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FROM THE PRESIDENT’S DESK: A DEFINING SEASON FOR FEDERAL HEALTHCARE POLICY

By Jim Scott, President and CEO

This month's issue includes summaries of the major CMS proposed rules released to date, including the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems, the Home Health Prospective Payment System, Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) policies, and the End-Stage Renal Disease (ESRD) Prospective Payment System proposed rules. Collectively, these proposed rules span more than 1,200 pages and would bring significant changes to Medicare payment policy, with proposals affecting 340B reimbursement, site-neutral payments, and hospital price transparency.

Among the most significant proposals in the OPPS rule are plans to accelerate recovery of the 340B remedy payments associated with American Hospital Association v. Becerra, along with a separate proposal to substantially reduce Medicare reimbursement for physician-administered drugs acquired through the 340B Drug Pricing Program beginning in 2027.

CMS's implementation of provisions of the One Big Beautiful Bill Act has added a new dimension to this year's rulemaking cycle. We examine the interim final rule establishing Medicaid community engagement requirements, one of the first major regulations issued under the new law, and consider what it could mean for Medicaid beneficiaries and the hospitals and clinicians who care for them.

Beyond CMS releases, we review MedPAC's and MACPAC's statutorily required June reports to Congress, which identify emerging policy issues and operational challenges across Medicare and Medicaid. We also provide an overview of the Advanced Research Projects Agency for Health (ARPA-H), whose distinctive operating model reflects a different approach to advancing biomedical innovation within the Department of Health and Human Services.

Taken together, these stories illustrate the breadth of federal health policy activity thus far this year. We hope this month's issue provides useful context for understanding these developments and their implications for the organizations affected by them.

CMS ISSUES INTERIM FINAL RULE ON MEDICAID COMMUNITY ENGAGEMENT REQUIREMENTS

By Lexi Hartranft, Health Policy Associate

The rule establishes a nationwide framework that could reshape Medicaid enrollment, hospital finances, and state operations.

On June 1, CMS issued an interim final rule (IFR) with comment period implementing a new statutory requirement that certain adults in Medicaid meet an 80-hour-per-month community engagement requirement as a condition of eligibility. The IFR takes effect on July 31, 2026, and states must implement the community engagement requirement no later than January 1, 2027. To ensure consideration, comments on the IFR must be received by CMS by July 31, 2026.

The rule establishes a nationwide operational framework that CMS describes as “designed to promote economic stability, self-sufficiency, and independence.” It requires affected Medicaid applicants to demonstrate 80 hours per month of qualifying activities such as employment, participation in certain work programs, community service, or enrollment in an educational program at least half-time. New Medicaid applicants must meet the requirement for at least one month before the month of application, while existing Medicaid beneficiaries must meet the requirement for one or more months between renewals.

CMS Administrator Dr. Mehmet Oz stated, “This rule helps Americans build skills and independence through work, education, job training, or community service, creating new opportunities for themselves and their families.” However, coverage-loss projections from both CMS and the Congressional Budget Office (CBO) point to significant downstream implications for Medicaid beneficiaries and the hospitals and providers that serve them.

CMS PROPOSED RULES

CMS Proposes Major CY 2027 OPPS/ASC Changes Targeting 340B Payments, Site-Neutral Policy, IPO List Phase-Out, and ASC Expansion

By Meghan Basler, Health Policy Manager

On July 2, 2026, CMS issued the Hospital Outpatient Prospective Payment (OPPS) and Ambulatory Surgical Center (ASC) Payment Systems proposed rule, which proposes updates to the Medicare OPPS and ASC payment systems for Calendar Year (CY) 2027. 

Key proposals include:

• Increase CY 2027 payment rates under both the OPPS and ASC payment systems by 2.4 percent
• Increase the OPPS conversion factor reduction from 0.5 percent to 3 percent to accelerate budget-neutral recoupment of 340B remedy payments
• Reduce OPPS payment for 340B-acquired drugs from average sales price (ASP) plus 6 percent to ASP minus 33.4 percent based on hospital acquisition cost survey data
• Continue the phase-out of the Inpatient Only (IPO) list by removing 637 services
• Expand the ASC Covered Procedures List with the addition of 618 surgical procedures
• Expand site-neutral payment policy for CY 2027 by applying the site-specific Physician Fee Schedule (PFS) equivalent rate to certain imaging without contrast services furnished in off-campus provider-based departments
• Maintain current payment methodology for Partial Hospitalization Program and Intensive Outpatient Services
• Update device and drug/biological pass-through payment status
• Maintain established OPPS packaging and payment for non-pass-through drugs, biologicals, and radiopharmaceuticals
• Implement the final year of the temporary separate payment policy for qualifying non-opioid pain relief treatments in outpatient department and ASC settings
• Add eight botulinum toxin injection codes to the hospital outpatient department prior authorization list
• Require CMS-approved hospital accrediting organizations (AOs) to include certain EMTALA administrative compliance review elements in their accreditation processes

The proposed rule also includes a Request for Information (RFI) on ways to strengthen and standardize hospital price transparency reporting. CMS also solicits comment on potential approaches to establish a separate, voluntary Inpatient Prospective Payment System (IPPS) payment adjustment to support hospitals’ procurement of eligible domestically manufactured PPE and essential medicines, including product eligibility, domestic definitions, manufacturer attestations, standardized cost differentials, payment methodologies, and possible aggregate payment caps.

Comments on the proposed rule are due by August 31, 2026.

CMS Proposes Net 2.4% Increase in CY 2027 Home Health Payments, Temporary PDGM Recoupment Cut, and Medicare-Wide Provider Enrollment Safeguards

By Meghan Basler, Health Policy Manager

On July 1, 2026, CMS released the CY 2027 Home Health Prospective Payment System proposed rule for home health agencies (HHAs). 

The rule proposes updates to Medicare home health payment rates for CY 2027 and includes a proposed temporary behavioral adjustment, recalibration of case-mix weights, and changes to low-utilization payment adjustment (LUPA) thresholds. In addition, CMS proposes changes to the Home Health Quality Reporting Program (HH QRP) and summarizes potential initiatives to improve alignment between the HH QRP and the expanded Home Health Value-Based Purchasing (HHVBP) Model; CMS is not proposing expanded HHVBP Model-specific policy changes in this rule. The rule also discusses the provision of home health palliative care services and includes a Request for Information (RFI) on a potential home health-specific wage index.

In addition, CMS includes several Medicare-wide provider enrollment and program integrity proposals that would apply broadly across provider and supplier types, not only to HHAs. These proposals would expand CMS’s ability to recover payments following enrollment revocations, add or expand bases for denying or revoking Medicare enrollment, and strengthen oversight of ownership changes, licensing and program actions, and managing employees or organizations.

Proposals related to Durable Medical Equipment Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers and the Competitive Bidding Program are summarized in a separate summary document.

Comments on the proposed rule are due by August 31, 2026.

CMS Proposed Rule Addresses DMEPOS Competitive Bidding Program and Provider Enrollment Updates

By Simay Okyay McNutt, Senior Health Policy Manager

In the CY 2027 Home Health Prospective Payment System; Medicare Provider Enrollment, Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Policies Proposed Rule released on July 1, CMS: 

• Proposes to require contract suppliers under the Competitive Bidding Program (CBP) to disclose the country of origin for the lead items furnished during the CBP contract period
• Proposes to clarify face-to-face requirements for identical replacement DMEPOS items
• Proposes more changes to Medicare provider enrollment and DMEPOS accreditation
• Proposes to expand DME benefit for infusion pumps and drugs

As noted above, comments on the proposed rule are due by August 31, 2026.

CMS Proposes 1.1% Payment Increase for ESRD Facilities in CY 2027

By Emma Hammer, Health Policy Manager

On June 24, 2026, CMS issued the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) proposed rule (CMS-1846-P) for CY 2027. 

This rule proposes to:

• Increase ESRD payment rates by 1.1 percent
• Update transitional drug add-on payment adjustment (TDAPA) policies, including updating eligibility timing and modifying the post-TDAPA add-on payment methodology
• Increase the home and self-dialysis training add-on payment
• Expand the Low-Volume Payment Adjustment (LVPA) to include more tiers with different adjustment factors
• Update the transitional add-on payment adjustment for new and innovative equipment and supplies (TPNIES), although no applications were received
• Make updates to the ESRD Quality Incentive Program (QIP), including updates to performance standards and quality measures

CMS is also seeking feedback on strategies to advance dialysis care, including increasing home dialysis uptake, improving palliative care, and enhancing the efficiency of dialysis service delivery.

Comments on the proposed rule are due by August 25, 2026.

CMS DEPUTY DIRECTOR DISCUSSES MEDICARE PRIORITIES AT NVHPF

By Annie Tuttle, Health Policy Associate

On June 17, the Northern Virginia Health Policy Forum welcomed Christina “Chris” Ritter, Deputy Director for Parts C and D of the CMS Center for Medicare, for a discussion with Applied Policy Vice President Brittany La Couture moderated by Applied Policy President and CEO Jim Scott.

The conversation examined how CMS is approaching several of its highest-profile Medicare priorities, including Medicare Advantage, the Part D prescription drug benefit, drug price negotiation, pharmacy benefit manager (PBM) reform, prior authorization, interoperability, and stakeholder engagement.

Ritter described the administration's emphasis on greater integration across Medicare programs, noting that CMS is increasingly considering how decisions affecting Medicare Advantage, Part D, accountable care organizations, and traditional Medicare interact with one another. She also discussed implementation of the Inflation Reduction Act's drug price negotiation program, upcoming work involving Part B drugs, and the agency's new responsibilities for PBM reform under the Consolidated Appropriations Act of 2026.

The conversation also touched upon prior authorization and CMS's broader Health Technology Ecosystem initiative. Ritter highlighted efforts to expand electronic prior authorization, improve health information exchange, and increase transparency for providers and beneficiaries.

Throughout the discussion, Ritter emphasized the importance of stakeholder engagement, saying CMS doesn't want to be seen as an “opaque building,” but rather as a team of dedicated public servants working to make the best policy decisions. She encouraged individuals and organizations to share feedback with the agency, both directly and through the formal public comment process.

A recording of the event is available below.

ARPA-H: HHS'S “TIME MACHINE FOR HEALTH”

Modeled on the Defense Department's DARPA, the Advanced Research Projects Agency for Health is bringing a different model of biomedical innovation to HHS.

CIRCLE, REST, and BREATHE. They may sound like instructions from a yoga class, but they are actually the names of programs funded by the Advanced Research Projects Agency for Health (ARPA-H). Their calming connotations stand in sharp contrast to an agency designed for speed, bold experimentation, and ambitious biomedical innovation.

Established by Congress in 2022, ARPA-H was envisioned as a vehicle for pursuing solutions to some of the nation’s most difficult health challenges through the adoption of the Defense Advanced Research Projects Agency (DARPA) model. Like its defense counterpart, ARPA-H emphasizes transformational advances over incremental progress, convening experts from government, academia, industry, and other sectors to tackle problems that have resisted conventional approaches.

COMMISSION REPORTS

MACPAC Delivers June 2026 Report to Congress

By Lexi Hartranft, Health Policy Associate

The Medicaid and CHIP Payment and Access Commission's (MACPAC) June 2026 Report to Congress considers the operational challenges of administering Medicaid in an increasingly complex policy environment. This year's report addresses implementation of the Medicaid community engagement requirements established under the One Big Beautiful Bill Act, the use of automation in prior authorization, accountability for Medicaid managed care organizations, state oversight of PACE, and the administrative burden associated with provider enrollment and credentialing.

The statutorily mandated report reviews how federal and state agencies administer Medicaid, oversee managed care, and balance program integrity with beneficiary access. It also offers recommendations and identifies areas for continued study as Medicaid programs adapt to new statutory and operational requirements.

MedPAC Report to Congress Examines Medicare Payment, Enrollment, and Program Integrity

By Crystal Uba, Health Policy Associate

The Medicare Payment Advisory Commission's (MedPAC) June 2026 Report to Congress covers a broad range of issues affecting Medicare payment policy, beneficiary access, and program oversight. This year's report explores payment incentives across fee-for-service Medicare, alternative payment models, and Medicare Advantage; the complexity of beneficiary enrollment decisions; oversight of improper payments; the financial effects of Medicare Advantage enrollment on hospitals and post-acute care providers; and access to hospice and complex palliative services.

The report highlights the interconnected policy, operational, and financial issues shaping Medicare today while identifying areas where MedPAC believes additional policy changes or continued study may be warranted.

THE ORIGINS OF THE CRASH CART

Viewers of television medical dramas, especially those recently inspired to rewatch ER, are familiar with the urgent call for “the crash cart.”

Few may have stopped to ask how the crash cart came to be, or even what it contains. Its history reflects how advances in emergency medicine, medical technology, and healthcare systems design came together to save precious minutes when they matter most.

For most of medical history, there was little reason to build a dedicated resuscitation cart because there was no portable resuscitation technology to put on one. A series of breakthroughs in the late 1950s and early 1960s changed that. External defibrillation became practical, closed-chest CPR made immediate resuscitation possible, and portable monitoring and emergency equipment began appearing in hospitals. For the first time, clinicians had lifesaving tools that could make a difference during the first critical minutes of a cardiac arrest.

Those advances created a new logistical challenge. Hospitals needed a way to keep lifesaving equipment together, close at hand, and ready to use under pressure.

Applied Policy is following these regulatory actions currently under review at the Office of Management and Budget:

• CY 2027 Revisions to Payment Policies under the Physician Fee Schedule and Other Revisions to Medicare Part B (CMS-1848)
• Exchange Pre-Enrollment Eligibility Verification (CMS-9873)
• Strengthening the Integrity of Medicaid and CHIP Managed Care, Financing, and Access to Care (CMS-2450)
• Short-Term, Limited-Duration Insurance (CMS-9881)
• Request for Information; Clinical Laboratory Improvement Amendments (CLIA) of 1988 Regulations (CMS-3485)
• Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model (CMS-5546)
• Prohibition on Federal Medicaid and Children's Health Insurance Program Funding for Specified Sex-Rejecting Procedures Furnished to Children and Youth (CMS-2451)
• FY 2027 Skilled Nursing Facility (SNF) Prospective Payment System and Consolidated Billing and Updates to the Value-Based Purchasing and Quality Reporting Programs (CMS-1843)
• FY 2027 Inpatient Psychiatric Facilities Prospective Payment System Rate and Quality Reporting Updates (CMS-1847)
• Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals; the Long-Term Care Hospital Prospective Payment System; and FY 2027 Rates (CMS-1849)
• Global Benchmark for Efficient Drug Pricing (GLOBE) Model (CMS-5545)
• Cutting Administrative Requirements for Excellence in Patient Care (CMS-3484)
• Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes (CMS-2452)

See all rules under OMB review here.

Applied Policy continues to track executive orders that could impact healthcare and health policy. Access our regularly updated page below.

Executive Order on Agriculture Calls for HHS Research on Cumulative Chemical Exposures

On June 25, President Trump issued an executive order directing federal agencies to expand support for regenerative agriculture, precision farming, and farm modernization as part of the administration’s Make America Healthy Again (MAHA) initiative.

The order calls for increased federal investment in regenerative agriculture research, education, and adoption while encouraging public-private partnerships to accelerate implementation. It directs the Environmental Protection Agency (EPA) to prioritize registration of alternative crop protection products, review pre-harvest desiccation uses of registered chemicals, and ensure product labeling remains consistent with applicable safety and environmental standards.

The order also instructs the Department of Health and Human Services (HHS), the Department of Agriculture (USDA), and EPA to develop a research framework for evaluating cumulative chemical exposures in the food supply using emerging scientific methods.

Additional provisions direct HHS to establish a National Institutes of Health prize competition focused on evaluating, diagnosing, and treating cumulative chemical exposures and to prioritize ARPA-H research into technologies that reduce reliance on conventional chemical crop protection tools.

What do you call an alligator wearing a vest?

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