CMS Issues CY 2027 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule 

On November 4, 2026, CMS issued a final rule with updates to the Medicare payment rates for the Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for calendar year 2027 (the Final Rule). In the Final Rule, CMS finalized its proposals to (1) implement a significant reduction in payment for 340B-acquired drugs based on results of the OPPS Drug Acquisition Cost Survey, (2) expand site-neutral payments to imaging without contrast services, (3) implement the Consolidated Appropriations Act, 2026 requirements for off-campus outpatient department provider-based attestations, and (4) continue the phase-out of the Inpatient Only list. CMS also finalized its proposal that hospital Accrediting Organizations assess Emergency Medical Treatment and Labor Act (EMTALA) administrative compliance during accreditation surveys. Additionally, CMS acknowledged comments received in response to its Request for Information on strengthening the standardization and comparability of hospital price transparency data but did not finalize any changes.

Updates to OPPS and ASC Payment Rates 

In the Final Rule, the agency updated the OPPS payment rates by 2.3% for hospitals that meet applicable quality reporting requirements, down from the 2.4% it proposed. This 2.3% update factor is based on the projected hospital market basket percentage increase of 3.2%, reduced by a productivity adjustment of 0.9%. CMS estimates that these new payment rates will result in approximately $114.4 billion in total payments to OPPS providers for CY 2027, approximately $11 billion higher than CY 2026.

In the Final Rule, CMS finalized its proposal to extend its use of the hospital market basket update as the update factor for the ASC payment system for one more year, through CY 2027. CMS noted that ASCs do not currently submit cost reports. As a result, it cannot tell whether hospital and ASC cost structures differ in a way that would call for a different update factor. CMS also agreed with commenters that using the same annual update for the OPPS and ASC payment systems can help services move to the lower-cost ASC setting.

Accordingly, CMS finalized its proposal to use the hospital market basket update for ASCs, with an update factor to the ASC rates of 2.3% for ASCs meeting relevant quality reporting requirements. CMS estimates that these rates will result in approximately $9.9 billion in total payments to ASCs in CY 2027, an increase of approximately $560 million compared to estimated CY 2026 payments.

Reduced Payments for 340B-Acquired Drugs Based on the Medicare OPPS Drug Acquisition Cost Survey 

In the Final Rule, CMS finalized a change to the rate that Medicare pays for 340B-acquired drugs from Average Sales Price (ASP) plus 6% to ASP minus 28%—a reduction of roughly 32%. CMS did not finalize its proposed rate of ASP minus 33.4%, instead adopting the alternative it had proposed based on 340B ceiling price data.

By way of background, the Medicare statute describes how Medicare will reimburse hospitals for covered outpatient drugs. If CMS has conducted a survey of hospital acquisition costs, the Medicare payment rate can be based on the average acquisition cost for each drug as reflected in the survey. But if CMS has not conducted a survey of hospital acquisition costs, Medicare must reimburse hospitals at ASP plus 6%.

Prior to 2018, CMS had historically paid hospitals at ASP plus 6%. That year, the agency reduced the rates for 340B hospitals to ASP minus 22.5%. But CMS did not use a survey to come up with that number. Instead, the agency based its estimate on findings from the Government Accountability Office, Office of Inspector General and MedPAC. The agency implemented its rate cut in a budget-neutral manner by increasing total OPPS payments by 3.19%.

Adversely affected hospitals successfully challenged CMS’s 2018 rate cut for 340B-acquired drugs. In American Hospital Association v. Becerra, the Supreme Court held that the Medicare statute does not permit CMS to reduce rates for covered outpatient drugs without first conducting a survey. 596 U.S. 724 (2022). The agency acquiesced to that decision and restored its former policy of payment for all covered outpatient drugs at ASP plus 6%.

Following the Supreme Court’s decision, CMS decided to conduct a voluntary survey of hospital drug acquisition costs across 4,494 hospitals. The survey was conducted between January 1, 2026, through April 7, 2026. Just under 30% of hospitals provided complete responses to the survey.

Based on the reported data, CMS found that the acquisition costs for 340B-acquired drugs were between approximately 29.9% and 33.4% below ASP. In the proposal to this Final Rule (the Proposed Rule), CMS proposed to reduce the rate for all 340B-acquired drugs to ASP minus 33.4%, and sought comment on an alternative rate of ASP minus 28%, derived from HRSA’s 340B ceiling prices volume-weighted by OPPS claims data. In the Final Rule, CMS adopted the ASP minus 28% alternative, describing it as based on objective data, a “reasonable and conservative estimate” of 340B acquisition costs as validated by the survey, and responsive to commenters’ concerns that ASP minus 33.4% would be too significant a reduction. Over commenters’ objections, CMS declined to set a specific rate for each covered outpatient drug based on hospital acquisition costs for that drug, instead applying a single discount to each drug’s ASP.

Under this new payment policy, hospitals paid under the OPPS will be required to report (1) the modifier “JG” on the same claim line as the drug HCPCS code to identify a 340B-acquired drug; (2) the modifier “TB” for all pass-through drugs, non-opioid treatment for pain relief drugs, and 340B-acquired drugs reported by rural sole community hospitals, children’s hospitals and PPS-exempt cancer hospitals for informational purposes; and (3) the modifier “XX” (finalized as “ND”) for all drugs not acquired through the 340B Program. CMS emphasized that the payment policies will apply to both excepted and non-excepted provider-based departments of a hospital.

The agency finalized its proposal to exempt rural sole community hospitals, children’s hospitals and PPS-exempt cancer hospitals from this policy.

The Medicare statute requires that CMS implement OPPS in a budget-neutral manner; accordingly, the estimated $4.65 billion in reduced 340B drug payments will be redistributed through an increase in OPPS payments for non-drug services, estimated to be a 7.5% increase to non-drug service payments (down from the 8.44% increase estimated in the Proposed Rule).

340B Remedy Offset 

The 340B Final Remedy rule finalized changes to the calculation of the OPPS conversion factor applicable to non-drug items starting in CY 2026. That rule codified a 0.5% reduction in the OPPS conversion factor applicable to non-drug items and services that would remain in effect until the estimated aggregate payment reduction reached the $7.8 billion of increased non-drug item and services payments made from CY 2018 through CY 2022. CMS estimated the recoupment would be complete in CY 2041. Previously, in the CY 2026 OPPS Proposed Rule, CMS proposed increasing the annual offset from 0.5% to 2% to shorten the recoupment period, but did not finalize this increase in that prior rulemaking.

In the CY 2027 Proposed Rule, CMS proposed to increase the 0.5% offset to 3% for hospitals subject to the 340B remedy offset, which CMS estimated would reach the total offset amount of approximately $7.8 billion by the end of CY 2029. In the Final Rule, citing hospitals’ concerns about burden, CMS instead finalized a 2% reduction effective CY 2027, which CMS stated will achieve recovery over approximately six years, still significantly accelerating the timeline compared to the original CY 2041 estimate. CMS estimates the 340B remedy offset will reduce OPPS payments by approximately $1.6 billion in CY 2027. Hospitals that enrolled in Medicare after January 1, 2018, remain excluded from the offset.

340B Cut to Non-Excepted PBDs

After considering public comments, CMS finalized its proposal to apply its payment policy to 340B-acquired drugs and biologicals (other than vaccines, drugs on pass-through payment status and non-opioid pain management drugs) in non-excepted off-campus provider-based departments (PBDs). Specifically, the agency will pay ASP minus 28% under the OPPS. CMS believes that not adjusting payment for PBDs would present a “significant incongruity between the payment amounts for these drugs depending upon where (for example, excepted or nonexcepted PBD) they are furnished.” CMS also noted that the incongruity would distort the relative accuracy of resource-based payment amounts under the site-specific PFS rates and might result in perverse incentives for hospitals to acquire drugs, biologicals, biosimilars, and radiopharmaceuticals under the 340B Program yet avoid Medicare payment adjustments accounting for the discount by providing the drugs to patients mostly in non-excepted off-campus PBDs.

CMS expects that for CY 2027, the payment policy will lead to savings of about $640 million to Medicare Part B trust funds and will collectively reduce beneficiary copayments by an estimated $160 million.

Expanding the Method to Control “Unnecessary Increases” in the Volume of Outpatient Services 

CMS finalized its proposal to reduce the OPPS payment rates for imaging without contrast services provided at excepted off-campus PBDs. The new payment will be equivalent to the Medicare PFS rate for those services. The agency claims this change is needed to control for unnecessary increases in the volume of imaging without contrast services in the hospital setting. CMS declined commenters’ requests to phase in or delay the payment reduction, stating that a phase-in would continue the payment differential that it believes drives unnecessary volume.

The OPPS statute authorizes CMS to develop “method[s] for controlling unnecessary increases in the volume of covered [outpatient department] services.” 42 U.S.C. § 1395l(t)(2)(F). The agency adopted its first volume control method in the CY 2019 OPPS rule by lowering the OPPS rate for evaluation and management services provided at exempted off-campus PBDs to a PFS equivalent. Hospitals challenged that decision in federal court, but the D.C. Circuit ruled that it was a valid exercise of the agency’s authority to control for “unnecessary” increases in volume. Am. Hosp. Ass’n v. Azar, 964 F.3d 1230 (D.C. Cir. 2020). In the CY 2026 rule, CMS invoked the same statutory authority to reduce drug administration services in off campus PBDs to the PFS rate.

Critically, CMS finalized its proposal to implement this cut in a non-budget-neutral manner, which is consistent with how it implemented the cuts for evaluation and management and drug administration services. While the OPPS statute generally requires CMS to apply rate cuts in a budget neutral manner, the agency’s position is that methods for controlling unnecessary increases in OPPS services need not be budget neutral. The agency estimates that the cut will reduce Medicare OPPS payments by $190 million in CY 2027.

CMS finalized its proposal to exempt rural sole community hospitals (SCHs) from the rate cut, as it did for the evaluation and management and drug administration rate cuts. The agency explains that it does not believe that rural SCH site-of-service decisions for imaging without contrast services are driven by payment rate differentials, because SCHs are often the only source of care in their communities. CMS declined to extend the exemption to other hospital types.

Inpatient Only (IPO) List 

CMS is continuing to phase out the IPO list over a three-year period. In CY 2026, CMS began by removing 285 mostly musculoskeletal procedures. For CY 2027, CMS finalized its proposal to remove an additional 637 services from the IPO list, spanning the auditory, digestive, endocrine, female genital, hemic and lymphatic, integumentary, male genital, maternity care and delivery, mediastinum and diaphragm, respiratory, and urinary clinical families. The more complex procedures in the neurological, cardiovascular, and transplant clinical families are deferred to CY 2028 (the third and final phase of the phase-out). Concurrently, CMS finalized adding the 618 codes to the ASC Covered Procedures List (CPL) that it proposed for removal from the IPO list, plus one additional code (CPT 64629) recommended by commenters. This transition is intended to give physicians greater flexibility in determining the most appropriate site of service.

Off-Campus Provider-Based Requirements 

CMS finalized its proposals to implement the new statutory off-campus provider-based requirements that were added in Section 6225 of the Consolidated Appropriations Act, 2026 (CAA), enacted February 3, 2026. Section 6225 amends the OPPS statute to specify that beginning January 1, 2028, off campus outpatient PBDs must meet three conditions to receive OPPS payments:

1. The PBD must obtain and bill under a separate NPI;

2. The main provider must, during the 2-year period ending on the date services are furnished, submit an initial provider-based attestation that the PBD complies with CMS’s provider-based rules in 42 C.F.R. § 413.65; and

3. The provider must submit a subsequent attestation within the timeframe specified by CMS.

CMS finalized updates to its provider-based regulations to implement each of the new statutory requirements. For existing PBDs, an initial attestation must be submitted between January 1, 2026 and December 31, 2027. (In response to comments, CMS added regulatory text clarifying that providers that timely submit an initial attestation meet the requirement even if they do not receive a provider-based status determination from CMS before services are rendered.) For PBDs that begin furnishing services after that date, the main provider must submit the initial attestation within the two-year period prior to when billed services are first delivered. Subsequent attestations are required within a period not to exceed five years after the initial attestation, measured from the date the attestation is submitted, although CMS deferred the details of the subsequent attestation process to CY 2028 rulemaking. CMS also confirmed that PBDs with provider-based determinations issued before January 1, 2026 must submit a new attestation, and that IHS and Tribal facilities, certain FQHCs, and off-campus departments of CAHs are excluded from the attestation requirements.

CMS also finalized its proposal to standardize the attestation process by establishing a standardized attestation form to replace the current MAC-specific templates. Under this system, main providers will submit attestations through a centralized electronic system, after first obtaining an NPI for each PBD and updating PECOS. The attestation form will include identifying information for the main provider and the PBD, a list of the regulatory requirements, and a certifying statement affirming compliance signed by an authorized official. Until the standardized form and centralized system are available, providers may continue to submit attestations to their MAC under the existing process.

In the Final Rule, CMS clarified that hospitals will not be required to submit supporting documentation with their attestations, but must furnish documentation upon request. Such documentation may include documents supporting (1) that the PBD is within 35 miles of the main provider, (2) that the PBD operates under the same license as the main provider, (3) that the PBD is clinically integrated (e.g., professional staff privileges), and (4) that the PBD is financially integrated (same general ledger). CMS plans to issue specific documentation guidance in future rulemaking or subregulatory guidance.

CMS will provide written notice of the outcome of each attestation review. If a department does not satisfy the requirements, the notice will identify the basis for the adverse determination and applicable appeal rights, and CMS may recover payments. CMS stated that providers with only minor attestation deficiencies may be given an informal opportunity to correct them before a determination is issued. CMS anticipates giving hospitals a period generally not to exceed 60 days to respond to documentation requests, and failure to timely respond may result in a determination of non-compliance. CMS also indicated that it will prioritize extended reviews for hospitals with a single off-campus department and use random sampling for hospitals with multiple off-campus departments.

Accrediting Organization Deeming for EMTALA Compliance 

CMS finalized as proposed its policy that hospital Accrediting Organizations (AOs) with deeming authority under the Medicare program assess compliance with certain Emergency Medical Treatment and Labor Act (EMTALA) administrative requirements (signage, central logs, transfer records, and on-call lists) during their accreditation and reaccreditation surveys. Specifically, CMS amended 42 C.F.R. § 488.5(a) by adding a new provision requiring AOs to document the procedures used to inspect for EMTALA administrative violations under 42 C.F.R. § 489.20 within their existing survey processes. AOs must first obtain CMS approval of updated accreditation programs, and surveyors must complete CMS-approved EMTALA training. CMS confirmed that substantive EMTALA requirements under 42 C.F.R. § 489.24 remain subject to CMS and State Survey Agency investigation. This policy is intended to integrate EMTALA compliance review into the existing accreditation process rather than relying exclusively on complaint-driven CMS surveys.

Potential Separate IPPS Payment for Domestic PPE and Essential Medicines 

In the Proposed Rule, CMS solicited comments on a potential separate payment under the Inpatient Prospective Payment System (IPPS) for the domestic procurement of personal protective equipment (PPE) and essential medicines, including expanding beyond the existing policy providing separate payment for domestically produced N95 respirators and potentially sunsetting the existing OPPS N95 policy. In the Final Rule, CMS did not adopt any policy, but stated that it will consider the comments it received in future rulemaking.

Hospital Price Transparency (HPT) 

Since 2021, CMS has required hospitals to provide clear and accessible pricing information about the items and services online via a comprehensive machine-readable file (MRF) and a consumer-friendly display. Following a 2025 Executive Order affirming the administration's commitment to implementing a more aggressive price transparency agenda, CMS utilized the CY 2026 OPPS/ASC final rule to add additional data metrics required for the MRFs. In the CY 2027 Proposed Rule, CMS requested information on ways to improve comparability and standardization of HPT information in MRFs and consumer-friendly displays.

First, CMS sought comments on standardizing the free text fields of the MRFs, particularly for outlier contracting provisions and additional contract terms. The Proposed Rule specifically mentioned outlier payments, stop-loss provisions, rate tiering, and carve outs. Additionally, CMS sought information about additional categories of data fields that should be added to the MRFs.

In addition, CMS expressed interest in enhancing the requirements for consumer-friendly displays. Specifically, CMS sought information on whether to modify or revoke the current policy allowing internet-based price estimator tools. CMS also requested information on updating the shoppable services list and whether to require shoppable services files. Lastly, CMS requested ideas on how hospitals should present ancillary or bundled services or items.

In the Final Rule, CMS reported receiving 185 timely comments in response to the RFI from a diverse range of interested parties, including researchers, consumer advocates, employers, hospitals and hospital associations, and health technology organizations. CMS stated that it will consider these comments in future rulemaking, so hospitals should anticipate additional price transparency requirements in upcoming rule cycles.

The Final Rule is available here.

Reporters, John Gilmore, Chicago, +1 312 764 6959, jgilmore@kslaw.com ; Alek Pivec, Washington, D.C., +1 202 626 2914, apivec@kslaw.com

CMS Issues CY 2027 Medicare Physician Fee Schedule Final Rule

On November 4, 2026, CMS issued a final rule implementing changes to the Medicare Physician Fee Schedule (PFS), the Medicare Shared Savings Program requirements, and the Medicare Prescription Drug Inflation Rebate Program for Calendar Year (CY) 2027 (the Final Rule). Among other changes, the Final Rule updates the PFS conversion factors, finalizes payment reductions for certain evaluation and management (E/M) visits furnished in conjunction with same-day procedures, replaces HCPCS code G2211 with new payment modifiers, revises payment policies for remote monitoring services, continues reforms to the practice expense methodology, and extends certain telehealth flexibilities. The Final Rule takes effect January 1, 2027.

CY 2027 PFS Rate Setting and Conversion Factors

Beginning in CY 2026, Medicare used two conversion factors to convert relative value units (RVUs) into payment rates: one for qualifying alternative payment model (APM) participants (QPs) and another for physicians and practitioners who are not QPs. For CY 2027, the qualifying APM conversion factor will be updated by 0.75% and the nonqualifying APM conversion factor will be updated by 0.25%. In addition, CMS estimates a 0.12% reduction to account for changes in work RVUs for certain services. The temporary 2.5% statutory increase applicable in CY 2026 expires at the end of the year, resulting in lower payment rates relative to CY 2026. CMS estimates that the CY 2027 conversion factor will be $32.95 for QPs and $32.63 for non-QPs, representing decreases of approximately 1.83% and 2.31%, respectively.

Overlap Between E/M Visits and Global Procedures

In the Final Rule, CMS finalized a modified version of its proposal to reduce payment when an office/outpatient E/M visit is furnished on the same day as a procedure included in a global surgical package. Under the finalized policy, when a separately identifiable office/outpatient E/M visit is furnished on the same day as a procedure with a 0-day global period, Medicare will pay the highest-valued service at 100%, and all other applicable services furnished on the same day at 80%. CMS narrowed its proposal after receiving comments by limiting the policy to 0-day global procedures and reducing the payment reduction from the originally proposed 50% to 20%. CMS stated that the policy is intended to account for efficiencies when the same physician furnishes both services on the same day.

E/M Visit Complexity Add-On

CMS established office/outpatient E/M visit complexity add-on code G2211 in the CY 2021 PFS Final Rule and, following a statutory delay, began paying for the code in CY 2024. In the CY 2027 Final Rule, CMS finalized significant changes to the payment methodology for the services covered by that code. Specifically, CMS is replacing G2211 with modifier B1, which may be appended to the underlying E/M service and increases payment for the associated E/M code by 16%.

CMS also finalized modifier B2, which will be available to certain practitioners participating in Medicare Shared Savings Program Accountable Care Organizations (ACOs) and Long-term Enhanced ACO Design (LEAD) Model ACOs. Modifier B2 will increase payment for the associated E/M visit by 32% and is intended to recognize the additional resources associated with furnishing longitudinal care and care coordination.

Remote Monitoring Services

CMS finalized several changes applicable to remote physiologic monitoring (RPM) and remote therapeutic monitoring (RTM) services. Beginning in CY 2027, RTM services generally may be furnished only to established patients, and practitioners billing RPM or RTM services must furnish a separately reportable initiating visit associated with the commencement of monitoring services. CMS also finalized updates to the valuation of RPM and RTM services.

CMS initially proposed limiting payment for RPM and RTM services furnished by contractor personnel and permitting payment only where services are furnished by clinical staff employed by the billing practice. In response to stakeholder comments, CMS delayed implementation of that policy until January 1, 2029, to provide additional time for affected providers to adapt.

Practice Expense

CMS continues its multi-year effort to revise the methodology used to develop practice expense (PE) RVUs and reduce reliance on specialty-specific survey data. In the Final Rule, CMS finalized a two-year phase-out of the indirect practice cost index (IPCI), which has historically been used to align PE RVUs with older specialty-specific practice expense data. CMS will replace the IPCI with a practice expense stabilizer intended to mitigate short-term payment volatility while transitioning to a methodology based on more objective and routinely updated cost data.

CMS also finalized changes to the methodology used to allocate indirect practice expenses. Specifically, indirect PE will generally be allocated using both work RVUs and clinical labor PE RVUs rather than the greater of the two measures. According to CMS, these changes are intended to better reflect current practice costs and improve transparency in physician payment.

Telehealth Services

The Final Rule implements statutory extensions to several Medicare telehealth flexibilities. Among other changes, telehealth flexibilities relating to geographic restrictions, originating site requirements, and the categories of practitioners eligible to furnish telehealth services have been extended through December 31, 2027. Certain telehealth flexibilities applicable to mental health services, including the delay of in-person visit requirements, have also been extended.

As required by Section 6209(g) of the Consolidated Appropriations Act, 2026, CMS also created new telehealth modifiers BB and BC, which are required on certain telehealth claims beginning January 1, 2027. CMS stated that these modifiers do not affect payment.

Chronic Disease and Behavioral Health Services

As part of its efforts to support chronic disease management, CMS finalized new coding and payment for shared medical appointments, in which multiple patients with similar conditions are treated in a group setting, and established an add-on code to account for additional time spent furnishing those services. CMS noted that shared medical appointments may provide beneficiaries with access to multidisciplinary support while fostering engagement and behavioral change.

CMS also finalized adjustments to payment for certain behavioral health-related services. Specifically, CMS finalized valuation changes applicable to smoking and tobacco cessation services, Screening, Brief Intervention, and Referral to Treatment (SBIRT) services, and Psychiatric Collaborative Care Model (CoCM) services.

Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs)

The Final Rule recognizes Diabetes Self-Management Training (DSMT) and Medical Nutrition Therapy (MNT) services as stand-alone billable visits under the Rural Health Clinic benefit when furnished by an appropriately certified provider under the direct supervision of an RHC practitioner. CMS stated that the policy is intended to improve access to these services in rural areas and align payment policies across care settings.

CMS also finalized regulatory changes implementing statutory extensions of telehealth flexibilities for RHCs and FQHCs through December 31, 2027.

Medicare Prescription Drug Inflation Rebate Program

The Inflation Reduction Act established the Medicare Prescription Drug Inflation Rebate Program, which requires drug manufacturers to pay rebates if they increase prices for certain Part B and Part D drugs faster than inflation. In the Final Rule, CMS finalized several changes to the program.

Among other changes, CMS clarified that Consumer Price Index for All Urban Consumers (CPI-U) data will be used when benchmark-period inflation data are unavailable for certain drugs. CMS also finalized new reporting requirements requiring certain 340B covered entities to submit specified claim-level information regarding covered Part D drugs to the Medicare Part D Claims Data 340B Repository. CMS delayed the deadline for the first mandatory quarterly submission until September 30, 2027.

The Final Rule is available here, and the fact sheet is available here.

Reporters, Francis Han, New York, NY, +1 212 556 2154, fhan@kslaw.com; David Tassa, Los Angeles, CA, +1 213 443 4335, dtassa@kslaw.com.

CMS Issues Proposed Rule Intended to Reform Medicare and Medicaid Regulations to Reduce Cost, Enhance Flexibility, and Streamline Regulation

On November 5, 2026, CMS issued a proposed rule titled “Medicare and Medicaid Programs; Cutting Administrative Requirements for Excellence in Patient Care,” after a review of the Conditions of Participation for all 21 provider and supplier types (the proposed rule). The proposed rule removes or streamlines requirements CMS considers obsolete or burdensome with the intention of reducing costs to allow providers to devote additional resources to patient care. CMS estimates annual savings of approximately $320 million under the proposed rule. The proposed rule amends portions of 42 C.F.R. Parts 403, 416, 418, 438, 442, 460, 482, 483, 485, and 494.

The proposed rule cites Executive Orders 14192 (“Unleashing Prosperity Through Deregulation”) and 14219 (“Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative”) as well as submissions to CMS’s April 2025 Request for Information related to Executive Order 14192, which it notes are related to the proposed rule. The proposed rule is identified as significant pursuant to Executive Order 12866 (“Regulatory Planning and Review”). The rule proposes changes specific to the following provider types:

The proposed rule also adopts the 2024 National Fire Protection Association edition codes for Life Safety Codes and Health Care Facilities Codes with limited exceptions, allows additional sources for emergency power for facilities required to have emergency and standby power, removes certain window and door requirements for sleeping areas in facilities, and rescinds certain state reporting requirements from the 2024 Minimum Staffing final rule related to the share of nursing facility and ICF/IID payments spent on worker and staff compensation, among other changes.

Finally, the proposed rule requests information on and solicits comments regarding (1) reducing barriers for new transplant programs, (2) whether to revise requirements for physician supervision of certified nurse anesthetists in certain facilities, and (3) how to reduce the burden for respiratory and infectious disease reporting through hospital automation and interoperability with the CDC’s National Healthcare Safety Network (NHSN).

The proposed rule was issued on November 5, 2026, will be published in the Federal Register on November 10, 2026, and the comment period will end 60 days after publication on January 9, 2027.

The proposed rule is available here.

Reporter Hamilton Craig, Washington, D.C., +1 202 626 8976, hcraig@kslaw.com.

CMS Issues CY 2027 Home Health Prospective Payment System Final Rule

On November 4, 2026, CMS released its annual Home Health Prospective Payment System Final Rule for Calendar Year (CY) 2027 (the Final Rule). CMS estimates that Medicare payments to home health agencies (HHAs) will increase by 2.4 percent, or approximately $415 million, in CY 2027. The Final Rule also continues a 3.0 percent cut to the base payment rate, which CMS is using to recover what it views as past overpayments. In addition, the Final Rule includes significant revisions to Medicare provider enrollment regulations that apply broadly across provider and supplier types.

CMS’s most notable enrollment regulation change was finalizing changes that substantially expand the circumstances in which enrollment revocations may be applied retroactively. Depending on the basis for revocation, CMS may assign effective dates reaching back to the date of the underlying noncompliance, conviction, suspension, or other triggering event, allowing the agency to recoup payments made during those periods. CMS also expanded the grounds for denying or revoking Medicare enrollment and shortened the period for revoked providers to submit remaining claims.

The Final Rule also expands Medicare coverage for certain home infusion drugs and infusion pumps, updates home health quality reporting requirements, and makes several changes to Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) policies. This article summarizes the Final Rule’s key provisions.

Payment Rates Overview

HHAs that submit the required quality data will receive a 2.1 percent payment increase for CY 2027. That figure reflects a projected 3.1 percent increase in the home health market basket, which measures price inflation for the goods and services HHAs purchase, reduced by a 1.0 percentage point productivity adjustment as required by statute. HHAs that do not submit quality data will receive only a 0.1 percent increase.

CMS also lowered the fixed-dollar loss (FDL) ratio used to determine eligibility for outlier payments from 0.37 to 0.29. CMS estimates that change will increase aggregate payments by approximately 0.3 percent, or $50 million, resulting in an overall payment increase of 2.4 percent.

Several commenters argued that the payment update fails to keep pace with rising labor, transportation, supply, technology, and compliance costs. CMS responded that it must follow the statutory formula and cannot change the productivity adjustment without legislation.

Continuation of 3.0 Percent Temporary Payment Reduction

In 2020, Medicare changed how it pays for home health care. At that time, CMS estimated how agencies would respond and set rates based on those assumptions. The law requires CMS to compare those assumptions with actual provider behavior and adjust payments to account for any differences. CMS has already implemented permanent payment reductions in each year from CY 2023 through CY 2026.

For CY 2027, CMS did not apply any additional permanent reduction. CMS did, however, continue a 3.0 percent temporary reduction to the base payment rate. CMS believes Medicare overpaid HHAs by about $4.9 billion from CY 2020 through CY 2025. That figure does not reflect amounts recouped through the CY 2026 reduction, which CMS will account for in future rulemaking. CMS expects the CY 2027 cut to recover roughly $500 million of that amount. CMS has not indicated how long it expects recovery to take and has signaled that additional temporary reductions may follow. Commenters urged CMS to eliminate the reduction altogether, but CMS declined, reasoning that a smaller cut now avoids a larger one later.

Because the CY 2026 rate already included the same 3.0 percent temporary reduction, the CY 2027 policy does not reduce payments relative to the current year. Rather, it continues the existing reduction while allowing CMS to recover additional amounts it believes were overpaid from CYs 2020 through 2025.

Quality Reporting Changes

HHAs will have less time to submit their patient assessment data to CMS. Currently, agencies have about 4.5 months after the end of each quarter. Starting in 2027, data will be due by the 15th day of the second month following the end of the quarter. For example, data for January through March 2027 will be due May 17, 2027. Some commenters raised staffing concerns, particularly for small and rural agencies, and requested a phased implementation or grace period. CMS declined, noting that over ninety-nine percent of assessments are already submitted within this window.

CMS is also changing the quality reporting year to a calendar year (January 1 through December 31), effective January 1, 2027.

Retroactive Revocations

Under current rules, Medicare enrollment revocations often do not take effect until 30 days after CMS mails notice of its determination. Under the Final Rule, every revocation may now be applied retroactively. In many cases, the revocation will reach back to the date the provider first fell out of compliance. This expansion allows CMS to recoup payments made during the period of noncompliance.

Many commenters warned that the policy could impose significant financial consequences on providers for minor or technical compliance violations. CMS disagreed. It stated that “[n]on-compliance at any level and to any degree remains non-compliance.” CMS also emphasized that a provider’s good-faith belief that it is compliant is not enough to avoid revocation.

Revoked providers will also have substantially less time to submit their remaining claims: 15 days from the date of the revocation letter, down from 60 days after the revocation effective date.

New Reasons CMS Can Deny or Revoke Enrollment

Too many providers in one place. CMS can now revoke a provider’s enrollment if CMS determines that the enrollment presents a high risk of fraud, waste, or abuse because the provider is located in a limited geographic area with an excessive number of providers and suppliers. CMS cited examples such as 18 HHAs operating out of a single building in Columbus, Ohio. It also pointed to more than 1,400 new HHAs enrolling in Los Angeles County since 2019. CMS refused requests to exempt hospitals and other established facilities. It did say the rule will be used only in “exceptional situations” and is not aimed at hospital campuses or health systems.

Certain misdemeanors. CMS can now deny or revoke enrollment if the provider, or any of its owners, managers, officers, or directors, was convicted in the past 10 years of a misdemeanor involving sexual assault or financial misconduct that CMS deems detrimental to the Medicare program.

Other changes. CMS can also:

CMS also broadened the types of business relationships providers must disclose on request and removed the five-year limit on how far back those disclosures reach, although CMS stated it does not currently anticipate requesting such disclosures. Finally, most providers and suppliers must now post a visible sign with their hours of operation, subject to limited exceptions (including providers that treat patients in their homes). CMS declined requests to delay implementation of these enrollment provisions.

Expanded Coverage for Home Infusion

Starting April 1, 2027, Medicare will cover certain external infusion pumps and associated home infusion drugs that previously fell outside the durable medical equipment benefit. To qualify, the drug’s FDA-approved prescribing information must instruct that the drug be administered by or under the supervision of a health care professional and be infused at least 12 times per year, intravenously or subcutaneously. A qualified home infusion therapy supplier must also administer or supervise the infusion. The health care professional must be physically present in the home and acting within their scope of practice under applicable federal and state law.

Other Changes

CMS clarified that replacing a DMEPOS item with the same item (billed under the same HCPCS code) does not require a new face-to-face encounter, although an order is still required. CMS also intends to require DMEPOS Competitive Bidding Program contract suppliers to report the country of origin of the lead items they furnish, which CMS will display in the Medicare Supplier Directory on Medicare.gov.

Effective Dates

The payment and quality reporting changes take effect January 1, 2027. The home infusion coverage changes take effect April 1, 2027. The Final Rule states that the other changes take effect 60 days after the Final Rule is filed for public inspection. The Final Rule, published in the Federal Register on November 9, 2026, is available here.

Reporter, Samantha Girschick, Atlanta, +1 404 572 4600, sgirschick@kslaw.com.

CMS Finalizes Rule Codifying the Medicare Drug Price Negotiation Program

On November 5, 2026, the Centers for Medicare & Medicaid Services (CMS) issued the Medicare Drug Price Negotiation Program and Medicare Prescription Drug Benefit Program Final Rule (CMS-4215-F) (the Final Rule). Established by the Inflation Reduction Act of 2022 (IRA), the Medicare Drug Price Negotiation Program (Negotiation Program) provides for CMS to negotiate maximum fair prices (MFPs) for certain high-expenditure, single source drugs and biological products. The Final Rule codifies, for initial price applicability year (IPAY) 2029 and beyond, the policies CMS previously set out in program guidance, with limited revisions and clarifications, and finalizes several new policies, most significantly a program integrity measure for certain fixed combination drugs that are new formulations. CMS stated that, in codifying the Negotiation Program, it is building on the first three negotiation cycles with a particular focus on continuing to increase transparency.

As background, CMS selected 10 Part D drugs for the first IPAY of 2026, 15 Part D drugs for IPAY 2027, and 15 Part B or Part D drugs for IPAY 2028, and will select up to 20 drugs for each IPAY beginning in 2029. The Final Rule adds a new 42 C.F.R. Part 429 for the Negotiation Program and amends the Part D regulations at 42 C.F.R. Part 423. For IPAYs 2026 through 2028, the IRA required CMS to implement the Negotiation Program through program instruction and other forms of program guidance, and that requirement expires at the end of 2028. The Final Rule applies to the Negotiation Program beginning with IPAY 2029 and to Part D coverage beginning January 1, 2029. Negotiation of MFPs for IPAY 2029 will take place during calendar year 2027, and CMS will publish the list of up to 20 selected drugs for IPAY 2029 no later than February 1, 2027. Program guidance for IPAYs 2026 through 2028 remains applicable to those years and is not superseded by the Final Rule, although the Final Rule’s provisions will apply starting in 2029 to drugs selected for those earlier years.

Below is a summary of the key provisions of the Final Rule.

Fixed Combination Drugs That Are New Formulations. The principal new policy in the Final Rule, and the only new policy CMS expects to have a financial impact, concerns specific fixed combination drugs that CMS determines are new formulations of existing drugs. CMS finalized the policy as proposed, now codified at 42 C.F.R. § 429.125(b)(4)(ii), with only organizational changes to the regulatory text. CMS adopted the policy to address what it describes as a program integrity loophole, under which a manufacturer could avoid selection of a product, or avoid application of the MFP, by marketing a new formulation that adds a component enabling an alternative route of administration.

• Prior Approach. Under prior guidance, CMS treated each distinct combination of active moieties, active ingredients, or antigen components as its own potential qualifying single source drug (QSSD), separate from a product of the same manufacturer containing only some of those components.

• New Aggregation Policy. Under the Final Rule, if a fixed combination drug shares one or more active moieties, active ingredients, or antigen components with another product of the same NDA/BLA holder, and the products differ due to an added component that creates a new formulation and enables an alternative route of administration, CMS will identify the QSSD using all dosage forms and strengths of the products containing the shared components.

• Scope. CMS expects the policy to impact products that add hyaluronidase (or a hyaluronidase variant) to enable subcutaneous administration of an existing intravenous product. CMS clarified that the added component need not be the sole enabler of the alternative route of administration, but acknowledged that the policy does not reach new formulations that leave the route of administration unchanged. CMS declined to extend the policy to co-packaged products at this time but stated that it will continue to monitor that issue, as well as the implementation of the new fixed combination drug policy.

• Approval Clock and Implementation. The time-since-approval or licensure period for an aggregated QSSD is measured from the earliest-approved application containing the shared components, so a newer formulation does not receive its own separate 7- or 11-year period. CMS declined to limit the policy to products approved after the Final Rule’s effective date or to create an appeals process.

• Deselection. Because the products are aggregated, the newer formulation will be deselected along with the original product once a generic or biosimilar for any dosage form or strength is subject to Bona Fide Marketing, which may result in the MFP applying earlier but for a shorter period.

Temporary Floor for Small Biotech Drugs. Although the statutory exception for certain small biotech drugs ended with IPAY 2028, the Final Rule implements the IRA’s Temporary Floor for Small Biotech Drugs for IPAYs 2029 and 2030 at 42 C.F.R. § 429.440. For an eligible drug, including a drug selected for renegotiation, CMS may not offer or accept an MFP below 66 percent of the drug’s inflation-adjusted 2021 average non-Federal average manufacturer price (non-FAMP). The primary manufacturer must apply for the floor, and certain post-2021 acquisitions make a drug ineligible. In response to comments, CMS finalized a modification to the treatment of non-FAMP in the adjusted ceiling calculation for certain qualifying Small Biotech Drugs (a modified stepwise approach for cases in which the statutory ceiling falls below the floor), but declined to eliminate the ceiling for such drugs.

Drug Selection, Orphan Drugs, and Bona Fide Marketing. The Final Rule codifies CMS’s process for selecting up to 20 drugs for each IPAY, ranked by combined total expenditures under Part B and Part D. Consistent with amendments made by the Working Families Tax Cut legislation (Pub. L. 119-21), CMS clarified the treatment of withdrawn approvals for indications for a drug that formerly qualified for the orphan drug exclusion; for such a drug, the 7- and 11-year periods run from the first day the drug no longer qualifies for the exclusion. The Final Rule also codifies CMS’s “Bona Fide Marketing” standard, a totality-of-the-circumstances review of whether a generic or biosimilar is meaningfully competing with the selected drug, along with the schedule on which CMS conducts that review.

Renegotiation. CMS must select for renegotiation every renegotiation-eligible drug whose monopoly status changes, and will select a drug with a new indication or a material change in a negotiation factor if CMS expects renegotiation to produce at least a 15 percent change in the MFP that would have a significant impact on the Medicare program. CMS clarified that a new off-label use will be considered for renegotiation eligibility only if the primary manufacturer voluntarily submits information about it. For renegotiation, CMS will consider the drug’s previously agreed-upon MFP as one data point among the manufacturer-specific factors under section 1194(e)(1) of the Social Security Act.

Part D Formulary Inclusion and Pharmacy Payment. The Final Rule codifies the requirement that Part D plans include on their formularies each selected drug for which an MFP is in effect, subject to an exception for certain immediate substitutions permitted under the Part D rules. CMS is not imposing tier placement or utilization management requirements for selected drugs at this time, but will continue to monitor plan formulary practices. The Final Rule also amends the Part D definition of “negotiated price” so that, for a selected drug, the price used for payment must not exceed the MFP plus any applicable dispensing fees. CMS declined to establish dispensing fee requirements, but will continue to closely monitor plan reimbursement for selected drugs.

Other Provisions. The Final Rule also codifies the timing and process for executing and terminating a Negotiation Program Agreement, which a willing primary manufacturer must sign no later than February 28 following the selected drug publication date. Other new provisions address the transfer of a Negotiation Program Agreement to an acquiring entity and the calculation of a 30-day equivalent supply for Part B drugs that are typically administered one time, such as some vaccines, gene therapies, and cancer therapies. CMS waived the 60-day delay in the effective date so that it can complete the biosimilar Initial Delay Request process before the February 1, 2027 deadline for publishing the selected drug list. The Final Rule does not codify requirements for manufacturer effectuation of the MFP; CMS intends to release final program guidance in fall 2026 on MFP effectuation for 2028, including for Part B drugs, and to codify effectuation requirements for 2029 and later years through Negotiation Program rulemaking in calendar year 2027. CMS likewise reserved for future rulemaking the civil monetary penalties for a manufacturer’s failure to provide access to the MFP for 2029 and later years.

The Final Rule is scheduled to be published in the Federal Register on November 9, 2026, and takes effect on December 5, 2026. The Final Rule is available here, and the CMS fact sheet is available here.

Reporter, Dennis Mkrtchian, Los Angeles, +1 213 218 4046, dmkrtchian@kslaw.com.

OIG Report Finds $658 Million in Potential Overpayments from the Provider Relief Fund 

In October 2026, OIG released an audit finding that the Health Resources and Services Administration (HRSA) made $658 million in potential overpayments to selected providers under Phase 3 of the COVID-19 Provider Relief Fund (PRF) program.

Congress gave HHS $178 billion for the PRF, which paid providers for COVID-19 health care expenses and lost revenue. HRSA ran the program. In Phase 3, HRSA paid about $19.3 billion to 64,048 providers. Each payment was the greater of 2% of the provider’s patient care revenue or 88% of its reported net revenue losses. OIG audited whether Phase 3 payments were correctly calculated, properly supported, and made to eligible providers. It reviewed a statistical sample of 150 providers and a nonstatistical sample of 15.

OIG’s Findings

The OIG’s report states that all sampled providers met federal eligibility requirements. However, the report also states that payments to 65 of the 150 statistically sampled providers were not correctly calculated or supported by appropriate documentation, and payments to 7 of the 15 non-statistically sampled providers were not correctly calculated. Stated errors included failing to subtract prior payments to subsidiaries, data entry mistakes, counting nonpatient care revenues and expenses, and applying the wrong loss ratio. The report states that, in one case, a contractor used $755,497 instead of $755,497,000 for a hospital’s quarterly revenue, leading to a potential overpayment of about $166 million.

OIG attributed the errors to HRSA procedures. HRSA calculated payments from self-reported figures without reviewing supporting documentation for about 95% of applications, and its contractor’s manual reviews did not always catch mistakes.

OIG recommended that HRSA review the sampled providers with potential overpayments and seek repayment of any overpayments, up to $658 million, and confirm whether undisclosed subsidiaries received prior PRF payments. HRSA did not state whether it agreed but said it will review the providers and seek repayment, as appropriate, pending available resources.

OIG’s full report can be found here.

Reporter, Jenna Anderson, Silicon Valley, +1 650 422 6719, janderson@kslaw.com.

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Alana Broe and Olivia Haimerl