CMS finalizes 340B and site-neutral payment reforms for 2027
Medicare will slash 340B drug payments by billions and expand site-neutral payments to outpatient imaging starting in 2027, aiming for over $9 billion in long-term savings.
The Centers for Medicare & Medicaid Services has finalized a rule that will cut billions from the 340B drug discount program and expand site-neutral payments beginning in 2027. The changes target Medicare spending reductions and lower costs for beneficiaries.
Starting January 1, 2027, CMS will reimburse hospitals for most separately payable 340B drugs at the drug's average sales price minus 28%. This is a reduction from the initially proposed rate of ASP minus 33.4%. The new rate is based on data from the Health Resources and Services Administration. Rural sole community hospitals, PPS-exempt cancer hospitals, and children's hospitals are exempt from these 340B payment changes. The policy is projected to reduce drug spending by about $5.5 billion in 2027 alone.
CMS will implement this 340B payment reduction in a budget-neutral manner. Payments for non-drug items and services will increase by 7.5% to offset the cuts. Non-340B hospitals will continue to be paid for separately payable drugs at ASP plus 6%. To accelerate recoupment of a prior 340B payment remedy, CMS increased the annual outpatient PPS conversion-factor reduction from 0.5% to 2% beginning in calendar year 2027.
Site-neutral policy expands to outpatient imaging
CMS also finalized an expansion of its site-neutral payment policy. Starting in 2027, payment rates for imaging without contrast services performed in grandfathered off-campus hospital outpatient departments will be set at 40% of the outpatient prospective payment system rate. Rural sole community hospitals are exempt from this site-neutral policy. Medicare will now pay the same amount for these medical procedures regardless of whether they are performed in a hospital-owned or a freestanding facility. CMS estimates this change will cut outpatient PPS spending by $260 million in 2027.
Payment reforms target $9 billion in long-term savings
Combined, the 340B payment adjustments and new site-neutral rules are projected to save Medicare over $9 billion over a decade. CMS expects to recoup an estimated $7.8 billion by 2031. The 2027 Outpatient Prospective Payment System and Ambulatory Surgical Center policy is designed to drive affordability for Medicare beneficiaries. Hospital outpatient departments and ASCs will see their Medicare payments increase by 2.3% next year. This rate increase includes a 3.2% market basket update, which is offset by a 0.9 percentage point cut for productivity.
Additional regulatory changes finalized
CMS finalized the removal of 637 additional services from the inpatient-only list, continuing to phase out the list over three years. The agency also added botulinum toxin injection codes to the list of services subject to prior authorization, effective July 1, 2027. For billing purposes, hospitals must obtain a separate national provider identifier and attest to compliance with provider-based rules by January 1, 2028, to bill under outpatient PPS as an off-campus provider-based department. CMS has authorized CMS-approved accrediting organizations to assess compliance with certain Emergency Medical Treatment and Labor Act administrative requirements.
The American Hospital Association's senior vice president of public policy analysis and development, Ashley Thompson, stated that CMS' payment rate does not account for hospitals' financial challenges, particularly in rural and underserved communities. The AHA will provide its members with a Regulatory Advisory containing more details on the final rule. CMS issued the final rule on November 4, increasing Medicare hospital outpatient prospective payment system rates by 2.3% in 2027 compared to 2026.
