitation services to be furnished to eligible hospital outpatients in their homes using real-time audio and video technology through December 31, 2027. The agency made these changes through subregulatory guidance and may consider changes to payment rates and supervision in future rulemaking.

ASC Payment System

Consistent with its broader efforts to encourage care in lower-cost settings, CMS finalized several updates to the ASC payment system for CY 2027. Though the agency adopted relatively few methodological changes to ASC payment, the continued expansion of the ASC CPL, coupled with the phased elimination of the IPO List, represents another significant step toward increasing the volume and complexity of services furnished in the ASC setting. CMS also maintained existing payment methodologies for non-opioid pain treatments and quality reporting while incorporating several technical payment updates.

ASC Payment Methodology

CMS finalized its proposal to maintain its existing ASC ratesetting methodology for CY 2027, including continued use of the OPPS relative payment weights and extension of the hospital market basket update as the ASC annual update factor through CY 2027. CMS also declined to begin scaling the device portions of device-intensive procedures through the ASC weight scalar, an alternative on which it had sought comment.

For CY 2027, CMS finalized:

• a 2.3 percent payment update for ASCs meeting ASCQR Program requirements, 3.2 percent market basket reduced by a 0.9-percentage-point productivity adjustment, down from the proposed 2.4 percent
• continued use of OPPS relative payment weights adjusted through the ASC weight scalar
• a CY 2027 weight scalar of 0.814 (proposed 0.809), compared to 0.872 for CY 2026
• ASC conversion factors of $57.721 for ASCQR Program-compliant facilities (proposed $57.766) and $56.592 for facilities failing ASCQR Program requirements (proposed $56.638)

CMS estimates total Medicare ASC payments of approximately $9.9 billion for CY 2027, an increase of approximately $560 million (proposed $520 million).

Expansion of the ASC CPL

CMS finalized another substantial expansion of the ASC CPL. Building upon the continued phase-out of the IPO List, CMS finalized adding the 618 procedures removed from the IPO List for CY 2027. In response to comments, CMS also added CPT code 64629 (thermal destruction of the intraosseous basivertebral nerve, each additional vertebral body) and removed CPT code 0967T from the ASC CPL because the associated technology lacks FDA approval.

CMS evaluated these procedures using its existing criteria, including whether the procedures:

• are not expected to pose a significant safety risk when performed in an ASC
• do not generally require active medical monitoring or overnight hospitalization
• are consistent with the capabilities of Medicare-certified ASCs

CMS notes that many of the additions correspond to procedures removed from the IPO List and therefore reflect the agency's broader effort to transition clinically appropriate services into outpatient settings. CMS rejected commenter requests to delay the additions or reinstate the prior exclusion criteria, which remain non-binding physician considerations.

Covered Ancillary Services

CMS also discusses covered ancillary services eligible for separate ASC payment.

Consistent with policies finalized during CY 2026 rulemaking, groups of skin substitute products remain within the regulatory definition of covered ancillary items and services furnished in ASCs. In the final rule, CMS added HCPCS codes G0681 and G0683 to the ASC CPL with separate payment and added six procedures to the covered ancillary services list (CPT codes 1086T and 93313 through 93317).

Non-Opioid Pain Relief Treatments

Section 4135 of the 2023 CAA established temporary, separate Medicare payment for certain non-opioid pain relief treatments furnished in HOPDs and ASCs from January 1, 2025, through December 31, 2027. For CY 2027, CMS finalized its proposal to maintain the payment methodology finalized during CY 2026.

Specifically, CMS finalized:

• separate payment for seven qualifying drugs
• separate payment for 13 qualifying medical devices
• continued use of a zero-dollar offset, allowing full separate payment
• continued application of the statutory payment limitation equal to 18 percent of the HOPD fee schedule amount for the associated procedure

No commenters requested separate payment for a new non-opioid product. The final payment limitation amounts are published in a public use file based on final rule payment rates and utilization data, so they may differ slightly from the proposed amounts. CMS notes that CY 2027 represents the final year of the temporary statutory authority and that only Congress can extend the program.

Quality Reporting Programs

CMS finalized relatively limited changes to the Hospital OQR Program and ASCQR Program and made no updates to the Rural Emergency Hospital (REH) Quality Reporting Program.

Hospital OQR Program

CMS finalized no changes to the Hospital OQR Program measure set beyond removing one measure, along with updates to its data validation procedures.

The agency finalized:

• removing the Appropriate Follow-Up Interval for Normal Colonoscopy in Average Risk Patients measure beginning with the CY 2027 reporting period and CY 2029 payment determination
• retaining the Facility Seven-Day Risk-Standardized Hospital Visit Rate After Outpatient Colonoscopy measure
• considering comments received through a request for information on future adoption of an Advance Care Planning Electronic Quality Measure (eCQM).
• incorporating eCQM validation into the existing Hospital OQR validation process beginning with CY 2027 eCQM data affecting the CY 2030 payment determination

CMS also finalized a CY 2027 reporting ratio of 0.9804, which continues to determine payment reductions for hospitals failing OQR requirements.

REH Quality Reporting Program

CMS made no changes to the REH Quality Reporting Program for CY 2027.

ASCQR Program

Consistent with the removal from the Hospital OQR, CMS finalized removing the Appropriate Follow-Up Interval for Normal Colonoscopy in Average Risk Patients measure from the ASCQR Program beginning with the CY 2027 reporting period/CY 2029 payment determination. The agency also solicited comments on stratifying the All-Cause Hospital Transfer/Admission measure by phase of care (e.g., pre-procedure, intra-procedure or post-procedure) and will consider them in future rulemaking.

Utilization Management

Consistent with the Trump Administration's emphasis on program integrity and appropriate utilization, CMS expands its HOPD Prior Authorization Program.

Expansion of Prior Authorization Requirements to Additional Botulinum Toxin Injection Procedures

CMS finalized its proposal to add eight botulinum toxin injection procedures to the HOPD Prior Authorization Program for services furnished on or after July 1, 2027. CMS cited reports of misbranded products and improper payment, as well as a 42.8 percent increase in utilization of these procedures between 2017 and 2024 despite an overall decline in outpatient department volume, for which it could identify no clinical explanation. Medicare will continue to cover medically necessary injections, including treatment for chronic migraines and certain other conditions, when a physician documents the need.

These procedures join the existing prior authorization categories, including:

• blepharoplasty
• panniculectomy
• rhinoplasty
• vein ablation
• cervical fusion
• implanted spinal neurostimulators
• facet joint interventions
• existing botulinum toxin procedures

Hospital Compliance and Regulatory Proposals

In addition to payment and quality reporting policies, CMS finalized several regulatory changes affecting hospital compliance operations, including EMTALA administrative review, PBD requirements and graduate medical education (GME) slot redistribution, and sought information on hospital price transparency.

AO Deeming Authority for EMTALA

CMS finalized its proposal to require CMS-approved hospital AOs to incorporate review of certain EMTALA administrative requirements into their existing accreditation and reaccreditation survey processes.

The policy applies to Medicare-participating hospitals with emergency departments, including Critical Access Hospitals (CAHs) and REHs. AOs would review administrative compliance with requirements related to:

• EMTALA signage
• maintenance of a central emergency department log
• transfer record retention
• on-call physician lists

CMS emphasizes that AOs would not assess or enforce EMTALA requirements related to medical screening examinations, stabilizing treatment, appropriate transfers or receiving hospital responsibilities. Rather, CMS and the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) would retain their existing enforcement authorities for patient care protections. In response to commenters' concerns that AOs might not review EMTALA administrative requirements consistently across hospitals or might exceed their role by making substantive EMTALA screening or stabilization determinations, CMS stated that it intends to issue standardized interpretive guidance and survey protocols specific to the administrative EMTALA elements. Further, as a condition of AO approval, CMS will also require AOs to demonstrate that surveyors assigned to EMTALA administrative reviews have completed CMS-approved EMTALA training before conducting these assessments.

Provider-Based Status Requirements

CMS codifies Section 6225 of the 2026 CAA, which establishes new requirements for off-campus HOPDs seeking OPPS payment. Beginning January 1, 2028, OPPS payment for services furnished by off-campus outpatient departments will be conditioned on:

• the department billing under a separate National Provider Identifier (NPI)
• the main provider submitting recurring attestations of compliance with provider-based status requirements
• attestations being submitted on a recurring basis not to exceed five years

To meet the initial attestation requirement, main providers would obtain an NPI for each PBD and update the Medicare Provider Enrollment, Chain and Ownership System (PECOS) prior to submitting an attestation. CMS slightly modified its final policy for the attestation deadlines. For all off-campus outpatient departments providing services on or before January 1, 2028, initial attestations must be submitted between January 1, 2026, and December 31, 2027, and for off-campus outpatient departments that begin providing services after January 1, 2028, initial attestations must be submitted within the two years prior to delivering billed services. The final rule excludes Indian Health Service and Tribal facilities described in Section 413.65(m) and certain FQHCs and "look-alikes" described in Section 413.65(n) as well as off-campus departments operating as part of CAH from the attestation requirements.

CMS also moves forward with its plan to establish a standardized attestation form to replace the current Medicare Administrative Contractor (MAC)-specific templates and centralized electronic submission system. The agency intends to issue operational guidance, specific review criteria, validation protocols and documentation standards that CMS and its contractors, including MACs, would apply in reviewing and validating initial determinations. Hospitals operating off-campus PBDs should begin evaluating whether their enrollment, billing and documentation systems can support the proposed separate NPI and recurring attestation requirements. These requirements could increase administrative burden and create risk for payment denials if provider-based documentation is incomplete or outdated. Until the standardized form and centralized electronic system are finalized, providers may continue to submit attestations using the current process.

GME Slot Redistribution

Section 5506 of the Patient Protection and Affordable Care Act authorizes the Secretary to redistribute residency slots after a hospital that trained residents in an approved medical residency program closes. The rule outlines two additional hospital closures, making available additional indirect medical education full-time equivalent (FTE) resident cap slots and direct GME FTE resident cap slots. These slots will be redistributed, via Round 32 and Round 33, through applications that must be submitted by February 2, 2027.

Requests for Information

CMS had requested stakeholder feedback on a number of policies, including ways to strengthen hospital price transparency reporting and enhance domestic procurement of PPE and essential medicines. The agency, however, did not finalize any new policies but will consider comments for potential future rulemaking.

Conclusion and Next Steps

The CY 2027 OPPS/ASC Final Rule is one of the most consequential outpatient payment rules in recent years. Although CMS finalized a routine 2.3 percent payment update, the broader rule includes substantial payment, operational and compliance changes that may significantly affect hospitals, health systems, ASCs, manufacturers, physician practices and other Medicare stakeholders.

CMS is using OPPS/ASC rulemaking to advance several major objectives at once: acquisition cost-based drug reimbursement, site-neutral payment expansion, utilization management, outpatient surgical migration and enhanced compliance oversight. Stakeholders should expect material effects on reimbursement strategy, service line planning, pharmacy operations, revenue cycle systems, compliance processes and manufacturer market access.

For more information or questions on the OPPS and ASC Payment Final Rule, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.