On July 15, 2025, the Centers for Medicare & Medicaid Services (CMS) released the CY 2026 Outpatient Prospective Payment System (OPPS) proposed rule. The proposed rule includes a provision that would increase the reduction in OPPS payment rates to offset the lump sum payments previously paid to 340B hospitals from 0.5% to 2% and would accelerate the period of the reductions from 16 years to six years. This payment reduction would apply to most items and services and most hospitals paid under OPPS. The reduction is not limited to 340B hospitals. CMS also proposes to reduce payments under OPPS for drug administration at most off-campus hospital outpatient departments not already subject to site-neutral payments to the rate paid under the Medicare Physician Fee Schedule (PFS), representing an approximately 65% reduction in payments.
CMS is accepting comments on this proposal through September 13, 2025.
The proposed rule was published in the Federal Register on July 17, 2025 and is available here. Refer to pp. 33631-35 for information about the OPPS payment reduction to account for the 340B budget neutrality adjustment, pp. 33685-93 for information about the application of site neutral payments to hospital outpatient drug administration services and pp. 33653-54 and pp. 33832-33 for information about the hospital drug acquisition cost survey.
Reduction in OPPS payment rates for most items and services
The proposed OPPS payment reductions to recoup a portion of the 340B lump sum payments are the result of the prior 340B payment cuts being implemented in a “budget-neutral” manner. While 340B hospitals were subject to cuts in payments for 340B drugs, all hospitals paid under OPPS received an increase in payments for most items and services paid under OPPS in an amount equivalent in the aggregate to the amount of Medicare savings otherwise generated by the 340B payment cuts (the budget-neutral payment increase). While CMS made lump sum payments to 340B hospitals that were subject to the payment cuts in an amount equal to the cuts experienced by each hospital, those payments were only half of the remedy for the prior 340B payment cuts. The other half is to recoup the amount of the budget-neutral payment increase from all hospitals paid under OPPS. While some 340B hospitals may ultimately receive a net gain in payments when netting out the lump sum payments from the forthcoming recoupments, others will experience a net loss. Most non-340B hospitals paid under OPPS will experience a net loss.
CMS previously indicated that it would recoup the budget-neutral payment increases through a 0.5% payment reduction over 16 years. CMS now proposes to quadruple the amount of recoupment on an annual basis and shorten the recoupment period by more than half. CMS states that the reason for this proposed change is that “the longer it takes for us to fully recover the $7.8 billion [in budget-neutral payment increases], the less likely that the relative burden on hospitals from the adjustments will match the relevant benefits those hospitals previously received.” Because hospitals paid under OPPS previously benefited from an increase in payments under OPPS during the approximately four years that the 340B payment cuts were in place, CMS wants to recoup those increased payments in a similar timeframe to increase the financial burden of the payment reductions on affected hospitals.
These payment cuts would also be incorporated into Medicare Advantage (MA) rate setting and, if finalized, would become the applicable Medicare OPPS rate on which many MA contracted rates are based. Hospitals should ensure that they understand the terms of their MA contracts and how these payment reductions will affect their MA rates. This is particularly important for hospitals that were paid by MA plans at the reduced 340B rates from 2018 to 2022, as the proposed reduction in OPPS payments could result in further net negative payments from MA plans.
Reduction in OPPS payment rates for drug administration
The proposal to expand the application of site-neutral payment policies to drug administration charges at off-campus hospital outpatient locations that are not already subject to reduced payments would be implemented under the US Department of Health and Human Services statutory authority to adjust OPPS payment rates to control for increases in the volume of hospital outpatient services. This is the same provision that was used several years ago to apply site-neutral payment policies to all office visits (HCPCS G0483) at off-campus hospital outpatient departments. CMS notes that under the CY 2025 OPPS payment rates, certain drug administration services are paid 186% more in hospital outpatient departments than in physician offices.
CMS also seeks comments on a wide range of questions about the expansion of site-neutral payments under OPPS to additional locations and services. CMS specifically calls out imaging services and on-campus clinic visits as candidates for future site-neutral payment reductions under OPPS. However, CMS broadly requests comments on all hospital outpatient services that it should evaluate for future site-neutral payment reductions, as well as those that should be exempt from future site-neutral payment policies.
It is critically important that 340B hospitals understand these proposed payment cuts and how they may affect their Medicare reimbursement, particularly in light of other forthcoming cuts to payments from government programs.
Hospital Drug Acquisition Cost Survey
Section 1833(t)(14)(A)(iii) required CMS to adjust payments for certain drugs paid under OPPS to the cost of such drugs beginning in 2006, but also requires CMS to conduct a survey of hospital drug acquisition costs before adjusting the payments. CMS attempted to adjust payments for 340B drugs using this same provision, but without the required survey, leading to the Supreme Court finding the 340B payment reduction unlawful.
Consistent with the statute and Executive Order 14273, “Lowering Drug Prices by Once Again Putting Americans First,” CMS is proposing to conduct a survey of hospital drug acquisition costs in 2026 that will be used to inform (and likely reduce) payment rates for drugs under OPPS beginning in 2027. While CMS has statutory authority to conduct this survey, the survey design and use of the survey data are not addressed in the statute.
This proposed survey could have significant affects on Medicare payments for certain drugs under OPPS, likely reductions in payments to at or near acquisition cost of the drug. Therefore, the survey design and use of the survey data should be closely reviewed by hospitals paid under OPPS. CMS has requested comments on several aspects of the survey design and use of the data, including, but not limited to, how to account for hospitals that don’t respond to the data, use of supplementary data to inform the determination of drug acquisition costs, how to use the data to inform decisions about which drugs to pay separately under OPPS (as opposed to as part of the related procedure) and whether to separately request information on any other specific drug discount programs other than the 340B program. CMS also states that responding to the survey will be an “obligation,” but does not explain under what authority it may impose penalties for non-response or what they may be.
CMS plans to conduct the survey from January 1, 2026 to March 31, 2026 and estimates that it will take each hospital approximately 73.5 hours to complete the survey, at a cost to each hospital of $3,578.40. CMS has indicated that hospitals will have an opportunity to comment on the survey itself, which will likely include requests for 340B and non-340B acquisition cost data on more than 700 HCPCS codes (many with more than one NDC). Hospitals concerned about the survey design, use of the data and penalties for not responding should also consider providing comments in response to CMS with alternative approaches to the survey.
340B policies in the Medicare PFS proposed rule
On July 14, 2025, CMS released significant new 340B-related policy proposals in the CY 2026 PFS proposed rule. For Medicare Part D claims with dates of service on or after January 1, 2026, CMS will use various data sources to identify claims for drugs purchased through the 340B program. CMS will take comments on its proposed approaches to developing this claim-level 340B data through September 12, 2025.
The proposed rule was published in the Federal Register on July 16, 2025 and is available here. Refer to pp. 32638-44 for information on the proposed processes for identifying Medicare Part D claims for 340B drugs.
The Inflation Reduction Act of 2022 (IRA) requires drug manufacturers to pay rebates to Medicare for drugs with prices that increase faster than the rate of inflation. Drugs purchased through the 340B program are excluded from the calculation of the rebate amounts. CMS has previously required that 340B drugs billed to Medicare Part B including a modifier to exclude them from the calculations (the TB modifier). CMS has acknowledged that requiring a claim-level modifier for Part D claims is not practicable because of the way in which 340B drugs are billed to Part D.
To exclude Medicare Part D claims for 340B drugs from the rebate calculations, CMS proposes two different approaches, both of which would allow for claim-level identification of Medicare Part D claims for 340B drugs:
- Option one: data driven claims-based methodology.
- CMS would use existing data sources to associate prescriber National Provider Identifiers (NPIs) with 340B covered entities and 340B contract pharmacies. CMS would use this data to identify 340B drugs billed to Part D based on two criteria: the prescriber (determined by NPI) provides care at a 340B covered entity, and the pharmacy (determined by NPI) is a contract pharmacy for that same 340B covered entity.
- Option two: claims data repository.
- CMS proposes to implement an initially voluntary process for 340B covered entities to submit claim-level data to CMS to identify 340B claims billed to Part D. Although this option would initially be voluntary, CMS encourages 340B covered entities to submit the data to get used to making submissions and strongly suggests that it may make reporting mandatory in the future.
These two proposals have enormous implications for 340B covered entities, as they represent CMS’s first efforts to identify 340B drugs billed to Medicare Part D and could be used by CMS for additional future purposes (e.g., deduplication of IRA negotiated prices). Covered entities that dispense 340B drugs billed to Medicare Part D (including through contract pharmacies) should familiarize themselves with these proposals and, if in disagreement with the proposals or details of the new policies, submit meaningful comments to CMS.
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