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July 9, 2026 – It’s been really hot outside, which means one thing in the health policy world: Medicare’s summer rule season is upon us! The Centers for Medicare & Medicaid Services (CMS) has released major proposed regs impacting payments for calendar year (CY) 2027.
Each Medicare payment system has its own set of rules and nuances, and thus, when CMS proposes changes every year, it is often difficult to tease out the overall impact on individual providers, facilities, patients, and other stakeholders. In many cases, CMS proposes a set of policies that have complex interactions, ultimately resulting in projected payment increases for certain services delivered by specific providers, and projections for other payments that are likely to go in the opposite direction.
Data analytics is the key to understanding the potential payment impacts of these rules on individual stakeholders and the opportunities for policy improvements and modifications in the final rules. The CY 2027 Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System proposed rule, released on July 2, 2026, is a perfect example. The rule includes a myriad of proposed policies that, if finalized, would have widely varying impacts on hospitals and ASCs depending on the specific services and procedures that they typically perform. To help me describe the puzzle that is the OPPS and ASC proposed rule, as well as certain questions that can be answered by data analysis, I’m bringing in my colleagues Deb Godes, Marla Kugel, and Devin Stone.
The first item that stakeholders usually look at in Medicare payment rules is the overall payment update. Under OPPS and the ASC Payment System, there is a statutory update factor to the conversion factor that is based on a market basket update minus a productivity adjustment. The CY 2027 proposed update is an increase of 2.4%. However, the actual proposed payment update to ASCs and hospitals is more complicated than a basic conversion factor update.
Overarchingly, two other policies will impact the conversion factor:
The conversion factor is being pulled in multiple directions, but because of budget neutrality, payments for non-drug items in the hospital setting would increase significantly. Regs & Eggs has often discussed budget neutrality in the context of the Physician Fee Schedule (PFS), but here again we see how the budget neutrality requirement in Medicare can cause major redistributions in payment. While payments for non-drug-related items would increase, payments for drugs, especially 340B drugs, would decrease.
How each hospital will fare under this proposed budget neutrality adjustment depends on the ratio of services to drugs subject to the 340B payment reduction, and on the service mix. Using the following inputs, a hospital could calculate the combined effects of all the budget neutrality adjustments on expected payments for CY 2027 under OPPS:
CMS gives stakeholders the opportunity to comment on how the 340B drug acquisition survey results were analyzed. CMS offers one alternative ASP discount of 28% instead of 33.4%. Hospitals could model this alternative and others, but it gets tricky. As soon as CMS turns the dial up or down on the ASP discount, the total amount that would be saved changes and the budget neutrality adjustment needs to follow suit.
There are even more changes afoot that would impact provider payments under OPPS. CMS continues to promote site-neutral payments and shift services to less costly settings.
As background, using its “unnecessary increases in volume” authority, CMS implemented a policy in 2019 that reduced OPPS payments to a rate equivalent to the PFS rate for clinic visits described by HCPCS code G0463 and furnished at off-campus PBDs that previously were excepted or exempted from site-neutral payment policies. CMS phased in the payment reduction over two years. In 2023, CMS implemented a policy that exempted off-campus PBDs of rural SCHs from this reduction. For CY 2026, CMS expanded its site-neutral policy to pay drug administration services furnished in excepted off-campus PBDs at a PFS-equivalent rate and exempted SCHs from this policy.
For CY 2027, CMS proposes to apply the PFS-equivalent payment rate for any HCPCS codes assigned to the imaging services without contrast ambulatory payment classifications (APCs) when provided at an excepted off-campus PBD. CMS proposes to exempt off-campus PBDs of rural SCHs from this proposal. If finalized, the following APCs for imaging would be paid at 40% of the amount that would have otherwise been paid under the OPPS, when billed by an excepted off-campus PBD:
CMS proposes to include the composite APCs (8004, 8005, and 8007) because they include applicable HCPCS codes that would otherwise be subject to this proposed policy if furnished as stand-alone services.
CMS estimates that if finalized, this policy would reduce Medicare spending by $260 million in 2027, with $190 million in savings accruing to Medicare and $70 million in reduced copayments for beneficiaries. CMS projects that starting in 2028, savings from this policy would flow into the baseline for Medicare Advantage rates. CMS estimates that this policy would lower net Part B spending by $7.2 billion from 2027 through 2036.
Removing these 637 services would leave 801 services on the IPO list for removal in CY 2028. CMS describes the remaining services as “more complex in clinical nature”; they include cardiovascular, neurological, solid organ, intestinal, and islet cell transplant procedures. CMS listened to stakeholders who requested that certain invasive procedures such as craniotomy be saved for the last phase of the removal process, as they may require more adjustment to existing APCs or additional APCs. CMS continues to seek comments on APC restructuring or the establishment of new APCs to accommodate additional codes removed from the IPO list. As CMS considers approaches for the more complex procedures remaining on the IPO list, a data-driven analysis (using CMS’s own claims data) may resonate best with the agency. McDermott+ developed such a methodology in response to the CY 2026 rulemaking cycle.
These two policies not only have payment implications for CY 2027, but also raise questions about future impacts. For example, for the IPO transition, it seems that CMS has picked off the “low-hanging fruit” and is looking for public feedback on how best to move the remaining services off the list in CY 2028.
Questions on provider, manufacturer, and other stakeholders’ minds may be:
The proposed policies in the rule would have a dynamic impact on ASC reimbursement if finalized. CMS continues to expand the ASC covered procedures list by proposing to add 618 codes that were recommended by stakeholders or are proposed for removal from the IPO list for CY 2027. ASCs would theoretically be able to deliver more procedures that were not reimbursable under Medicare previously.
While that policy could produce revenue opportunities for ASCs, budget neutrality impacts from the 340B policy would actually reduce payments for certain services performed at ASCs. Under the ASC Payment System, CMS holds the device portions of device-intensive procedures (those with a device cost representative of more than 30% of the total cost of the procedure) constant between the two settings. The device portion is the device offset percentage multiplied by the OPPS payment rate. Due to increased volume of device-intensive procedures in the ASC setting as well as the increase in OPPS payment rates for services as a result of the budget-neutral aspect of the 340B drug payment reduction proposal, the device portions would represent a significant share of total ASC payments for CY 2027. The device portions are taken out of the pool of ASC dollars that are subject to scaling for budget neutrality. This would result in a significant reduction in payment rates for non-device-intensive ASC procedures based on OPPS APC weights for CY 2027.
If CMS were to include device portions as subject to scaling, ASC payment rates for device-intensive procedures would decrease and ASC payment rates for non-device-intensive procedures would increase. CMS estimates that including the device portion in budget neutrality scaling would increase the proposed ASC weight scaler from 0.809 to 0.865 in CY 2027 but would decrease the ASC payment for the device portion of device-intensive procedures by about 14%. For reference, the CY 2026 final rule ASC weight scaler was 0.872.
CMS seeks stakeholder feedback as to whether the device-intensive calculation methodology should continue to exclude device portions from the ASC weight scaler or whether the device portions should be included in scaling for CY 2027.
To truly understand the interaction of these ASC policies, breaking down the ASC weight scaler calculation can be very useful. First, it may be worthwhile to check CMS’s work. Did CMS accurately account for volume, payment, and other factors in the calculation? By understanding and replicating the scaler calculation, stakeholders can offer alternatives while understanding the impacts of such alternatives at the provider level or individual procedure payment level.
Putting together the puzzle pieces to understand the overall impact of all the proposed policies in this rule might be challenging, but McDermott+ is here to help. We have created a dashboard showing the proposed 2027 Medicare payment rates for OPPS and the ASC Payment System by procedure code and can assist in other data analyses for hospitals, ASCs, and other stakeholders. Please feel free to reach out with questions!
Until next week, this is Jeffrey (and Deb, Marla, and Devin) saying, enjoy reading regs with your eggs.
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