CMS Proposes 2026 OPPS and PFS Rules

The Centers for Medicare & Medicaid Services (CMS) released its proposed calendar year (CY) 2026 Physician Fee Schedule (PFS) rule on July 14 and proposed CY 2026 Outpatient Prospective Payment System (OPPS) annual rule on July 15. The rules update hospital payment rates, modify quality reporting provisions, and propose expansion of site-neutral payment rates to include drug administration at offsite hospital outpatient departments.

America's Essential Hospitals is analyzing the proposed rule for comment and will send members a detailed Washington Briefing in the coming days. Comments for the PFS proposed rule are due Sept. 12, and comments for the OPPS proposed rule are due Sept. 13.

CY 2026 Physician Fee Schedule (PFS) Proposed Rule

Updates to PFS Payment Rates and Conversion Factor

For CY 2026, CMS proposes two separate conversion factors as required by statute: one for qualifying alternative payment model participants and one for nonqualifying physicians. The qualifying conversion factor is proposed with a 3.83% increase from CY 2025, while the nonqualifying conversion factor is proposed to increase by 3.62%.

Efficiency Adjustment

CMS proposes to apply a budget-neutral efficiency adjustment to work relative value units to maintain overall budget neutrality under PFS. The adjustment would balance payment impacts from updated valuation of individual services.

Telehealth Services Under the PFS

CMS proposes to continue several flexible policies introduced during the COVID-19 pandemic through CY 2026. The rule would continue to allow patients to receive telehealth services in their homes and would permit audio-only services where clinically appropriate. CMS also proposes to maintain direct supervision via real-time video supervision through the end of CY 2026; the agency would not allow supervision through audio-only formats. Telehealth services will continue to bill at the non-facility PFS rate.

Chronic Conditions and Behavioral Health

Consistent with the President's executive order "Establishing the President's Make America Healthy Again Commission," the rule proposes several policies that aim to improve care management for individuals with chronic health conditions and behavioral health needs. These include new billing codes for navigation services and community health integration, enhanced payments for chronic care management, and general behavioral health integration services. CMS also proposes to allow certain nonphysician behavioral health providers to furnish and bill for services incident to a physician's services under general supervision.

Inflation Reduction Act Implementation and 340B

To ensure legal implementation of the Inflation Reduction Act, which requires manufacturers to pay inflation rebate penalties if they raise prices faster than inflation, CMS proposes a claims-based methodology to remove discounted 340B drugs from the rebate calculations effective Jan. 1, 2026. CMS also proposes a voluntary repository for claims-level 340B data to test broader usability in the future.

Drugs Paid under Medicare Part B

CMS proposes to continue paying 106% of average sales price for most separately paid Part B drugs and biologics, as it has consistently since 2022. CMS proposes to change operational processes to reduce drug waste, to reform packaging policies for high-cost radiopharmaceuticals, and to reform biosimilar payments.

Medicare Shared Savings Program (MSSP)

In the MSSP, CMS proposes to limit one-sided risk participation to five years for new accountable care organizations (ACOs). Additionally, CMS proposes to increase the time period in which ACOs must reach the benchmark of 5,000 Medicare beneficiaries from two to three years.

Ambulatory Specialty Model

The CMS Innovation Center proposes a mandatory five-year model, the Ambulatory Specialty Model, that would hold specialists that treat heart failure or low back pain financially accountable for management of those chronic conditions. The model aims to reward specialists for effective disease management and reducing avoidable hospital admissions.

Quality Programs

Under the Quality Payment Program, CMS emphasizes a focus on stability for Merit-based Incentive Payment System (MIPS) participants. The proposed rule adds six new MIPS Value Pathways (MVPs) and updates existing ones.

CMS also seeks feedback on digital quality measures, wellness and nutrition measures, and other topics that could shape future reporting.

Chronic Disease Prevention and Management Request for Information

CMS seeks input on how Medicare can enhance its approach to chronic disease, including by mitigating service coding gaps, revising Annual Wellness Visit components, and payment for supporting intensive lifestyle changes or medically tailored meal programs.

CY 2026 OPPS Proposed Rule

Updates to OPPS and Ambulatory Surgical Center Payment Rates

CMS proposes a 2.4% increase in payment rates for hospital outpatient departments in CY 2026, representing a 3.2 % market basket update, less a 0.8% productivity adjustment. Hospitals that fail to meet outpatient quality reporting requirements would receive a 2 percentage point reduction in their OPPS payments.

Site-Neutral Payments for Off-Campus Drug Administration

CMS proposes to align payments for drug administration services in excepted off-campus provider-based departments. This change is projected to cut hospital payments under OPPS by $280 million in CY 2026, with $210 million of the savings accruing to Medicare and $70 million to beneficiaries in the form of reduced coinsurance payments.

Adjustment to Payments for Non-Drug Items

From 2018-2022, CMS illegally cut outpatient drug payments for 340B hospitals, costing these facilities $7.8 billion over the duration of the policy; however, as the policy was budget neutral, those funds taken from 340B hospitals were reinvested in other facilities in the form of enhanced payments for non-drug items and services. As the Supreme Court unanimously ruled the cut in outpatient drug payments to 340B hospitals was illegal, the resulting enhanced payments for non-drug services also were contrary to federal statute.

In the 2023 rule that included the remedy for 340B hospitals, CMS finalized a proposal to recoup $7.8 billion over 15 years by reducing OPPS non-drug payments by .5% beginning in 2026, for 15 years. CMS now proposes to cut OPPS non-drug payments by 2%, starting in 2026, with full recovery expected in CY 2031.

Intent to Conduct OPPS Drug Acquisition Cost Survey

CMS plans to launch a drug acquisition cost survey for hospitals paid under the OPPS from late CY 2025 to early CY 2026. The collected data will inform future payment rates for separately payable drugs under the OPPS, shaping the CY 2027 rule and beyond, and potentially could allow CMS to cut outpatient drug payments for 340B hospitals.

Hospital Price Transparency Reforms

CMS proposes to require hospitals to include detailed ranges of the rates they negotiate with health insurance plans in machine-readable files. These rates are known as "allowed amounts" and would include the 10th, median, and 90th percentile.

The proposed rule also includes provisions that require hospitals to attest that they have listed all their negotiated rates in dollars when able, or otherwise include "all necessary information available to the hospital for the public to derive the dollar amount" from their machine-readable files. Additionally, CMS proposes changes to oversight and noncompliance policies.

Quality Programs

For the Hospital Outpatient Quality Reporting Program (OQR), CMS proposes to adopt an electronic quality measure on Emergency Care Access and Timeliness. CMS also proposes to remove six measures, including measures related to COVID-19 vaccination and screening for social drivers of health.

Additionally, CMS proposes that the Hospital OQR Program's Extraordinary Circumstances Exception Policy include extensions as a type of extraordinary circumstances relief option.

The agency also proposes to update the methodology used to calculate the Overall Hospital Quality Star Rating to emphasize the contribution of the Safety of Care measure group in hospitals' ratings.

Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.