CMS Issues 2027 Hospital Outpatient Prospective Payment System Proposed Rule: Key Takeaways for Pharma

While we are still awaiting the 2027 PFS proposed rule, CMS published the 2027 HOPPS proposed rule on July 7. 

The proposed rule’s most significant change would be the revival of reduced reimbursement to hospitals for drugs that are separately reimbursable when the drugs are purchased at the 340B price — reimbursement would go from Average Sales Price (ASP) +6% (4.3% after sequestration) to ASP -33.4%. 

This alert summarizes the key drug-related proposals in the 2027 HOPPS proposed rule and their potential implications for hospitals, drug manufacturers, and other stakeholders. The HOPPS proposed rule can be found here, with a high-level summary in the CMS fact sheet available here. Comments to the HOPPS proposed rule are due by August 31.

Overall, for 2027, CMS proposes to increase payment rates by 2.4%. The packaging threshold, used by CMS to determine if a covered outpatient drug will be paid for in an ambulatory payment code or is separately reimbursable, is proposed to be $140 (same as 2026) for pharmaceuticals including therapeutic radiopharmaceuticals and $665 ($10 increase from 2026 threshold of $655) for diagnostic radiopharmaceuticals. Separately reimbursed drugs and biologics administered in the hospital outpatient setting reimbursement will remain at ASP +6% (4.3% after sequestration) or Wholesale Acquisition Cost (WAC) +3% if there is not an established ASP. Biosimilars with an ASP lower than their reference product are granted a temporary add-on payment of ASP +8% of the reference biologic’s ASP for a five-year period as prescribed by the Inflation Reduction Act of 2022. Biosimilars are exempt from the packaging threshold when the reference biologic is separately reimbursable. 

Below are additional key proposals impacting pharmaceutical manufacturers.

Proposed Reimbursement of ASP -33.4% for Separately Reimbursable Covered Outpatient Drugs When Purchased at the 340B Price

The most consequential drug-related proposal in the 2027 HOPPS proposed rule is CMS’ plan to pay ASP -33.4% for separately reimbursable drugs administered by hospitals to Medicare patients when the drug was acquired at the 340B price. This is a revival of historically reduced Medicare reimbursement to hospitals when 340B drug stock was utilized from the 2018 HOPPS rule, promulgated during the first Trump Administration, under which hospitals received reduced Medicare reimbursement of ASP -22.5% for separately reimbursable drugs purchased at the 340B price.  

History of Decreased Medicare Reimbursement for Drugs Purchased at the 340B Price

The 340B program, administered by the federal Health Resources and Services Administration (HRSA), limits the prices that participating drug manufacturers may charge certain eligible health care providers — known as “Covered Entities” — for covered outpatient drugs. Under the standard HOPPS drug payment methodology, CMS generally reimburses for separately payable covered outpatient drugs at ASP +6%. However, because 340B Covered Entities acquire drugs at substantial discounts, the difference between the 340B acquisition cost and the ASP +6% reimbursement rate has long generated significant revenue for participating hospitals that are Covered Entities, including Disproportionate Share Hospitals.

In the 2018 HOPPS final rule, CMS adopted a policy to reimburse for most separately reimbursable drugs at a reduced rate of ASP -22.5% when the drugs were acquired at the 340B price under the 340B program. CMS based this adjustment on findings from the US Department of Health and Human Services Office of Inspector General (HHS-OIG) and the Medicare Payment Advisory Commission (MedPAC) that 340B hospitals were acquiring drugs at a significant discount under the 340B program and pocketing substantial “spread” between the Medicare reimbursement and the steeply discounted 340B prices. 

That policy was subsequently challenged in court. In June 2022, the US Supreme Court decided American Hospital Association v. Becerra, holding that CMS had not conducted the requisite survey of hospitals’ drug acquisition costs before reducing the Medicare reimbursement to hospitals for separately reimbursable drugs when acquired at the 340B price. Following this decision and subsequent district court proceedings, CMS reverted to reimbursing hospitals for separately reimbursable drugs acquired at the 340B price at the same rate as drugs not acquired under the 340B program. 

In the 2026 final HOPPS rule, CMS finalized its proposal to undertake the requisite drug acquisition cost surveys that the Supreme Court found to be a prerequisite under the Social Security Act to reducing Medicare reimbursement for drugs acquired at the 340B price.  See our alert discussing the 2026 final HOPPS rule and the drug acquisition costs surveys: CMS Issues 2026 Hospital Outpatient Prospective Payment System Final Rule: Key Takeaways for Pharma | ArentFox Schiff. CMS launched the Outpatient Prospective Payment System (OPPS) Drug Acquisition Cost Survey via the Fee-for-Service Data Collection System on January 1 and conducted the survey from January 1 to March 31. 

The 2027 Proposal: A Deeper Cut Supported by Survey Data

In the 2027 HOPPS proposed rule, CMS is now proposing to reinstate, and substantially deepen, the 340B drug payment reduction. CMS proposes to set the 2027 payment rate for 340B-acquired drugs at ASP -33.4%, compared to the pre- Becerra rate of ASP -22.5%. CMS bases the proposed rate on the results of a drug acquisition cost survey referenced above, which CMS states found that hospitals acquire drugs under the 340B program at an average cost significantly below ASP. This survey addresses the procedural deficiency identified by the Supreme Court in the Becerra case, which held that CMS needed to conduct the Social Security Act prescribed survey before adjusting Medicare reimbursement for separately payable drugs based on hospital acquisition costs.  

CMS has proposed exempting Children’s Hospitals, Free Standing Cancer Hospitals, Rural Referral Centers, and Critical Access Hospitals that are 340B Covered Entities from the reduced Medicare reimbursement for separately reimbursable drugs acquired at the 340B price. Furthermore, drugs with transitional pass-through drugs and biologicals are exempt from the proposed ASP -33.4% rate applied to standard 340B-acquired drugs.

Beginning January 1, 2027, to implement these policies, hospitals will need to utilize specific billing modifiers on claims.

• Modifier JG: Used to identify 340B-acquired drugs subject to the reduced payment.

• Modifier TB: Used to identify exempt 340B drugs (such as certain pass-throughs or drugs from exempt entities) that continue to receive the standard ASP +6% rate. 

CMS also proposed charging the 20% Medicate beneficiary co-insurance on the reduced ASP- 33.4% reimbursement when 340B drug stock is utilized. CMS estimates that this will reduce beneficiary co-insurance for administered drugs acquired at the 340B price by $1.15 billion for 2027.

Radiopharmaceuticals

For most diagnostics radiopharmaceuticals that are separately reimbursable (above the $665/day packaging threshold), CMS proposes to continue reimbursement using the arithmetic mean unit cost as a proxy for average price. CMS is encouraging manufacturers of diagnostic radiopharmaceuticals to submit ASP with the possibility that ASP could be used in further for setting reimbursement for diagnostic radiopharmaceuticals. Pursuant to the 2025 HOPPS final Rule- 89 Fed. Reg. 93,948-93,963), new diagnostic radiopharmaceuticals are reimbursed at ASP +6%. If ASP is unavailable, WAC +3% or 6% or if WAC is unavailable 95% of AWP.  

For therapeutic radiopharmaceuticals that are separately reimbursable (above the $140/day packaging threshold), CMS proposes to continue reimbursement based on ASP and if there is no ASP the arithmetic mean unit cost as a proxy for average price. 

Skin Substitutes

CMS proposes to maintain its policy finalized in 2026 HOPPS final rule of unpackaging skin substitutes and paying for them separately as incident-to supplies.

Comment Period and Next Steps

Stakeholders — including hospitals, health systems, drug and device manufacturers, patient advocacy groups, and other interested parties — should carefully review the proposed rule and consider submitting comments. 

The proposed 340B drug payment reduction to ASP -33.4% is expected to generate substantial comment activity, particularly from 340B Covered Entities and their trade associations, which have historically opposed reduced 340B reimbursement rates. CMS is expected to issue a final rule later in 2026, with the new payment rates taking effect on January 1, 2027.

We will continue to monitor developments in this rulemaking and provide updates as they become available. For questions about the proposed rule or assistance preparing comments, please contact the authors.