Key Takeaways From the CY 2027 Medicare Physician Fee Schedule Proposed Rule

On July 14, 2026, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule (the “Proposed Rule”) announcing policy changes for Medicare payments under the physician fee schedule (PFS) and other Medicare Part B issues, effective on or after January 1, 2027. The Proposed Rule arrives against the backdrop of a projected decrease in the PFS conversion factor driven by the expiration of a one-year 2.50% increase provided under the Working Families Tax Cut legislation for calendar year (CY) 2026, resulting in an effective reduction in Medicare payment rates for CY 2027. The Proposed Rule reflects CMS’ broader objectives of improving payment accuracy, strengthening program integrity, and advancing value-based care across the Medicare program.

This alert summarizes several of the Proposed Rule’s most significant provisions for healthcare providers, life sciences companies, and other industry participants, including: (1) new restrictions on remote patient monitoring and remote therapeutic monitoring services, (2) telehealth service extensions and additions, (3) a substantial restructuring of the practice expense (PE) methodology, (4) proposed payment reductions for same-day evaluation and management (E/M) visits furnished alongside global surgical procedures, (5) revisions to the Medicare Shared Savings Program (MSSP) and Merit-Based Incentive Payment System (MIPS) quality frameworks, and (6) targeted refinements to the Medicare Part B and Part D Drug Inflation Rebate Programs established under the Inflation Reduction Act of 2022 (IRA).

Remote Patient Monitoring and Remote Therapeutic Monitoring Restrictions and Revisions

The Proposed Rule would significantly reshape Medicare reimbursement for remote patient monitoring (RPM) and remote therapeutic monitoring (RTM) and reflects a shift in policy toward increased accountability for practitioners and tighter program integrity safeguards.

The first proposal, and the one with the most significant structural impact on providers of these services, would require billable RPM and RTM services to be furnished by clinical staff who are employed by the billing practitioner rather than third-party contractors, effectively eliminating all third-party outsourcing. Staff need not be physically located at the practitioner’s site but would have to be directly employed by the billing practitioner. CMS explained its concern that vendor outsourcing “can fragment care, lead to insufficient involvement and oversight of the billing practitioner, or result in services that do not actually represent or facilitate all required aspects of RPM or RTM services,” leading to a proposal to bring staff in-house for these providers. This proposed requirement would not prohibit the purchase from third-party vendors of software or devices that support these services, but would require the personnel performing the monitoring to be employed by the billing practitioner. CMS is requesting comment on how this proposed rule could affect beneficiary access, particularly in rural areas where providers may not be capable of replacing these outsourced services with internal resources.

Similar to current requirements for chronic-care-management services, CMS also proposes requiring a separately billed initiating visit before RPM/RTM services may begin. The visit may be conducted either in person or via a synchronous telehealth modality. The initiating visit must include the following: (1) discussion of the monitoring plan with the patient, (2) a clinical determination that RPM/RTM is warranted, and (3) a documented patient consent to the service. The Office of Inspector General (OIG) and CMS have increasingly scrutinized practices that bill for remote monitoring services without having established an existing provider-patient relationship or delivering all three components of an RPM/RTM service: patient education, device supply, and clinical management. This has become more common as third-party vendors offer services of outreach to prospective patients to establish RPM/RTM services without the practitioner’s direct involvement.

Finally, CMS proposes revisions to the valuation of RPM/RTM current procedural terminology (CPT) codes and solicits comments on potentially decreasing the value of practice expense codes and replacing the existing 17 core RPM/RTM codes with four Healthcare Common Procedure Coding System (HCPCS) G-codes that would bundle portions of the current reimbursement framework into a simplified structure.

CMS explains in the Proposed Rule that these changes are intended to reinforce that RPM and RTM are care-management services and not stand-alone offerings, which has been a focus of concern since the services’ utilization expansion in 2019. This marks a dramatic change from recent expansion of RPM/RTM services, which provided new billing pathways as recently as the CY 2026 PFS final rule. However, the expansion of billing codes coincided with increased enforcement and attention from OIG.

For example, OIG has issued multiple reports identifying billing patterns associated with elevated fraud and abuse risk, including beneficiaries receiving RPM from practitioners with little or no prior relationship, overlapping billing by multiple providers, and significant reliance on third-party vendors to furnish reimbursable clinical services. OIG published a consumer fraud alert in 2023, warning consumers of cold calling, click bait, and other marketing activities related to fraudulent RPM enrollment. Another report, published in 2024, concluded that about “43 percent of enrollees who received [RPM] did not receive all 3 components of it, raising questions about whether the monitoring is being used as intended.” A related report flagged that payments for RPM had exceeded $500 million in 2024 and grew 150% month over month.

If finalized, the proposals would affect how RPM services are provided and billed. Vendors whose business models depend on furnishing clinical staff to physician practices will need to redesign their service offerings, while companies offering software and automation that support a provider’s clinical staff may have opportunities for expansion. Providers who currently rely on outsourced clinical staff for RPM/RTM should assess whether they can reasonably shift such responsibility to directly employed clinical staff by January 2027. Practices should also evaluate their intake procedures to ensure that face-to-face visits with documented consent are performed prior to beginning RPM/RTM services.

Telehealth Extensions

In the Proposed Rule, CMS continues to transition from temporary pandemic-era flexibilities toward a permanent reimbursement framework for telehealth services. CMS proposes adding five telehealth-related HCPCS G-codes to the Medicare Telehealth Services List, including advance care planning; voluntary, group-based medical sessions; management services for vaccine adverse effects; and treatment for speech, language, voice, communication, and/or auditory processing disorder. CMS views these services as adequately deliverable via interactive telecommunications systems.

CMS also proposes to implement telehealth extensions enacted under the Consolidated Appropriations Act, including expanding eligible originating sites, delaying the in-person visit requirement for mental health until 2028, and extending audio-only telehealth reimbursement until 2028. Finally, CMS proposes increasing the payment for HCPCS code Q3014 (telehealth originating site facility fee), which is billed by the facility where the patient is physically located during a telehealth visit based on the Medicare Economic Index (MEI), reflecting a 2.5% MEI increase. Additional proposals seek to adjust modifiers and simplify code structures to improve transparency without affecting reimbursement.

These proposals primarily signal telehealth reimbursement policy stability and reinforce CMS’ recent recognition of telehealth as a cornerstone of care in the United States. Providers that furnish telehealth services should consider whether the proposed additions to the Medicare Telehealth Services List create opportunities to expand virtual care offerings, while also preparing for the eventual expiration of certain temporary flexibilities after 2028, including the in-person visit requirement for mental health.

Practice Expense Methodology

CMS proposes a substantial restructuring of the methodology for determining practice expense (PE) relative value units (RVUs), reflecting what the agency describes as an effort to reduce reliance on historical specialty-level PE survey data, which continue to influence PE valuation. CMS explains that much of the current methodology relies on specialty survey information derived primarily from the Physician Practice Information Survey, which was conducted in 2007, and that these data may be outdated and no longer accurately reflect current physician practice costs or patterns of care delivery. Under the proposal, CMS would phase out the final calibration steps of the existing PE methodology that rely on the Indirect Practice Cost Index (IPCI), replacing them with a stabilization adjustment intended to moderate annual changes in PE RVUs during the transition. CMS describes these changes as part of a broader effort to place greater emphasis on more current, code-level PE inputs that can be updated on a more routine basis. CMS also seeks public comment on the continued appropriateness of the distinction between facility and non-facility PE payment rates, including whether additional refinements could better reflect physician practice costs across different care settings. If finalized, these changes would represent one of the most significant revisions to the PE methodology since implementation of the resource-based PE system.

CMS proposes several related changes to the PE methodology. First, it would revise the allocation of indirect PE by using both physician work RVUs and clinical labor RVUs for all services except for codes with 10- and 90-day global periods, which would continue to use physician work RVUs only for the indirect allocator. This differs from the current methodology, which generally allocates indirect costs based on the greater of physician work or clinical labor and has historically favored services reported through separate professional and technical components. Second, CMS would phase out over a two-year period the final calibration steps of the existing PE methodology that rely on IPCI. Specifically, in Year 1 of the transition, CMS would apply only half of the measured IPCI variation, and in Year 2, it would no longer apply the IPCI calibration steps at all. In place of that calibration, CMS proposes a new stabilization adjustment that would generally limit annual changes in PE RVUs to 5% before application of the statutory RVU phase-in requirements; however, this stabilization adjustment generally would not apply to new or revised codes, newly nationally priced codes, or revalued codes.

CMS further proposes to equalize the facility and non-facility PE RVUs for nursing facility E/M codes (CPT codes 99304–99310 and 99315–99316), reflecting a continued trend toward site neutrality across payment structures. Under the proposal, the facility PE RVU for these codes would be set equal to the non-facility PE RVU. CMS explains that this change is appropriate because, unlike with most facility versus non-facility distinctions, the difference between these services reflects whether a beneficiary is in a Part A or Part B stay, rather than differences in the physician resources required to furnish the service.

CMS also uses the proposal to solicit broader stakeholder input regarding PE valuation across care settings. In particular, CMS questions whether the current distinction between facility and non-facility PE payments appropriately reflects physician practice costs in light of evolving physician employment and care-delivery models. The agency specifically requests comment on whether hospital-employed physicians incur substantially lower indirect PE costs than independent physicians furnishing services in facility settings; whether facility indirect PE could appropriately be reduced below the proposed 50% allocation, or potentially to zero for certain employed physicians; and whether a new HCPCS modifier identifying employed physicians could be used to adjust facility PE payments to better reflect actual physician practice costs. CMS further proposes to develop a public use file displaying imputed professional and technical RVU components for globally billed services not typically billed using modifier technical component or modifier 26. CMS likewise seeks comment on improving transparency regarding professional and technical component valuation and, separately, on whether aspects of global surgical payment policy should be restructured or “right sized” over time, while clarifying that it is not proposing changes to global surgical billing or payment in this rulemaking.

If finalized, these proposals could significantly redistribute PE RVUs across physician specialties and sites of service, particularly for services whose current valuations depend heavily on historical specialty survey data or existing facility versus non-facility payment distinctions.

Accounting for Overlap Between Stand-Alone E/M Visits and Global Surgical Services

CMS proposes to revise payment for office and outpatient E/M visits furnished on the same day as procedures with 0-, 10-, or 90-day global surgical periods. The proposal revisits a policy first introduced, but not finalized, in the CY 2019 PFS rulemaking, which CMS deferred while broader office and outpatient E/M payment reforms were being implemented. The proposal is expressly limited to office and outpatient E/M visits. CMS explicitly seeks comment on whether this policy should be extended to other E/M visit types, such as inpatient E/M visits.

Under the proposal, when a physician, or another physician within the same group practice, bills both a separately identifiable office or outpatient E/M visit using modifier 25 and one or more procedures with 0-, 10-, or 90-day global surgical periods for the same patient on the same date of service, Medicare would continue to pay the highest valued service at 100% while reducing payment for each additional service furnished during that encounter by 50%.

CMS states that separately identifiable office and outpatient E/M visits furnished with same-day global procedures continue to involve overlapping physician work and PE that are already reflected in the global surgical package. Although modifier 25 permits separate payment for significant, separately identifiable E/M services provided on the same day, CMS believes a portion of the resources reimbursed through separate billing remains duplicative. CMS also states that existing code-specific refinements to global surgical valuations have addressed these efficiencies inconsistently and concludes that a broader payment policy is preferable to reviewing thousands of individual global procedure codes.

CMS estimates that the proposal would have its greatest downward payment impact on specialties that frequently report modifier 25 in conjunction with same-day procedures, including dermatology, otolaryngology, and podiatry, while many other specialties could experience comparatively smaller payment increases through the redistribution of payments under budget neutrality. The agency specifically requests comment on whether a 50% payment reduction appropriately reflects overlapping physician work and PE or whether an alternative reduction, such as 25%, would more accurately account for those overlapping resources. CMS also seeks comment on whether the proposal could influence physician scheduling or other practice patterns in response to the payment reduction. In addition, CMS clarifies that E/M visit complexity modifiers (MOD1 and MOD2) are proposed as HCPCS modifier replacements for add-on code G2211, which accounts for the inherent complexity of longitudinal care. CMS proposes to maintain the existing restriction on billing MOD1 or MOD2 with modifier 25 but separately seeks comment on whether that restriction should be lifted when modifier 25 is reported in conjunction with a same-day 0-, 10-, or 90-day global procedure.

If finalized, the proposal could materially affect reimbursement for physician practices that routinely furnish separately identifiable office and outpatient E/M visits in conjunction with office-based procedures.

CMS Proposes Significant Changes to MSSP and MIPS Quality Frameworks in CY 2027 Physician Fee Schedule Rule

MSSP and MIPS are two of CMS’ primary tools for moving Medicare reimbursement away from fee-for-service volume and toward value-based care. Under the MSSP, accountable care organizations (ACOs) share in savings generated when the total cost of care for their attributed Medicare beneficiaries falls below a benchmark, provided they also meet quality thresholds. Under MIPS, individual eligible clinicians and groups earn payment adjustments (positive or negative) based on composite performance across four categories: quality, cost, promoting interoperability, and improvement activities. CMS’ CY 2027 proposals build on several years of refinements to both programs and reflect the agency’s stated goal of ensuring that quality measurement drives meaningful clinical improvement rather than administrative box-checking.

MSSP: Revised Quality Benchmarking and Expanded Savings Opportunities

CMS is proposing several revisions to the MSSP quality framework that could significantly affect ACOs’ ability to earn and maximize shared savings. Key proposals include:

• Recalibrated quality performance benchmarks aligned more closely with national improvement trends, rewarding ACOs that demonstrate top-tier performance on preventive care, chronic disease management, and care coordination with access to the highest shared savings rates
• Expanded use of patient-reported outcome measures, broadening the set of measures ACOs may use to satisfy reporting requirements, particularly for primary care and behavioral health
• Adjustments to minimum savings rate (MSR) thresholds and shared savings rates for higher-risk tracks, ensuring that strong quality and cost performance translates into savings distributions rather than being eroded by minor benchmark variances
• Prospective benchmark adjustments for ACOs serving underserved populations, including those with high proportions of dual-eligible beneficiaries or beneficiaries in areas with health-professional shortages, to encourage ACO participation where it is most needed

MIPS: Quality Category Overhaul and Removal of Topped-Out Measures

CMS’ CY 2027 MIPS proposals focus primarily on the quality performance category, which remains the most heavily weighted category for most clinicians. Notable proposals include:

• Removal of topped-out measures that no longer permit meaningful differentiation among clinicians, pushing reporting toward measures on which improvement can drive both patient outcomes and Medicare cost savings
• Addition of new high-priority measures in chronic kidney disease management, behavioral health integration, and post-acute care transitions (areas with significant downstream cost implications for the Medicare program)
• Raising the data completeness threshold from 75% to 80%, requiring more robust reporting infrastructure and potentially affecting quality category scores for practices that fall short
• Continued expansion of MIPS Value Pathways (MVPs), with new MVPs proposed for primary care and complex chronic condition management, signaling CMS’ intent to make MVP participation increasingly advantageous over traditional MIPS reporting

The Quality-Savings Nexus: What Providers Stand to Gain

A central theme of the CY 2027 proposed rule is reinforcing the financial case for quality investment. For MSSP ACOs, achieving higher-quality scores directly translates into access to greater shared savings percentages under their participation agreements with CMS, meaning that investment in care management infrastructure, care coordination staff, and chronic disease programs can yield a concrete return in the form of shared savings distributions. For MIPS participants, strong quality category scores contribute to positive payment adjustments and, perhaps more important, help insulate practices from the negative adjustments that can compound across a multiyear period. CMS estimates that the proposed quality and benchmarking changes will result in meaningful aggregate Medicare savings over the coming years, with a portion of those savings available to be shared with high-performing ACOs and reflected in favorable MIPS adjustments for high-performing clinicians.

The CY 2027 proposed rule represents a significant opportunity as well as a meaningful compliance challenge for ACOs, physician groups, and health systems participating in MSSP and MIPS. Organizations that have invested in quality improvement infrastructure stand to benefit from the recalibrated benchmarks and expanded savings opportunities, while those that have relied heavily on topped-out measures for favorable MIPS scores will need to reassess their reporting strategies before the start of the performance year on January 1.

I. Medicare Part B Drug Inflation Rebate Program

Sections 11101 and 11102 of the IRA established the Medicare Part B Drug Inflation Rebate Program, requiring manufacturers to pay rebates into the Federal Supplementary Medical Insurance Trust Fund when prices for certain Part B drugs increase faster than the rate of inflation. For CY 2027 under the proposed rule, CMS proposes four targeted refinements to the program’s implementing regulations under Title XVIII of the Social Security Act (the Act). These proposals address data gaps in program administration, the scope of “rebatable” products, a contingency methodology for calculating rebates when inflation data are unavailable, and the breadth of CMS’ enforcement authority.

A. Clarifying the ‘First Marketed Date’ When ASP Data Are Unavailable (§ 427.20)

The “first marketed date” is a critical input for Part B inflation rebate calculations. It anchors the benchmark average sales price (ASP) used to measure whether a drug’s price has increased faster than the rate of inflation. When that date is missing from ASP submissions, CMS has lacked a codified process for identifying it through alternative means.

CMS proposes to amend § 427.20 to establish a tiered data-source approach for identifying the first marketed date when ASP data do not reflect it. Under the proposal, the first marketed date “will be identified using ASP data reported by NDC-11 to CMS … if available. If ASP data are not available, the first marketed date will be identified using an alternative public source, such as the NDC Directory.” CMS further proposes that if the NDC Directory also lacks the date, it would “default to using the FDA approval date as listed in the Orange Book or Purple Book.”

Manufacturers whose products are not subject to mandatory ASP reporting should cross-check their public NDC Directory records and Orange Book or Purple Book entries against their own product launch documentation. Discrepancies between CMS’ identified date and a manufacturer’s internal records could shift the benchmark period and materially affect rebate liability.

B. Skin Substitutes: Narrowing the Exclusion From Part B Rebatable Drug Status (§ 427.101(b)(5))

CMS previously codified skin substitutes as a product category excluded from the definition of a “Part B rebatable drug.” CMS now proposes to modify the skin substitutes excluded-product category “so that the exclusion applies only to certain skin substitute products,” concluding that its current application has become broader than intended as the classification and payment of skin substitutes under Part B has evolved.

CMS proposes to amend § 427.101(b)(5) to clarify that skin substitutes licensed as a drug or biological product under section 351 of the Public Health Service Act (PHS Act) would not be excluded from the definition of a Part B rebatable drug and would therefore be subject to Part B inflation rebates and the applicable beneficiary coinsurance adjustment. Under the revised regulatory text, the skin substitute exclusion would apply only to “a product included within the suite of cellular- and tissue-based products that aid wound healing, other than skin substitute products that are licensed as a drug or biological product under section 351 of the Public Health Service Act.”

Notably, CMS states it believes no marketed skin substitute products hold licensure under section 351 of the PHS Act, meaning the proposal carries no immediate rebate consequences for existing products. Manufacturers developing advanced wound-care biologics that may ultimately seek section 351 licensure should nonetheless factor Part B inflation rebate exposure into product planning, including how pricing decisions at launch could interact with the rebate framework if licensure is obtained.

C. CPI-U Gap-Filling for Part B Rebate Calculations (§§ 427.302(e)(6) and (f)(1))

CMS proposes at §§ 427.302(e)(6) and (f)(1) to codify a contingency methodology for computing Part B rebates during periods when Bureau of Labor Statistics (BLS) Consumer Price Index for All Urban Consumers (CPI-U) data are unavailable. Because the policy, its rationale, and its implications for manufacturers are substantively identical to the CPI-U gap-filling approach CMS proposes under the Part D program, the full discussion of the proposal appears in Section II.A below. For Part B specifically, CMS would apply the same substitution rule in both contexts: When CPI-U data are unavailable, CMS would use “the first month for which CPI-U data are available following the month for which CPI-U data are unavailable,” with § 427.302(e)(6) governing the benchmark period CPI-U and § 427.302(f)(1) governing the rebate period CPI-U.

D. CMS Proposes to Clarify Its Ability to Refer Manufacturers to Other Agencies for Enforcement Powers Beyond Civil Monetary Penalties (§ 427.600)

CMS proposes to clarify that its authority to impose civil monetary penalties (CMPs) under section 1847A(i)(7) of the Act, codified at § 427.600, is not the exclusive remedy available to address a manufacturer’s failure to comply with Part B rebate payment obligations. CMPs may currently be assessed at a rate of at least 125% of the applicable rebate amount. CMS now makes clear that it may refer manufacturers “to the Department of Justice, the Department of the Treasury, and/or the Department of Health and Human Services Office of Inspector General for further review and investigation,” whether or not CMPs are also imposed.

Manufacturers should treat this clarification as a meaningful signal that noncompliance with Part B rebate obligations carries multiagency exposure that extends beyond the CMP framework. Entities with disputed or incomplete rebate payment histories should work to resolve outstanding matters to limit their exposure.

II. Medicare Part D Drug Inflation Rebate Program

Section 11102 of the IRA established the Medicare Part D Drug Inflation Rebate Program, requiring manufacturers of certain covered Part D drugs to pay rebates when their prices increase faster than the rate of inflation. CMS proposes five refinements to Part D rebate program regulations for CY 2027. The proposals address continuity of rebate calculations during periods of missing inflation data, methodological accuracy in identifying 340B-eligible units, the launch of a mandatory 340B data reporting infrastructure, and CMS’ enforcement authority.

A. CPI-U Gap-Filling When Data Are Unavailable (§§ 428.20 and 428.202(e)(6))

Part D inflation rebate calculations depend on two CPI-U reference points: the applicable period CPI-U under § 428.20 and the benchmark period CPI-U under § 428.202. Both serve as anchors for measuring drug price increases against general inflation. When BLS does not publish a required month’s data, the existing regulatory framework provides no fallback.

That gap became consequential in October 2025, when BLS did not release CPI-U data due to a lapse in appropriations. CMS responded by issuing a Health Plan Management System memo on March 6, 2026, announcing that it would substitute November 2025 CPI-U data for the missing October 2025 figure because November represented the first month with available CPI-U data following the gap. CMS now proposes to codify that approach.

CMS proposes to amend § 428.20 to provide that “in the case where the first month’s CPI-U data are unavailable, CMS will use the first month for which CPI-U data are available following the month for which CPI-U data are unavailable.” For the benchmark period CPI-U, CMS proposes to add § 428.202(e)(6), which states that “in the event CPI-U data are unavailable, CMS will use the first month for which CPI-U data are available following the month for which CPI-U data are unavailable.” As applied to the October 2025 gap, CMS used November 2025 CPI-U data for both calculations.

CMS considered, but did not propose, alternatives such as deriving its own inflation factor or using the prior month’s CPI-U data. Codifying a next-available-month rule creates a predictable substitution methodology for manufacturers during government shutdowns or other BLS disruptions. Manufacturers should nonetheless consider how the use of a later month’s index value could increase or decrease rebate liability relative to original expectations, as price movements between the expected and substitute months may not be neutral.

B. Excluding 340B-Eligible Units From Part D Rebate Calculations: The Prescriber-Pharmacy Methodology (§ 428.203(b))

Beginning with plan year 2026, section 1860D-14B(b)(1)(B) of the Act requires CMS to exclude from Part D rebate calculations those units for which a manufacturer provided a 340B Program discount. CMS explains that claim-level 340B status is not readily available from the statutory Part D rebate data sources and is often identified only retrospectively by covered entities rather than flagged at the point of dispensing. To operationalize the statutory exclusion, CMS adopted a claims-based approach in the CY 2026 PFS final rule known as the Prescriber-Pharmacy Methodology, effective January 1, 2026.

Under this methodology, a prescription drug event (PDE) record is treated as potentially 340B-eligible when two conditions are met: (1) the prescriber’s national provider identifier (NPI) on the PDE is affiliated with a registered covered entity for the relevant month, and (2) the dispensing pharmacy is a 340B contract pharmacy associated with that covered entity for the same month, as reflected in the Office of Pharmacy Affairs Information System (OPAIS) database. Units satisfying both conditions are removed from the total units figure used in Part D inflation rebate calculations.

Because the Prescriber-Pharmacy Methodology relies on OPAIS affiliation data rather than a direct 340B purchase flag at the point of dispensing, covered entities and contract pharmacies should closely monitor their OPAIS registration and contract pharmacy records. For manufacturers whose drugs are frequently dispensed through 340B channels, the accuracy of any 340B unit exclusion depends on the completeness of those third-party data inputs.

C. Accounting for ADAP Enrollee 340B Eligibility: A Proposed Modification to the Prescriber-Pharmacy Methodology (§ 428.203(b)(2))

CMS has identified a structural limitation in the Prescriber-Pharmacy Methodology as applied to beneficiaries enrolled in AIDS Drug Assistance Programs (ADAPs). ADAPs provide financial assistance for HIV medications to low-income individuals and are significant purchasers under the 340B Program. However, because ADAPs are not providers, prescriber NPIs are typically not affiliated with ADAPs in OPAIS, and many ADAPs use a rebate model that allows beneficiaries to fill prescriptions at broad pharmacy networks that may not appear as 340B contract pharmacies. As a result, the existing methodology systematically under-identifies 340B-eligible units for ADAP-enrolled beneficiaries.

CMS’ analysis found that while the Prescriber-Pharmacy Methodology identifies HIV/AIDS drugs as 340B-eligible at rates close to the Part D overall average for most beneficiaries, it does so at a significantly lower rate for ADAP enrollees specifically. CMS references a study finding that “antivirals were 10 times more likely to be dispensed through the 340B Program and specialty medications were more than 20 times more likely to be dispensed through the 340B Program compared to all drugs dispensed,” and that “nearly 80 percent of all specialty medications dispensed under the 340B Program were antiretrovirals indicated for HIV/AIDS.”

To address this gap, CMS proposes to modify the methodology at § 428.203(b)(2) so that CMS would identify beneficiaries with ADAP supplemental coverage via the Supplemental Type Code in the Coordination of Benefits-Other Health Insurance Supplemental Record file and would “exclude all units associated with those PDE records from Part D inflation rebate calculations,” with safeguards to avoid double counting against units already flagged as 340B-eligible under the existing Prescriber-Pharmacy Methodology. If finalized, this modification would apply to Rebate Reports issued for applicable periods beginning October 1, 2025, and for subsequent applicable periods.

For manufacturers of antiretrovirals and other specialty medications heavily represented in ADAP utilization, this modification could materially reduce Part D inflation rebate exposure by expanding the universe of excluded units. Covered entities should be aware that 340B identification for ADAP-related dispensing would shift from an OPAIS-driven matching process to a beneficiary-level ADAP coverage flag maintained in CMS files.

D. Mandatory 340B Repository Reporting Beginning in 2027 (§ 428.203(c))

CMS established a Medicare Part D Claims Data 340B Repository in the CY 2026 PFS final rule to receive voluntary submissions from covered entities of claim-level data elements associated with Part D 340B-discounted claims. The repository is expected to launch in fall 2026 using 2026 dates of service for initial testing. CMS now proposes a significant change at § 428.203(c): Beginning with dates of service on or after January 1, 2027, submission to the repository would become mandatory for providers and suppliers that are covered entities.

CMS states that it “believes it necessary to transition from voluntary submission to requiring 340B provider participation in the 340B repository” to ensure robust data in 2027 that can be assessed for future use in removing 340B units from Part D inflation rebate calculations. Under the proposed requirements at § 428.203(c), covered entities would be required to submit the following data elements for each covered Part D drug claim:

• Date of service
• Prescription or service reference number
• Fill number
• Dispensing pharmacy NPI
• NDC-11
• The covered entity’s 340B ID and name as designated in the OPAIS database

CMS proposes quarterly submissions, due within one calendar quarter following the close of the relevant quarter. For example, claims with dates of service between October 1 and December 31, 2027, would be due no later than March 31, 2028. Third-party administrators and vendors may submit on a covered entity’s behalf, but the covered entity remains responsible for the accuracy and completeness of all submitted data.

Importantly, CMS is clear that “the data submitted to the 340B repository would not be used to calculate inflation rebates” under the current proposal. CMS will continue using the Prescriber-Pharmacy Methodology to remove 340B units from rebate calculations, and any future proposal to use repository data for that purpose would require separate notice-and-comment rulemaking.

The stakes of noncompliance extend beyond administrative penalty. CMS proposes at § 424.516(f)(4) to link compliance with repository reporting to Medicare enrollment documentation obligations, such that failure to comply could result in revocation of Medicare enrollment under § 424.535(a)(10). CMS estimates that approximately 14,000 340B providers would be subject to the mandatory quarterly reporting requirement, generating an aggregate annual compliance burden of approximately 462,000 hours at an estimated cost of $52,366,440.

Covered entities, contract pharmacies, and third-party administrators should proactively assess their data infrastructure in anticipation of compliance. The linkage to Medicare enrollment eligibility makes compliance a threshold operational concern. While repository data will not affect rebate calculations under this proposal, manufacturers should anticipate that a mature repository dataset could form the evidentiary basis for future rulemaking that replaces or supplements the Prescriber-Pharmacy Methodology.

E. Civil Monetary Penalties Are Not CMS’ Sole Enforcement Remedy (§ 428.500)

Mirroring its clarification under the Part B program, CMS proposes to make explicit that its authority to impose CMPs under section 1860D-14B(e) of the Act, as codified at § 428.500, is not the exclusive remedy for addressing manufacturer noncompliance with Part D rebate obligations. CMPs may be imposed at 125% of the rebate amount for a manufacturer’s failure to pay. CMS clarifies that the CMP authority is not the exclusive remedy for noncompliance or for “other conduct that may impact obligations under the Part D Inflation Rebate Program,” and that CMS may refer manufacturers “to the Department of Justice, the Department of the Treasury, and/or the Department of Health and Human Services Office of Inspector General for further review and investigation” whether or not CMPs are also imposed.

The reference to “other conduct that may impact obligations” signals that CMS’ enforcement posture extends beyond simple nonpayment. Manufacturers should assess their Part D rebate compliance programs with particular attention to payment timeliness, data submission accuracy, and the integrity of inputs that affect rebate calculations, recognizing that any compliance gap could serve as a trigger for multiagency referral.

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The Goodwin Healthcare team will continue to monitor developments related to the CY 2027 Medicare PFS Proposed Rule. For more information on the issues discussed in this alert, please contact the authors, reach out to Goodwin’s Healthcare Regulatory and Compliance group, or contact the Goodwin lawyer whom you typically consult.

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