CY 2027 OPPS Proposed Rule: Major Payment Changes Ahead for Hospitals—Is Your Organization Ready?

On July 7, the Centers for Medicare & Medicaid Services (CMS) published its proposed rule updating the Hospital Outpatient Prospective Payment System (OPPS) for Calendar Year (CY) 2027. The proposed rule contains sweeping changes that will significantly affect hospital revenue, compliance obligations and strategic planning.

This client alert highlights the most critical developments in three areas — the 340B Drug Pricing Program, new provider-based attestation mandates and the expansion of site-neutral payment policies — and offers practical guidance for providers preparing to respond.

Comments on the proposed rule are due 60 days from publication (approximately early September 2026). We encourage affected clients to engage us early in the comment period to assess financial impacts and develop tailored responses.

What Changes Are Planned for the 340B Drug Pricing Program?

CMS proposes to cut Medicare payment for 340B-acquired drugs by nearly 40 percentage points—from the current rate of average sales price (ASP) plus 6 percent to ASP minus 33.4 percent, effective January 1, 2027. This proposal is based on the Outpatient Drug Acquisition Cost Survey (ODACS) conducted from January through April 2026, which found that 340B hospitals' acquisition costs for 340B-acquired drugs are approximately 37.2 percent lower than the current general OPPS payment rate. CMS is also soliciting comment on an alternative methodology setting the rate at ASP minus 28 percent, based on Health Resources and Services Administration (HRSA)’s 340B ceiling price data.

The proposal applies to all separately payable drugs, biologicals, biosimilars, and radiopharmaceuticals acquired under the 340B Program, with exceptions for vaccines, drugs with transitional pass-through payment status, and non-opioid pain management drugs. However, rural sole community hospitals (SCHs), children's hospitals, and Prospective Payment System (PPS)-exempt cancer hospitals would be exempt and would continue to receive ASP plus 6 percent. The payment reduction would also extend to 340B-acquired drugs furnished in nonexcepted off-campus provider-based departments (PBDs), which CMS estimates will save approximately $735 million to the Part B Trust Fund.

To implement this policy, CMS proposes three new billing modifiers:

• Modifier “JG”: For non-exempt providers identifying 340B-acquired drugs (triggers payment reduction)
• Modifier “TB”: For exempt providers reporting 340B-acquired drugs (informational only, no payment adjustment)
• Modifier “XX”: For all drugs not acquired through the 340B Program

CMS also proposes to increase the annual 340B remedy offset—the prospective reduction to the conversion factor for non-drug items and services—from 0.5 percent to 3.0 percent beginning in CY 2027. This offset is designed to recoup an estimated $7.8 billion in excess non-drug payments made during CYs 2018–2022 when the original 340B Payment Policy was in effect, and CMS expects to reach the full offset by the end of CY 2029. Hospitals that enrolled in Medicare after January 1, 2018 are exempt from this reduction.

As a budget neutrality measure, the $4.85 billion in reduced 340B drug payments will be redistributed to all OPPS hospitals through an estimated 8.44 percent increase to the conversion factor for non-drug items and services.

What Should Providers Do Now?

Health care providers should take the following steps:

• Assess financial impact by analyzing 340B drug utilization volumes relative to non-drug service volumes. For most 340B hospitals, decreased drug payments will outweigh the benefit of the increased non-drug conversion factor.
• Prepare billing systems to accommodate the new JG, TB, and XX modifier requirements by January 1, 2027, with processes ensuring accurate identification of 340B-acquired versus non-340B-acquired drugs at the claim-line level.
• Incorporate the 3.0% remedy offset into CY 2027 budget projections, noting that it compounds with the 340B drug payment reduction.
• Confirm exemption eligibility if applicable (rural SCHs, children’s hospitals, PPS-exempt cancer hospitals) and ensure appropriate use of the “TB” modifier rather than the “JG” modifier.
• Submit comments to CMS during the comment period, particularly regarding the choice between the ASP minus 33.4 percent rate and the ASP minus 28 percent alternative, the absence of an add-on for overhead and handling costs, and the accelerated remedy offset timeline. Our team can assist with drafting tailored comments.

What is the New Compliance Mandate for Outpatient Department Attestation?

Section 6225 of the Consolidated Appropriations Act, 2026 prohibits Medicare payment under the OPPS beginning January 1, 2028 for items and services furnished by an off-campus outpatient department (OPD) unless two requirements are met:

1. The department bills under a separate National Provider Identifier (NPI) distinct from the main provider.
2. The main provider has submitted a provider-based status attestation confirming compliance with the requirements at 42 Code of Federal Regulations (CFR) § 413.65.

CMS proposes to implement this requirement through a standardized attestation form that will replace current Medicare Administrative Contractor (MAC)-specific templates, submitted through a centralized electronic system.

Key deadlines:

• Initial attestations: Due by December 31, 2027 for departments operating on or before January 1, 2028
• Subsequent attestations: Required within a period not to exceed five years

Until the standardized form and electronic system are finalized, providers may continue to submit attestations under the existing process at § 413.65(b)(3).

CMS proposes a layered, risk-based verification approach, including automated validation of attestations against Provider Enrollment, Chain, and Ownership System (PECOS) enrollment records, targeted documentation review for flagged submissions, and extended compliance reviews involving site visits, remote audits, or investigations for high-risk attestations. If CMS determines that provider-based requirements are not met, it will recover the difference between actual payments and the payments that should have been made.

The attestation must demonstrate compliance across multiple domains:

• Licensure: Operating under the same state license as the main provider
• Clinical integration: Staff privileges and oversight by the main provider
• Financial integration: No separate general ledger
• Public awareness: Patients understand they are receiving main provider services
• EMTALA compliance: Emergency Medical Treatment and Labor Act and site-of-service billing obligations
• Ownership and control: Administrative control by the main provider

What Should Providers Do Now?

Health care providers should take the following steps:

• Inventory all off-campus outpatient departments and confirm that each has obtained (or is obtaining) a separate NPI with PECOS records updated accordingly.
• Assess compliance with § 413.65—particularly clinical integration, financial integration, and administrative control—and remediate any gaps before submitting attestations.
• Prioritize internal compliance audits if you have a large number of off-campus departments or recent acquisitions, and maintain readily accessible documentation.
• Monitor CMS guidance on whether providers with prior provider-based determinations may use a simplified attestation process.
• Do not wait for the standardized form. Submit attestations under the existing MAC process now to satisfy the January 1, 2028 deadline.
• Engage legal counsel to conduct a provider-based compliance assessment and develop an attestation submission plan, especially for health systems with multiple off-campus locations.

Keep in mind, failure to meet these requirements will result in a complete denial of OPPS payment for affected departments, making this an urgent operational priority.

What Changes Are Proposed for Site-Neutral Payments in Imaging?

CMS proposes to expand its volume control methodology by paying the Physician Fee Schedule (PFS)-equivalent rate (approximately 40 percent of the OPPS rate) for imaging without contrast services furnished at excepted off-campus PBDs beginning in CY 2027. This extends the site-neutral approach previously applied to clinic visits in CY 2019 and drug administration services in CY 2026.

The affected services include all Healthcare Common Procedure Coding System (HCPCS) codes assigned to imaging without contrast Ambulatory Payment Classifications (APCs) 5521 through 5524 and composite APCs 8004, 8005, and 8007.

CMS justifies this proposal based on significant volume growth: imaging without contrast services experienced a 38 percent volume increase in excepted PBDs from 2016 to 2025, with per-beneficiary utilization growing over 67 percent despite declining Fee-for-Service (FFS) enrollment. Payment differentials between settings are substantial:

• Dual-energy X-ray absorptiometry (DXA) bone density scans cost more than 3x as much in the OPD setting versus a physician office
• Chest x-rays cost more than 4x as much in the OPD setting

CMS concludes that these payment differentials—rather than clinical factors—are driving volume growth.

CMS will implement this proposal without budget neutrality adjustments, with estimated savings of $260 million in CY 2027 ($190 million to Medicare, $70 million to beneficiaries in reduced coinsurance). Over the 2027–2036 period, CMS estimates the policy will lower net Part B spending by $7.2 billion. Rural sole community hospitals are proposed to be exempt and would continue to receive the full OPPS rate (including their 7.1 percent rural adjustment) for imaging without contrast services at excepted off-campus PBDs.

What Should Providers Do Now?

Health care providers should take the following steps:

• Model the revenue impact of receiving only 40 percent of the current OPPS rate for imaging without contrast services at excepted off-campus PBDs. For common services like DXA scans, chest x-rays, echocardiograms, computed tomography (CT) scans without contrast, and brain magnetic resonance imaging (MRI) scans, payment reductions will be in the range of 50 to 75 percent for the technical component.
• Evaluate operational changes. Consider whether it remains financially viable to continue furnishing these services in excepted off-campus PBDs or whether consolidation to on-campus departments (which are not affected) may be appropriate.
• Plan for future site-neutral expansion. CMS has signaled that additional service families may be subject to the volume control method in future rulemaking.
• Confirm rural SCH exempt status if applicable, and continue billing with modifier “PO” to receive the full OPPS payment.
• Submit comments to CMS if you believe the policy would harm access to care in your community, addressing patient access concerns and whether alternative provider types should receive exemptions.

What Dates Should We Remember?

• July 7, 2026: Proposed rule published
• Early September 2026: Comment deadline (60 days from publication)
• January 1, 2027: 340B payment reduction and imaging site-neutral payment take effect
• December 31, 2027: Deadline to submit initial provider-based attestations
• January 1, 2028: Mandatory attestation requirement takes effect (OPPS payment denied without attestation)

The Phelps Health Care team is available to assist with financial impact modeling, provider-based compliance assessments, NPI enrollment, and preparation of comments to CMS.

If you have questions about how these proposed changes may affect your organization, please contact Beau Haynes, Matt Harrell, Courtney Hurtig or any member of our Health Care team.