On July 14, 2026, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2027 Physician Fee Schedule (PFS) proposed rule, which sets forth Medicare policies governing payment for physician services and other items and services furnished incident to those services, including drugs. Whereas last year’s PFS rulemaking included meaningful changes for drug manufacturer price reporting obligations (see our client alert), the CY 2027 proposed rule includes only limited drug pricing proposals related to the Inflation Reduction Act’s (IRA’s) Medicare Prescription Drug Inflation Rebate Program. These proposals include refinements and technical clarifications that build on the agency’s existing policies implementing the Inflation Rebate Program, including updates to the exclusion of 340B units from Part D inflation rebate calculations and new requirements for CMS’s 340B claims data repository. Earlier this month, CMS also released the CY 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System proposed rule, in which the agency proposes significant cuts to Medicare Part B payments to providers and suppliers for 340B-acquired outpatient drugs. This client alert analyzes key aspects of these proposed rules for drug manufacturers.
Notably, the 340B-related proposals in the payment rules represent just one area of a broader government focus on the 340B Program. The Health Resources & Services Administration (HRSA) released data earlier this month reflecting more than $100B in 340B spending on covered outpatient purchases in 2025, demonstrating dramatic growth in the program. The government continues to evaluate the 340B rebate pilot program to facilitate deduplication for Part D claims under Medicare Drug Price Negotiation Program. And just yesterday, CMS released effectuation guidance that includes the agency’s policies for deduplication of Part B claims under the program. These and other updates demonstrate an evolving policy landscape surrounding the 340B Program.
While PFS rulemaking primarily serves to establish Medicare payment for physician services, CMS historically incorporates additional policies as part of this rulemaking effort, including as related to the Inflation Rebate Program. In the CY 2027 proposed rule, CMS proposes targeted updates to both the Medicare Part B and Part D Inflation Rebate Programs, with particular focus on outstanding implementation issues related to how CMS will exclude 340B units from the inflation rebate calculations. Specifically:
- 340B Claims Data Repository: In the CY 2026 PFS final rule, CMS established a 340B claims data repository to collect data from covered entities and assess potential avenues for identifying units of Part D rebatable drugs that require deduplication. The testing period for the 340B claims repository is expected to begin in fall 2026, during which covered entities can begin submitting data elements voluntarily to CMS for evaluation. CMS is now proposing to require providers and suppliers that are covered entities to submit 340B data elements to the repository on a quarterly basis beginning in 2027 to ensure robust data submissions and improve the repository’s ability to aid deduplication of 340B units in the future. Notably, the data submitted to the repository would not be used to calculate inflation rebates. Rather, CMS will continue to use the Prescriber-Pharmacy Methodology adopted in the CY 2026 PFS final rule to remove 340B units from Part D inflation rebate calculations, and any future proposal to use data reporting to remove 340B units would be subject to notice-and-comment rulemaking. In addition, the agency acknowledges the importance of maintaining the confidentiality of the information submitted to the 340B repository and states that this data would not be made available to external entities, such as drug manufacturers and Part D plan sponsors.
- Claims-Based Exclusion of 340B Units: CMS proposes to build on the existing claims-based methodology to exclude 340B units from the total number of units of a Part D rebatable drug dispensed during an applicable period. Specifically, CMS is proposing to modify its current Prescriber-Pharmacy Methodology to better account for the high volume of 340B-eligible utilization for beneficiaries enrolled in AIDS Drug Assistance Programs (ADAPs) by excluding all units of Part D rebatable drugs, including antiretrovirals, dispensed to ADAP enrollees.
- Enforcement: In the proposed rule, CMS explains that Civil Monetary Penalties (CMPs) are not the exclusive enforcement mechanism for a manufacturer’s failure to satisfy inflation rebate program repayment obligations or other conduct affecting rebate liability. CMS clarifies that it may also refer a manufacturer to the Department of Justice, the Department of the Treasury, and/or HHS OIG for further review and investigation, regardless of whether CMS separately imposes CMPs on the manufacturer.
- Other Changes: CMS also proposes several refinements and clarifications of existing policies under the Inflation Rebate Program, including clarifying the data that will be used when Consumer Price Index for All Urban Consumers (CPI-U) data are unavailable for a given month and for identifying the first marketed date when average sales price (ASP) data are not available. CMS also proposes amending the Part B exclusion for skin substitutes to clarify that a skin substitute licensed as a drug or biological product under section 351 of the Public Health Service Act would not be excluded from the definition of a Part B rebatable drug.
The proposed rule of course includes other changes beyond those related to the Inflation Rebate Program. In particular, CMS proposes reductions to payment conversion factors for qualifying alternative payment model participants (QPs) and practitioners who are not QPs (non-QPs), as well as payment reductions for same-day services and modifications to remote physiologic monitoring (RPM) and remote therapeutic monitoring (RTM) services. CMS also sets forth new coding proposals, including to capture vaccine adverse events.
Notably, CMS did not propose to build on the new requirements for calculating ASP finalized in the CY 2026 PFS final rule. As discussed here, last year’s final rule added significant new documentation and submission requirements related to bona fide service fees (BFSFs), including reasonable assumption submission, documentation of fair market value (FMV), and certification requirements for BFSFs. Although these new requirements went into effect on January 1, 2026, due to delays in receiving the necessary approval of the new information collection requirements, CMS waived the requirement to submit this additional documentation for the first quarter of 2026. As a result, the ASP reporting for the second quarter of 2026, which is due on July 30, 2026, is the first time manufacturers will be required to comply with the new reporting requirements.
On July 7, CMS released the CY 2027 OPPS and ASC proposed rule. In the proposed rule, CMS proposes an almost 40% reduction in Medicare Part B payments for 340B-acquired outpatient drugs. CMS previously cut Part B payments to hospitals for 340B-acquired drugs from the default rate of ASP plus 6% to ASP minus 22.5% in the CY 2018 OPPS rule. The Supreme Court invalidated that policy in American Hospital Assn. v. Becerra, holding that CMS could not vary reimbursement rates by hospital group without first conducting the acquisition cost survey required under Section 1833(t) of the Medicare statute. CMS later issued a rule outlining the remedy for the invalidated policy and paid approximately $10.6 billion to affected 340B hospitals.
To address the deficiencies identified by the Supreme Court, CMS finalized the OPPS Outpatient Prescription Drug Acquisition Cost Survey in the CY 2026 OPPS final rule. The survey was conducted from January 1 through April 7, 2026, and requested hospital data on total units purchased and total net acquisition costs for 340B drugs and non-340B drugs. After analyzing the survey data, CMS found that around 53% of non-340B hospitals and 29% of 340B hospitals responded and reported cost data. The survey results showed that hospitals’ reported acquisition costs for 340B-acquired drugs were approximately 33.4% below both mean and median ASP. Based on the findings of this survey, CMS is now proposing to reduce Part B reimbursement rates for 340B-acquired drugs to ASP minus 33.4% and, as required by OPPS budget-neutrality rules, increase OPPS payments for non-drug services by an estimated 8.4% beginning on January 1, 2027. CMS projects that this change would reduce Medicare drug payments by $4.55 billion and beneficiary drug payments by $1.15 billion in the first year.
Comments on the CY 2027 PFS proposed rule must be received by September 14, 2026, and comments on the CY 2027 OPPS proposed rule are due by August 31, 2026. By statute, CMS must issue both final rules later this fall. As noted above, CMS is also considering related issues particularly on the 340B Program in other policy forums.
Please reach out to any of the Covington attorneys listed below if you would like to discuss the content of this alert or any other drug pricing questions.
Back
