Overview
In the CY 2027 OPPS/ASC proposed rule, CMS proposes to pay for separately payable drugs, biologicals, biosimilars, and radiopharmaceuticals acquired under the 340B Drug Pricing Program at ASP minus 33.4%, with no overhead or handling add-on, effective January 1, 2027. This is essentially a 37% reduction in Medicare reimbursement for these drugs. Drugs acquired outside the 340B Program would continue to be paid at generally ASP plus 6%. Most Medicare Advantage plans will presumably follow this approach over time, while commercial payer arrangements will remain subject to contractual terms.
This is CMS’s first survey-based 340B payment adjustment since the Supreme Court invalidated the 2018–2022 cuts in American Hospital Association v. Becerra for lack of acquisition cost survey data. CMS designed the recent Outpatient Drug Acquisition Cost Survey (ODACS) to cure that defect and better defend its approach. It is anticipated that hospitals will once again bring litigation on this matter, and whether the survey will hold up in court will be an industry topic to watch.
The financial consequences for 340B hospitals are significant: CMS estimates a $4.85 billion reduction in OPPS drug payments, redistributed budget-neutrally through an 8.44% increase to the conversion factor for non-drug items and services paid to all OPPS hospitals.
The Survey and Its Results
ODACS collected acquisition cost data at the NDC level for purchases made July 1, 2024 through June 30, 2025, with 340B and non-340B purchases reported separately. Overall, 43.6% of eligible hospitals enrolled in ODACS but only 29.8% reported acquisition data, including only 23.1% of 340B hospitals (28.6% after CMS’s population refinements), versus 53.3% of non-340B hospitals. After outlier trimming and data refinements, CMS found that 340B acquisition costs were approximately 33.4% below mean ASP, while non-340B acquisition costs were approximately 2.7% above mean ASP. As a validation benchmark, aggregate HRSA 340B ceiling prices were roughly 28% below mean ASP over the same period.
Additional Elements of the Proposed Policy
- Rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals are exempt. (CAHs and REHs fall outside the OPPS entirely.)
- CMS extends the reduction to nonexcepted off-campus provider-based departments paid under the PFS.
- New billing mechanics apply beginning January 1, 2027:
- Modifier JG (triggers the reduction),
- Modifier TB (informational, for exempt providers and drugs), and
- A new mandatory modifier (placeholder “XX”) for all separately payable drugs not acquired through 340B.
- The discount would ride on quarterly ASP updates, with the survey expected to be repeated roughly every four years.
- CMS also seeks comment on an alternative of ASP minus 28.0% derived from HRSA ceiling price data
Advis Observations and Areas of Concern
Representativeness of the 340B sample. CMS is proposing to adjust payments for all 340B hospitals based on cost data from fewer than 1 in 4 of them — about 77% did not report their acquisition costs. CMS offers three reasons the sample is still reliable: drug prices tend to be similar from hospital to hospital, so a smaller sample can still approximate the true average; rerunning the calculation thousands of times produced nearly the same result each time, suggesting the estimate is precise; and re-weighting the data to better mirror the full hospital population barely changed the answer. The concern being that these methods demonstrate precision rather than representativeness.
Selection of the most aggressive endpoint. CMS’s own sensitivity testing produced 340B margins ranging from approximately ASP minus 29.9% to ASP minus 33.4% depending on weighting methodology and treatment of above-ceiling responses and CMS proposes the deepest cut in that range. Coupled with the ceiling-price-based alternative of minus 28%, the record itself supports a materially less severe adjustment.
Asymmetric application of survey results. The same survey found non-340B acquisition costs at ASP plus 2.7%, yet CMS proposes to retain ASP plus 6% for non-340B drugs, preserving an approximately 3.3-point margin above surveyed cost for those hospitals. 340B hospitals, by contrast, would be paid at the bare estimated acquisition cost. The survey results are thus applied fully in only one direction, stripping 340B providers of the Medicare-derived margin the program was designed to let covered entities stretch across safety-net services — an outcome in tension with Congressional intent for the 340B Program.
Manufacturer ability to influence quarterly economics. Because payment would track quarterly ASP while the 340B ceiling price is computed independently from AMP and the URA, manufacturers can influence the two benchmarks separately. Quarterly price actions that lower ASP, compress or eliminate the spread between the ASP minus 33.4% payment and actual 340B acquisition cost. That harm falls exclusively on 340B providers; non-340B payment retains a fixed positive markup over the same moving benchmark. This is a growing strategy employed by manufacturers in the era of Medicare drug cost allocations under the Medicare Drug Price Negotiation Program.
Extension to nonexcepted off-campus PBDs. These departments are statutorily excluded from the OPPS under Section 603 of the Bipartisan Budget Act of 2015 and paid under the PFS. CMS’s reliance on the “applicable payment system” and PFS relativity adjuster rationale to import an OPPS acquisition-cost adjustment raises concerns of applicability.
Recommended Client Actions
Covered entities should model facility-specific impact: the net effect depends on each hospital’s mix of separately payable 340B drug volume against the 8.44% conversion factor increase on non-drug services.
It is also recommend that clients begin prepare billing systems and TPA/split-billing workflows for the JG/TB/XX modifier requirements by January 1, 2027
If you are also considering submitting comments related to the OPPS proposed rule and/or any of the the concerns addressed above, reach out to Advis to discuss.
Reach out to your Advis representative or our offices at (708) 478-7030 for assistance on these initiatives or with further questions on the impact of the
Published July 10, 2026
