McDermott Will & Schulte, a global law firm

On July 7, 2026, the Centers for Medicare & Medicaid Services (CMS) published the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System proposed rule for calendar year 2027. Clocking in at 723 pages, the proposed rule would impact myriad payment-related aspects of outpatient healthcare. Among them, proposed changes relating to provider-based attestations (PBAs), the 340B program, site-neutral payments for imaging services, and Emergency Medical Treatment and Labor Act (EMTALA) survey authority would have immediate impact on hospitals. Hospitals and health systems should consider submitting comments on these and other provisions of the proposed rule prior to the August 31, 2026, deadline.

Provider-based attestations: Details on the new requirement for off-campus hospital departments

The proposed rule would codify the provisions of Section 6225 of the Consolidated Appropriations Act (CAA) of 2026 that require hospitals to obtain and bill under separate national provider identifiers (NPIs) for each off-campus provider-based department and submit, during the two-year period ending on the date items and services are furnished and no later than January 1, 2028, a PBA for each such location in order for such departments to be paid under the OPPS. Submission of the PBA by the January 2028 deadline, and not acceptance, is required. Subsequent attestations would also be required. The changes identified in the proposed rule would be set forth in changes to the existing provider-based regulation at 42 CFR Section 413.65 (provider-based rules) and in a new regulatory section, 42 CFR Section 419.23.

As provided in the CAA of 2026, by the January 1, 2028, deadline, main provider hospitals will be required to obtain a separate NPI for each provider-based department, update that information in PECOS, and bill under those department-specific NPIs. This separate NPI information will be reported on the new PBA form, which is described below.

In the proposed revisions to the provider-based rules, CMS would establish the requirement to submit an initial PBA for each off-campus provider-based department within the two -year period prior to furnishing services, with subsequent attestations within a period not to exceed five years thereafter. CMS has deferred subsequent attestation requirements to 2028 rulemaking.

Accordingly, for off-campus provider-based departments providing services on or before January 1, 2028, providers would be required to submit initial attestations between January 1, 2026, and December 31, 2027. For off-campus provider-based departments that submitted a PBA prior to January 1, 2026, and remain in compliance with the provider-based rules, CMS solicits comments on the potential for an alternative process involving attestation of continued compliance in lieu of submitting a new PBA.

Potential for new provider-based departments remains uncertain

For off-campus provider-based departments that begin operations after January 1, 2028, the process is less certain. The proposed rule would require off-campus provider-based departments that begin providing services after January 1, 2028, to submit an attestation “within the 2 years prior to when the billed services are delivered,” with subsequent attestations submitted thereafter at intervals to be set by CMS. This presents a conundrum, as it is not possible to retroactively submit a PBA. For example, if a new off-campus provider-based department begins operations on March 1, 2028, the hospital cannot have submitted a PBA “within the 2 years prior to when the billed services are delivered,” as provider-based departments cannot be in, or demonstrate, compliance with the provider-based rules until they are operational, which in this example did not occur until March 1, 2028. The proposed rule does not address this inconsistency and leaves open the question of how and if new off-campus provider-based locations will be approved under this new process.

Standardized attestation form and review process

CMS proposes replacing the existing Medicare administrative contractor (MAC)-specific PBA forms with a single standardized electronic attestation form, with the goal of reducing administrative burden and facilitating review. CMS invites comments on the proposed new PBA form. Until CMS finalizes the new form, which includes essentially the same information for off-campus departments as in the existing MAC forms, the agency instructs hospitals to use the current form from their respective MAC.

The proposed rule would further modify the provider-based rules to have the PBA review process led more directly by the MACs, allowing an initial determination of whether an organization is provider-based to be made by CMS “or its agents,” including MACs. The review process would utilize standardized review, validation, and risk-based screening to assess PBAs and compliance with the provider-based rules, inclusive of automated validation, data analysis, document review, and contractor review procedures, all of which will be set forth in operational guidance and overseen by CMS.

While the existing PBA process involves submission of hundreds of pages of supporting documents, the anticipated process described in the proposed rule would significantly streamline this. CMS would require providers to submit a more limited set of information with the PBA and would require them to maintain further documentation and furnish it upon request to CMS or MACs once the provider submits the attestation form, likely with a 60-day response window. CMS plans to focus on documentation demonstrating compliance with Sections (d), (e), (g), and (h) of the provider-based rules, emphasizing the goals of using targeted document review and streamlining the process.

The proposed rule describes the documentation review framework as:

• Completion of the new PBA signed and dated by an authorized official that identified the main provider and each off-campus provider-based department seeking provider-based status, including the department-specific NPIs, provider numbers, addresses, and the date upon which the provider-based rules were met (or date of acquisition).
• Confirmation of meeting the 35-mile location requirement, which may be automatically measured by the electronic attestation system with documentation requested if the measurement is not automatically verified.
• Being “prepared to provide” evidence that the off-campus outpatient department meets the provider-based rules’ requirements for licensure; clinical integration; financial integration; public awareness; compliance with EMTALA and antidumping rules; site of service billing requirements; and notice of beneficiary coinsurance liability, ownership, and control by the main provider.

While these changes would eliminate the need to submit voluminous supporting materials with the attestation, the process of gathering and reviewing such materials in order to credibly complete the attestation – and to be prepared to provide that evidence upon request – means that hospitals will still need to undertake the steps to assess compliance and collect the documents needed to evidence that compliance if requested.

CMS requests comments on the scope and sequencing of documentation requirements, including the potential to phase in the requirements over time to facilitate compliance by the January 1, 2028, deadline. CMS also solicits input on how to best minimize the burden for providers that will submit PBAs for multiple off-campus provider-based departments, as the agency seeks to streamline documentation requirements while ensuring oversight.

Failure to demonstrate compliance with the provider-based requirements or to provide requested information and attestations would lead to a denial of the PBA, which would be subject to appeal rights.

Verification and ongoing oversight

The proposed rule makes clear that the days of limited affirmative CMS oversight of provider-based departments are over. CMS states that it will use program integrity mechanisms to evaluate compliance with provider-based requirements and identify PBAs that require additional review or oversight, including via site visits, remote audits, investigations, documentation requests, and the use of MACs, as well as any technology-based mechanisms that are or become available.

CMS outlines a multi-phase review process in the proposed rule, including an “initial review stage” where CMS and its contractors, including MACs, would employ automated validation and screening of PBAs to verify completeness, alignment with PECOS records, and the presence of required attestation elements. Any inconsistencies, gaps, or indicators of elevated compliance risk would be flagged for targeted review and document production. In the “extended review stage,” CMS and its contractors, including program integrity contractors, would select a subset of attestations for an extensive compliance review. This stage may include provider audits; site visits to validate compliance with the provider-based rules’ physical, financial, clinical, and administrative integration requirements; or inquiries through data analysis or other resources.

Failure to submit requested documentation within the stated period could result in a determination of noncompliance and recovery of overpayments.

Opportunities for comment

The proposed rule is part of CMS’s notice-and-comment rulemaking, and the public may submit comments electronically or by mail/overnight delivery no later than August 31, 2026. Specific to the PBA, CMS invites comments on:

• Subsequent attestations after the initial attestation process.
• Initial mandatory attestations where a provider has received a provider-based determination prior to January 1, 2026, and remains in compliance with the provider-based rules.
• The proposed new PBA form.
• Scope and sequence of PBA documentation requirements, including whether categories should be further prioritized, consolidated, or phased in over time.
• Feasibility, operational impact, implementation, potential burden, and unintended consequences.

CMS specifically requests detailed rationale, data, examples, and alternatives as part of the comments.

Accelerated recoupment of the 2018 – 2022 340B budget neutrality payments

CMS proposes to reduce OPPS payments for non-drug items and services by 3% per year until it has recouped the approximately $7.8 billion paid to all OPPS hospitals under the budget neutrality adjustment related to the 28.5% payment cut for 340B drugs in place from 2018 to 2022. Because that payment cut was implemented in a budget-neutral manner, the estimated “savings” from the cut were redistributed to all hospitals paid under OPPS through an increase in OPPS payments for non-drug items and services. After the US Supreme Court found the 340B payment cut unlawful, CMS decided to recoup these additional payments to offset the refunds it was required to make to 340B hospitals.

CMS originally finalized a payment reduction of 0.5% to recoup the payments, but in the 2026 OPPS proposed rule, decided to increase the payment reduction to 2% to accelerate the recoupment timeline. After considerable opposition from hospitals, CMS opted not to finalize the increased recoupment amount and implemented the 0.5% reduction for 2026. However, CMS stated that hospitals should anticipate implementation of a payment reduction of greater than 2% beginning in 2027.

Consistent with this statement, CMS now proposes a 3% payment reduction to recoup the prior budget neutrality payments. CMS indicates that this change would more appropriately restore hospitals to the financial position that they would have been in had the budget neutrality payments not been made, largely because it aligns with the period during which the payments were made between 2018 and 2022. CMS believes that the longer the recoupment period, the less likely that the recouped payments for each affected hospital will align with the amount of budget neutrality payments the hospital received. CMS also believes that because the budget neutrality payments were approximately 3.19% from 2018 to 2022, a 3% recoupment rate more closely matches the original payment benefit.

CMS acknowledges that it decided to postpone the implementation of the 2% payment reduction in 2026 based on comments from hospitals expressing concerns about their reliance interests on the previously finalized 0.5% payment reduction. However, CMS emphasizes in the proposed rule that it had communicated to hospitals that a shorter recoupment period and higher recoupment payment reduction would be proposed for 2027.

CMS seeks comments on its proposal to increase the payment reduction to 3%, or whether the agency should increase it to only 2%. CMS does not explicitly seek comments on retaining the current 0.5% payment reduction as finalized in 2023, but hospitals concerned about the recoupment acceleration and payment reductions above 0.5% should still submit comments in support of the status quo.

Reimplementation of 340B payment cuts

The Supreme Court found the 340B payment cut in place from 2018 to 2022 unlawful because CMS had failed to conduct a survey of hospital drug acquisition costs, as required by the statute establishing CMS’s authority to pay for drugs under OPPS at each drug’s average acquisition cost. Consistent with the statute and a 2025 executive order directing CMS to conduct the required survey, CMS conducted a survey of hospital drug acquisition costs in early 2026 and proposes to use the results of that survey to reduce payments for 340B drugs from the current rate of average sales price (ASP) plus 6% to ASP minus 33.4%.

The proposed rule includes detailed discussion of the survey and the statistical methodology used to determine that ASP minus 33.4% represents the average acquisition cost of 340B drugs. Hospitals should consider reviewing this information with an appropriate expert to evaluate weaknesses in the methodology and determine if CMS’s conclusions regarding the validity of the survey data are accurate.

Hospitals should pay particular attention to the following concepts referenced in the proposed rule and submit appropriate comments in response:

• CMS proposes to conduct the hospital outpatient drug acquisition cost survey every four years.

• CMS excluded reported 340B acquisition costs in excess of the 340B ceiling price on the basis that covered entities cannot be required to pay more than the ceiling price.
  • Including 340B acquisition costs in excess of the 340B ceiling price would result in a payment reduction of 31.8%.

• CMS determined that the acquisition cost data for non-340B drugs was more variable than for 340B drugs, and therefore opted not to propose implementing a payment reduction for non-340B drugs at this time. However, CMS indicates that it continues to analyze the data for future payment adjustments and that non-340B drug acquisition costs appear to be lower than the current ASP plus 6% rate.

• Notwithstanding the statutory language requiring that OPPS payment adjustments for drugs be done at the individual drug level, CMS proposes to apply a uniform payment reduction to all 340B drugs.

• CMS determined that no add-on payment was necessary for 340B drugs to cover overhead and related expenses because the agency believes that it is using a “conservative estimate” of 340B drug acquisition costs that may already account for overhead, and that hospitals will negotiate additional discounts that will make such an adjustment unnecessary.

• Although the statutory language applies only to certain drugs (i.e., specified covered outpatient drugs), CMS proposes to apply the payment reduction to all separately payable drugs, biologics, biosimilars, and radiopharmaceuticals on the basis that it has treated these drugs in the same manner for payment purposes since 2006.

• CMS emphasizes that reducing payments for 340B drugs will save Medicare beneficiaries an estimated $1.15 billion in out-of-pocket costs for 2027, despite the fact that the budget neutrality payment adjustment will result in almost 90% of these “savings” being offset by increases in out-of-pocket costs for all non-drug items and services.

• Because the statutory payment adjustment provision applies only to drugs paid under OPPS, it does not apply to drugs used in “non-excepted” hospital off-campus outpatient departments subject to “Section 603” site-neutral payment adjustments, as such drugs that are considered to be paid under the Medicare Physician Fee Schedule. To avoid “perverse incentives and the resulting distortions” that continuing to pay for 340B drugs at non-excepted hospital off-campus outpatient departments might cause, CMS proposes to reduce the payment for these drugs as well to ASP minus 33.4%. Notably, the “savings” generated from these payment cuts would not be budget neutral, so would not result in an increase in payments for all non-drug items and services.

• CMS proposes to exclude children’s hospitals, PPS-exempt cancer hospitals, and rural sole community hospitals from the 340B payment cuts, as well as hospitals not paid under OPPS (e.g., critical access hospitals, Maryland hospitals).

• CMS proposes to implement new claim modifier requirements for all hospitals paid under OPPS, with 340B drugs subject to the payment reduction requiring modifier “JG,” 340B drugs not subject to the payment reduction requiring modifier “TB,” and non-340B drugs (including those billed by non-340B hospitals) requiring a new modifier, currently identified by the placeholder “XX.”

• Despite the statutory requirement to use the hospital outpatient drug acquisition cost survey to adjust OPPS payments for drugs, CMS seeks comments on instead using 340B ceiling prices to adjust payments for 340B drugs, which it indicates would result in a payment of ASP minus 28%.

Site-neutral payment for non-contrast imaging

CMS proposes to use its authority to adjust payments to control “unnecessary” increases in the volume of services paid under OPPS to reduce non-contrast imaging services furnished at “excepted” off-campus hospital outpatient departments (i.e., those not subject to the Section 603 site-neutral payment adjustments) to the comparable Physician Fee Schedule rate, an estimated 60% reduction from the current payment rate. This is the same authority CMS has previously used to reduce payments for hospital clinic visits and drug administration services at excepted off-campus hospital departments. As with these prior payment reductions, CMS proposes to exclude rural sole community hospitals. CMS estimates that this payment reduction would lower Part B spending by $7.2 billing between 2027 and 2036.

In the proposed rule, CMS devotes significant space to concerns regarding the overuse of hospital outpatient departments to provide care that could be provided in physician offices or other lower-cost locations, the financial harms that this causes to beneficiaries and the Medicare program, and the necessity of using its authority to reduce OPPS payments to control increases in volume to address these concerns. Hospitals should review the CMS narrative closely and submit comments to counter any misunderstandings or misapplications of visit data.

EMTALA enforcement: No longer limited to complaint-based surveys

The proposed rule provides for changes to the way hospitals are surveyed for compliance with EMTALA, the federal anti-dumping law that includes administrative and clinical requirements with which enrolled hospitals must comply. Historically, compliance with EMTALA regulations was exclusively the purview of CMS via state agency surveys conducted in response to EMTALA-related complaints, rather than affirmative review during ordinary course survey activity.

Most US hospitals participate in Medicare via accreditation from a CMS-approved accrediting organization (AO), which can “deem” compliance with Medicare requirements if CMS approves its standards and survey processes. Joint Commission and DNV are among the most utilized AOs for hospitals.

The proposed rule would require AOs to review compliance with EMTALA’s administrative requirements at Sections 489.20 (l), (m), (q), and (r) during accreditation and reaccreditation surveys, and to address deficiencies through established corrective action plan and monitoring procedures in line with EMTALA’s existing protocols. These regulations include rules related to the requirements for a hospital to report inappropriate transfers; post signage regarding EMTALA rights and Medicaid participation; and maintain transfer records, on-call lists of physicians available to provide stabilizing treatment, and a central log of individuals who come to the emergency department seeking treatment and their disposition.

AOs would not be authorized to assess or enforce compliance with the substantive clinical/care-focused EMTALA requirements at Section 489.24; this authority would remain with CMS. Instead, the AO would refer any noncompliance with these requirements identified during its survey activity to CMS for further review and state agency investigation.

CMS’s stated motivation for these proposed changes is to integrate review of EMTALA’s administrative elements into existing AO processes as a means of enhancing sustained compliance while freeing state agencies from conducting EMTALA-only initial investigations and allowing them to concentrate instead on complaint surveys for noncompliance with Section 489.24.

As noted in the proposed rule, AOs would need to update their accreditation standards to identify expectations around compliance with Section 489.20, and hospitals would need to prepare for more regular review of these administrative aspects of EMTALA.

*    *    *    *

Hospitals interested in additional information about the full scope of material provisions in the proposed rule and additional analysis, including interactive rate dashboards, can refer to this +Insight from our colleagues at McDermott+.