Key Medicare Reimbursement Policies Under the Microscope in Proposed Rule

Last week, the U.S. Centers for Medicare & Medicaid Services (CMS) published two proposed rules: the calendar year 2026 Medicare Physician Fee Schedule Proposed Rule (PFS Proposed Rule) and the calendar year 2026 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Proposed Rule (OPPS-ASC Proposed Rule). These proposals include provisions of significant importance with respect to Medicare reimbursement methodologies for skin substitutes, radiopharmaceuticals, and autologous cell-based immunotherapies and gene therapies, among other items. CMS is also seeking comments related to digital health product reimbursement. Stakeholders should review relevant proposals and consider providing input through comments.

For a look at potential government price-reporting implications of these proposed rules, including proposals related to Average Sales Price methodology, bundled price concessions, skin substitutes, and Medicare Prescription Drug Inflation Rebate Program implementation (including proposals to help identify 340B units), please view our prior Sidley Update published on July 18, 2025, available here.

A summary of key provisions from each proposed rule follows. Comments are due by September 12 for the PFS Proposed Rule and by September 15 for the OPPS-ASC Proposed Rule.

PFS Proposed Rule

1. Skin Substitutes

CMS proposes significant changes to the current reimbursement methodology for skin substitutes. The proposed changes would affect payment for skin substitutes under the PFS, OPPS, and ASC payment system. An overview of the proposed changes follows, and additional information relevant to the OPPS and ASC payment system is discussed in the section of this Sidley Update addressing the OPPS-ASC Proposed Rule.

a. Separate Payment as “Incident-to” Supplies. Beginning January 1, 2026, CMS proposes to “separately pay for” skin substitutes as “incident-to” supplies when they are Service Act (PHS Act)]” would be excluded from this proposed policy and would “continue to be paid as biologicals under the [average sales price (ASP)] methodology” under Section 1847A of the Social Security Act.

CMS states that this proposed policy is intended to limit what it characterizes as “some of the current profiteering practices occurring in this industry,” including what CMS describes as “a dramatic increase in launch prices,” and to address a primary policy objective of CMS to “ensure a consistent payment approach for skin substitute products” across settings of care. CMS solicits comments on both the proposal to separately pay for skin substitutes and the proposed implementation of this policy in both the nonfacility and hospital outpatient settings.

b. Payment Categories Based on Food and Drug Administration (FDA) Regulatory Pathway. CMS states that it seeks to create alignment across various settings of care by proposing to base payment for skin substitutes on products’ FDA regulatory pathway. CMS proposes to determine payment rates by grouping skin substitutes that are not biological products (under Section 351 of the PHS Act) into three categories based on their FDA regulatory category: (i) human cells, tissues, and cellular and tissue-based products (HCT/Ps) under Section 361 of the PHS Act; (ii) devices requiring 510(k) clearance; and (iii) products subject to premarket approval (PMA) applications.

CMS also states that there may be “innovative products” that do not fit cleanly within the proposed payment categories. CMS solicits comments on how such “innovative products” should be addressed under the new proposed payment policy, including whether products with active pass-through status or receiving new technology add-on payments (NTAP) should be paid separately from their product category (e.g., by using the product’s ASP or invoice pricing or by adding a set percentage to the applicable FDA category’s base rate).

c. Calculation of Payment Rates. In the PFS and OPPS-ASC Proposed Rules, CMS proposes to use a single payment rate for all three categories in CY 2026 but states that, in future years, it intends to propose payment rates that differentiate among the three FDA regulatory categories it proposes. The PFS and OPPS-ASC Proposed Rules contain different proposals related to implementation of the proposal under the PFS, OPPS, and ASC payment system. In the PFS Proposed Rule, CMS proposes to establish practice expense relative value units (RVUs) and initial payment rates that are “based on the volume-weighted average ASP, with no additional markup, as submitted by manufacturers, when available.” (See our prior Sidley Update, published on July 18, 2025, for additional information related to the proposal’s potential impact on ASP reporting for skin substitutes.) Where ASP is not available, CMS proposes to use hospital outpatient mean unit cost (MUC) data to determine the payment rate. If MUC is not available, CMS proposes to use the product’s wholesale acquisition cost (WAC) or 89.6% of the average wholesale price (AWP) if WAC is also unavailable.

For CY 2026, CMS proposes a single payment rate of $125.38/cm2 for all three payment categories that is derived based solely on Q4 2024 OPPS data. CMS proposes this single payment rate for CY 2026 for all three payment categories (which are consistently proposed in both the PFS and OPPS-ASC Proposed Rules) for the PFS, OPPS, and ASC payment systems, although, as noted, the PFS and OPPS-ASC Proposed Rules outline different proposed implementation methodologies to operationalize this proposed policy.

CMS states that it has proposed this policy because the agency is concerned that use of certain “novel pricing practices” (as discussed in the proposed rules) has resulted in “a decoupling of actual resource costs from the ASP,” leading to anomalous results, such as PMA products having a lower average payment despite requiring a more rigorous FDA review process.

d. Healthcare Common Procedure Coding System (HCPCS) Codes. CMS proposes that new HCPCS codes describing skin substitutes would be categorized based on whether the product is PMA-approved, 510(k)-cleared, or a self-determined 361 HCT/P. CMS also proposes that, beginning January 1, 2026, CMS would evaluate all complete HCPCS Level II applications for skin substitutes on the biannual cycles that apply to nondrugs/nonbiologicals. CMS further proposes that should any products come to market under the Biologics License Application, New Drug Application, or Abbreviated New Drug Application pathways that could potentially be considered skin substitutes, CMS would review them on the quarterly HCPCS coding cycles that apply to drugs and biologicals. In addition, CMS addresses how the new proposed payment policy would be applied to new and existing HCPCS codes for skin substitutes under the PFS and under the OPPS and ASC payment system.

2. Autologous Cell-Based Immunotherapy and Gene Therapy Payment

Recognizing the advancement of new technologies in autologous cell and gene therapies, CMS proposes to align payment policies for preparatory procedures and manufacturing steps across all such therapies.

CMS notes that current payment codes for chimeric antigen receptor (CAR) T-cell therapies incorporate various steps required to collect and prepare the therapies and proposes to extend current payment policies for CAR T-cell therapies to other autologous cell-based therapies. Under this proposal, Medicare will not separately pay for tissue procurement or manufacturing procedures associated with such therapies. Instead, CMS proposes that “any preparatory procedures for tissue procurement required for manufacturing an autologous cell-based immunotherapies or gene therapies that are paid by the manufacturer be included in the calculation of the manufacturer’s ASP.”

CMS states that this proposal is intended to reflect that the “tissue procurement step for all autologous cell-based therapies is a pivotal part of the manufacturing process and a key component of the overall cost of the product.” CMS also proposes that “any payment by the manufacturer to an entity for tissue procurement is not considered a bona fide service fee for the purposes of calculating the manufacturer’s ASP since this is an integral part of the manufacturing process for autologous cell-based immunotherapy or gene therapy and should be included in the price of the product.” CMS’ proposal presents questions for certain cell and gene therapy products that may require enhanced preparatory and procurement activities but may not be adequately reimbursed by existing payment codes. Cell and gene therapy manufacturers should carefully consider the implications of CMS’ proposal as applicable to their individual products and consider commenting where appropriate. CMS’ proposal is, at this time, limited to autologous cell-based immunotherapies and gene therapies.

3. Telehealth

CMS introduces significant proposed reforms to strengthen and streamline telehealth policy and reimbursement. Notably, CMS proposes streamlining the process for adding new services to the Medicare Telehealth Services List by reducing the current five-step evaluation method to a simpler, three-step process and deeming all services listed or added to the list as “permanent” (i.e., eliminating the “provisional” service category). CMS also proposes to add several new services to the list, including group behavioral counseling for obesity and multiple-family group psychotherapy.

In addition, CMS seeks to permanently remove frequency limitations on certain nursing home and hospital telehealth visits that were originally lifted on a temporary basis during the Covid-19 public health emergency (PHE). CMS states that data following the reimposition of such limitations after the PHE demonstrates that there was minimal overuse of these services. CMS further proposes to formally allow direct supervision via real-time telehealth (excluding audio-only), although it declined to expand telehealth-based supervision for residents in nonrural settings.

4. Chronic Disease and Behavioral Health Management

Citing the February 13, 2025, executive order establishing the Make America Healthy Again Commission and the administration’s desire to “understand[] and drastically lower[] chronic disease rates,” CMS solicits stakeholder feedback on ways to enhance chronic disease prevention and management efforts under Medicare. Specifically, CMS is evaluating whether gaps in the PFS are impeding the effective delivery of services that address underlying contributors to chronic illness, such as social isolation and physical inactivity. To address these “gaps,” CMS is considering the creation of distinct billing codes for interventions including intensive lifestyle programs, medically tailored meals, FDA-cleared digital therapeutics, and motivational interviewing.

5. PFS Rate Hikes

Following five consecutive years of rate cuts¹, CMS proposes an approximately 3.8% increase in physician reimbursement rates. To calculate the estimated CY 2026 PFS conversion factors, CMS states that it took the CY 2025 conversion factor and multiplied it by the required budget neutrality adjustment, multiplied by certain other updates specified by statute, and then applied the temporary “one-year increase of 2.50 percent for CY 2026 established by statute.”

In addition to its proposal to increase physician reimbursement rates, CMS seeks feedback on additional measures to modernize Medicare payments and better align them with current industry practices, such as the following:

a. Efficiency Adjustments to Work Relative Value Units (RVUs). CMS proposes a 2.5% reduction in work RVUs for non-time-based service codes to address its concerns that efficiency gains from evolving medical practices have not “been fully reflected in the valuation of work RVUs for non-time-based services.”

b. Indirect Practice Expense Payment Changes Favoring Office-Based Physician Practices. CMS proposes revising its methodology for calculating indirect practice expense payments, with significant implications for providers practicing in facility-based settings, such as hospital outpatient departments. Under this proposal, physicians and other practitioners could see a reduction in their indirect practice expense payments if they furnish services in facility settings where overhead costs — such as rent, staffing, and supplies — are already covered by a hospital or health system.

6. Updates to Payment for Digital Mental Health Treatment

CMS proposes to expand its payment policies for the three HCPCS G codes for digital mental health treatment (DMHT) devices that first went into effect on January 1, 2025. Specifically, CMS proposed to reimburse certain DMHT devices used in the treatment of attention deficit hyperactivity disorder. CMS also solicits stakeholder comments on potentially establishing additional separate coding and payment “for a broader set of services describing digital tools used by practitioners intended for maintaining or encouraging a healthy lifestyle, as part of a mental health treatment plan of care.”

7. Solicitation for Comment on Payment Methodology for Software-Based Digital Technologies

CMS requests stakeholder feedback as to how CMS “should consider paying for SaaS [software as a service] under the PFS,” explaining that it believes that “innovative applications” such as “software algorithms and AI” (artificial intelligence) are “not well accounted for” under the current PFS practice expense methodology. In light of these limitations, CMS specifically requests feedback on “alternative pricing strategies,” including “crosswalking values from the OPPS established payment amounts for the technical components of services incorporating SaaS and AI.”

OPPS-ASC Proposed Rule

1. Radiopharmaceuticals

CMS proposes to continue its current policy of reimbursing diagnostic radiopharmaceuticals above the packaging threshold (proposed to be $655 during CY 2026) using claims-based MUC rather than ASP or other price reporting metrics. CMS justifies this proposal by explaining that it “continue[s] to find that the ASP data [CMS] has is not usable for payment purposes.” As a result of this planned policy, CMS also proposes that for CY 2026, “ASP reporting is voluntary for diagnostic radiopharmaceuticals paid under the OPPS.”

However, CMS states that it believes “there could be potential value in the use of ASP data for payment purposes” if ASP is “reported correctly and by all manufacturers who manufacture a product that is described by a given HCPCS code” and therefore “encourage[s] manufacturers to submit ASP information for diagnostic radiopharmaceuticals, if possible.” CMS also requests comments from stakeholders as to how CMS can “ensure more consistent, validated, and universal reporting” of ASP, including through potential updates to its October 2010 guidance titled “Submission of OPPS ASP Data for Nonpass-Through Separately Payable Therapeutic Radiopharmaceuticals and Radiopharmaceuticals with Pass-Through Status.”

For new diagnostic radiopharmaceuticals that have a HCPCS code, do not have pass-through status, and do not have claims data available to calculate a MUC (which is based on claims data two years prior to the current year), CMS proposes to reimburse at ASP plus 6% until a MUC can be calculated. If ASP data is not available, CMS proposes to reimburse at WAC plus 3% during the product’s “initial sales period” and WAC plus 6% following such “initial sales period.” If WAC is also unavailable, reimbursement would be 95% of the product’s AWP. CMS believes this methodology is reasonable given that it expects that “the volume of products in this category will typically be very low” and because CMS typically “has the opportunity to engage” with manufacturers of new products during the HCPCS application process. CMS suggests this dialogue results in education on unique ASP reporting considerations and leads to the manufacturer reporting ASP.

CMS further proposes to codify criteria for determining whether Tc-99m radiopharmaceutical doses are “domestically produced” and therefore eligible for a $10 add-on payment beginning January 1, 2026. Specifically, CMS proposes defining a “domestically produced dose of Tc-99m” as “a dose of Tc-99m generated from domestically produced Mo-99,” with “domestically produced Mo-99” further defined as “Mo-99 that was both irradiated and processed in the United States.” CMS notes that a dose of Tc-99m generated from Mo-99 irradiated or processed outside of the United States would not be eligible for the add-on payment “even if the Mo-99 was loaded into a Tc-99m generator in the United States or if the Tc-99m was eluted at a radiopharmacy in the United States.”

2. Skin Substitutes

As discussed above, CMS proposes to align the payment methodology for skin substitutes across the PFS and OPPS (as well as the ASC payment system). Currently, in the OPPS, CMS unconditionally packages skin substitute products furnished in the hospital outpatient setting into their associated application procedures as part of a broader policy to package all drugs and biologicals that function as supplies when used in a surgical procedure. Under that current packaging policy, CMS groups skin substitutes into a high-cost group and a low-cost group, based on MUC, and assigns skin substitute products to one of three ambulatory payment classifications (APCs) for reimbursement purposes, based on the price of the skin substitute and the type of application procedure required.

To operationalize the proposed payment policy for skin substitutes (discussed above in the PFS Proposed Rule section) under the OPPS, CMS proposes that “the payment for skin substitutes would no longer be packaged into the administration procedures under the OPPS, when performed in the hospital outpatient setting.” Instead, CMS proposes to “remove skin substitutes from the list of packaged items and services” under current regulations and to “unbundle” payment for skin substitutes in the OPPS. CMS further proposes to create three new APCs that would correspond to the three different proposed payment categories for skin substitutes based on FDA regulatory pathways. Specifically, CMS proposes to create APC 6000 (PMA Skin Substitute Products), APC 6001 (510(k) Skin Substitute Products), and APC 6002 (361 HCT/P Skin Substitute Products). The payment rates established under the proposed payment policy for skin substitutes would apply to these new proposed APCs under the OPPS. For CY 2026, payment for skin substitutes under the OPPS is proposed to be the same rate for all three payment categories / APCs as in the PFS.

CMS also seeks comments as to whether CMS should consider treating CPT codes describing skin substitutes as “add-on codes to the current CPT administration codes (CPT codes 15721 – 15278).” CMS asserts that doing so would “more clearly indicate that the only skin substitutes to be paid for and treated as supplies by Medicare are those used in conjunction with the already existing CPT administration codes.”

Under the ASC payment system, CMS proposes to create a new ASC payment indicator “S2” — (skin substitute supply group; paid separately when provided integral to a surgical procedure on ASC list; payment based on OPPS rate) — to describe skin substitute products paid separately in an ASC. CMS proposes that payment under the ASC payment system for separately payable skin substitute products would be based on the OPPS conversion factor, not the ASC conversion factor. CMS states that this proposal “is intended to establish a consistent and uniform framework for how these products are treated across different outpatient settings of care to help ensure equitable access and appropriate payment for these services.”

3. Controlling “Unnecessary Increases” in the Volume of Outpatient Services Furnished in Off-Campus Provider-Based Departments

Citing “unnecessary increases in the volume of drug administration services in hospital outpatient departments,” CMS proposes to reduce outpatient hospital reimbursement for “non-excepted” off-campus providers for drug administration to “an amount equal to the site-specific PFS payment rate” for such services. This proposal is motivated by CMS’ belief that such services “could generally be safely provided in a lower cost setting” (e.g., the physician office setting) and continued increases in OPPS spending are partly attributable to “payment incentives” that “continue to affect site-of-service decision-making.” CMS also notes that this proposal is consistent with Executive Order 14273 (Lowering Drug Prices by Once Again Putting Americans First) (discussed further in a prior Sidley Update dated April 17, 2025, available here), which instructed the agency to “evaluate and, if appropriate and consistent with applicable law, propose regulations to ensure that payment within the Medicare program is not encouraging a shift in drug administration volume away from less costly physician office settings to more expensive hospital outpatient departments.” CMS seeks comments on other ways it can address increases in OPPS costs, including whether it should “apply OPPS site neutral policies more broadly to all hospital [outpatient departments].”

4. Request for Comment on Payment Methodology for Software-Based Digital Technologies

CMS requests stakeholder feedback on “alternative and consistent payment methods” for SaaS products that CMS can implement in future rulemakings. CMS currently does not have a specific payment methodology for SaaS products, instead paying separately for such products under the OPPS using New Technology APCs, which group together items and services that are similar clinically and in terms of resource use. However, CMS acknowledged public commentary stating that the “lack of a consistent payment policy for SaaS can be an impediment to patient access when these services are otherwise approved by the FDA.” Citing “rapid developments in the use of software-based technologies with new functionalities, including artificial intelligence, to support clinical decision-making,” CMS solicits feedback as to “how to appropriately pay for these services, including any applicable lessons or best practices from risk-bearing payment arrangements.”

5. Medicare OPPS Drugs Acquisition Cost Survey

CMS plans to conduct a “survey of the acquisition costs for each separately payable drug acquired by all hospitals paid under the OPPS.” The survey will open at the end of 2025 and run until early 2026, with the goal of using the survey results to inform CMS policy beginning with the CY 2027 OPPS proposed rule. CMS also solicits comments on how it should “interpret non-responses to the survey” and suggests that it could infer that a hospital that does not respond to the survey “has minimal acquisition costs or has lower acquisition costs than an otherwise similar hospital that responds to the survey.” In this situation, CMS suggests that it could “use the lowest acquisition cost reported among otherwise similar responding hospitals as a proxy for the average acquisition costs for hospitals that do not respond to the survey.” CMS also states that it could consider using supplemental data, such as the 340B ceiling price, for nonresponding hospitals.

6. 340B Remedy Offset

Following a 2022 Supreme Court decision holding that CMS could not vary payment rates for outpatient prescription drugs by hospital group because it had not first conducted a survey of hospital acquisition costs, discussed in a prior Sidley Update dated November 6, 2023, and available here, CMS made payments of approximately $7.8 billion to account for the decreased payments CMS made to 340B hospitals from 2018 through September 2022. In 2023, CMS finalized a plan to “offset” these payments by reducing the conversion for non-drug items and services to all OPPS providers by 0.5% each year.

CMS now proposes to increase the annual “offset” percentage for nondrug items and services from 0.5% to 2% effective January 1, 2026. CMS states that this proposal comes as CMS is “reconsidering whether the timing we selected — a 0.5-percentage point annual reduction for approximately 16 years — best achieves the overarching goal of the Final Remedy rule, which is to restore hospitals to as close to the financial position they would have been” had CMS’s prior 340B payment policy never been implemented. CMS cites its concern that “the longer it takes for us to fully recover the $7.8 billion, the less likely that the relative burden on hospitals from the adjustments will match the relevant benefits those hospitals previously received.”

¹ Jalen Brown, CMS Proposes First Medicare Pay Hike For Physicians In Five Years While Cracking Down On Skin Graft Overspending, Chronic Disease Care Gaps, Inside Health Policy (July 14, 2025), https://insidehealthpolicy.com/daily-news/cms-proposes-first-medicare-pay-hike-physicians-five-years-while-cracking-down-skin-graft?utm_medium=mh.