A proposed rule issued last month by the Centers for Medicare & Medicaid Services (CMS) would affect Medicare payment rates for both hospital outpatient departments and ambulatory surgery centers (ASCs), and continues to move CMS closer to a site-neutral payment regime. Additionally, the proposed rule recommends changes to certain reporting programs.

The proposal includes several provisions that are particularly relevant to ASCs and hospital outpatient departments, including an increase of payment rates, significant changes to Medicare payment for 340B-acquired drugs, and an expansion of utilization management requirements.

Beyond the ordinary annual rate update, the proposal signals CMS’s continued interest in moving appropriate care to lower-cost outpatient sites, narrowing payment differences across sites of service, increasing oversight of hospital outpatient operations, and revisiting reimbursement policies that have significant financial implications for hospitals and health systems. The rule would also have impacts for investors in outpatient settings.

The Hospital Outpatient Prospective Payment System (OPPS) and ASC proposed rule is open for public comment 60 days after its July 2 issue date. It would go into effect starting in 2027.

Direct Impacts to Hospitals and ASCs

Under the proposed rule, CMS plans to increase payment rates for both hospital outpatient departments and ASCs by 2.4% for calendar year 2027. This increase is based on a projected market basket increase of 3.2%, which CMS uses to assess changes in the price of goods and services used by hospitals and ASCs to provide patient care.

CMS also proposes to remove more than 600 additional procedures from the inpatient-only list. If finalized, this change could make a broader set of services available in outpatient settings, including hospital outpatient departments and ASCs. ASCs should not treat removal from the inpatient-only list as automatic authority or operational readiness to perform a procedure. Instead, facilities should evaluate clinical appropriateness, anesthesia capabilities, equipment and staffing needs, transfer arrangements, payer coverage, reimbursement, and applicable state licensure or certificate-of-need requirements before adding any newly eligible procedures.

The proposed rule would also continue CMS’s movement toward site-neutral reimbursement by reducing payment differences for certain imaging services furnished in off-campus hospital outpatient departments compared to physician office settings. Hospital outpatient departments, particularly off-campus provider-based departments, should evaluate the potential reimbursement exposure, service-line economics, provider-based status, billing practices, enrollment records, and cost-reporting implications of this proposal.

Additionally, the proposed rule includes hospital-facing changes to Medicare payment for 340B-acquired drugs. CMS is considering a revised payment methodology for certain 340B drugs that would more closely reflect acquisition-cost data and would accelerate related budget-neutrality adjustments. Hospitals participating in the 340B program should evaluate the potential impact on outpatient drug reimbursement, beneficiary cost-sharing, budget neutrality, service-line economics, and contracting or purchasing strategies.

CMS is also proposing to expand utilization management through additional prior authorization requirements for certain hospital outpatient department services. These proposals could affect scheduling, documentation, revenue-cycle timing, patient access, and operational workflows for hospitals and health systems furnishing covered outpatient services.

Other potential impacts to ASCs and hospital outpatient departments from the proposed rule include:

• Amendments to the Outpatient Quality Reporting (OQR) Program and the ASC Quality Reporting Program. One significant change is the removal of the "Appropriate Follow-Up Interval for Normal Colonoscopy Patients" measure. CMS also proposed measures aimed at increasing data accountability for the OQR program specifically.
   
• A cost-of-living adjustment to address higher costs in certain markets, including Alaska and Hawaii.
   
• Updates to the current Intensive Outpatient Program and Partial Hospitalization Program payment rates for calendar year 2027.
   
• New or expanded compliance obligations for hospitals and provider-based departments, including potential implications for provider-based operations, billing, documentation, and oversight.
   
• Shifting the authority to assess EMTALA compliance to hospital accrediting organizations, rather than CMS.

CMS is accepting public comments on the proposed rule until August 31, 2026, and is also soliciting requests for information (RFIs) on several specific issues. Interested parties may submit comments through the Federal Register rulemaking docket found here. Topics on which CMS is seeking feedback include:

• Ways to make hospital price transparency information more consistent, comparable, and useful to patients, payers, and other stakeholders.
   
• Potential policy approaches that could encourage Medicare-participating hospitals to source more PPE and essential medicines from domestic suppliers.
   
• Possible outpatient quality reporting changes, including an advance care planning measure and refinements to a patient-transfer measure based on when the transfer-related issue occurred.

Key Takeaways for Health Systems and ASC Operators

• ASC operators should monitor potential adjustments to payment rates and any new billing requirements or procedures implemented by CMS. The potential adjustments to payment rates, including those related to site-neutral payments, may require operators to ensure appropriate systems are in place to maintain compliant billing practices.
   
• ASC operators should also familiarize themselves with the potential changes to the ASC Quality Reporting Program requirements. The potential removal of certain measures and changes to others could affect how ASCs meet mandatory reporting requirements, and operators should begin developing a plan for how to comply with the potentially changing requirements.
   
• Finally, ASCs should monitor CMS’s broader movement toward site-neutral payment and lower-cost outpatient care settings. These changes may create opportunities for appropriate case migration to ASCs, but operators should carefully evaluate reimbursement, payer coverage, clinical readiness, staffing, equipment, anesthesia, transfer arrangements, and state regulatory requirements before adding new procedures.
   
• Hospital outpatient departments should evaluate the proposed site-neutral payment changes, particularly for off-campus provider-based departments and imaging services, and assess the potential impact on reimbursement, service-line planning, provider-based compliance, billing processes, and cost reporting.
   
• Hospitals participating in the 340B program should model the financial effect of proposed drug payment changes and related budget-neutrality adjustments, including potential impacts on outpatient pharmacy strategy, patient cost-sharing, and overall outpatient department margins.
   
• Hospitals should also prepare for potential prior authorization and utilization management changes by reviewing documentation standards, scheduling workflows, patient communication processes, and revenue-cycle procedures for affected outpatient services.
   
• Finally, hospitals and health systems should monitor proposed changes to price transparency, quality reporting, EMTALA compliance oversight, and provider-based department requirements.

Investor and Operator Implications

For ASC operators, hospital outpatient departments, health systems, and investors in outpatient settings, the proposed rule may affect growth strategy, transaction diligence, and valuation assumptions. Site-neutral payment proposals, the continued movement of procedures away from the inpatient setting, and potential case migration to lower-cost outpatient settings should be considered when evaluating ASC acquisitions, de novo development, hospital-ASC joint ventures, and outpatient service-line expansion.

Investors and operators should also revisit reimbursement models and business plans to account for proposed changes to OPPS and ASC payment rates, imaging reimbursement, 340B drug payments, prior authorization requirements, quality reporting obligations, and provider-based department compliance. These proposals may affect projected margins, payer mix assumptions, working capital needs, staffing models, and the relative attractiveness of hospital outpatient, ASC, and physician-office settings for particular procedures.

From a diligence perspective, buyers, sellers, lenders, and joint venture partners should evaluate whether target facilities have the clinical capabilities, licensure, staffing, equipment, transfer arrangements, billing systems, documentation processes, and compliance infrastructure necessary to support any anticipated expansion of outpatient procedures. Parties should also consider whether purchase agreements, management agreements, development plans, and financial projections adequately allocate risk for payment changes, delayed implementation, new compliance obligations, and changes in procedure eligibility.

Sarah Carver also contributed to this alert as part of her summer clerkship at Parker Poe.

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