Outpatient Prospective Payment System (OPPS)

Key facts

Legal basis

Section 1833(t) of the Social Security Act; regulations at 42 CFR Part 419

In use since

August 1, 2000, as required by the Balanced Budget Act of 1997

Classification

Ambulatory Payment Classifications (APCs)

Update cycle

Calendar year, in a combined OPPS and ASC rule

Separately paid drugs

Generally average sales price (ASP) plus 6 percent

What is the Outpatient Prospective Payment System?

The OPPS applies to services in hospital outpatient departments, including emergency departments, and to partial hospitalization services in community mental health centers. Each service billed with a CPT or HCPCS code is assigned to an Ambulatory Payment Classification (APC), a group of clinically similar services with similar costs, and each APC has a national rate adjusted by the hospital wage index.

CMS updates OPPS rates each calendar year in a rule issued together with the Ambulatory Surgical Center (ASC) payment system, since many procedures can be done in either setting.

How OPPS payment works

Several design features determine what a hospital is actually paid:

• Status indicators: flags on each code that tell claims systems whether it is paid separately, packaged or not paid under OPPS.
• Packaging: many supplies, lower-cost drugs and ancillary services are included in the payment for the primary service.
• Comprehensive APCs: a single payment for a primary service, such as a device implantation, and nearly all related services on the claim.
• Pass-through payments: temporary separate payment for qualifying new drugs, biologicals and devices.
• Coinsurance: generally 20 percent of the payment rate after the Part B deductible, capped per service at the inpatient deductible amount.

Why the OPPS matters

Hospital outpatient departments are often paid more than physician offices or ambulatory surgical centers for the same service, which is the center of the site-neutral payment debate. For device, drug and diagnostics companies, APC assignment and pass-through status decide whether a product is paid separately or absorbed into a bundle.

The OPPS also tracks the shift of care out of the inpatient setting. In the calendar year 2026 final rule, CMS began a three-year phase-out of the inpatient-only list, starting mainly with musculoskeletal procedures, and extended site-neutral payment to drug administration at excepted off-campus hospital departments.

OPPS drug payment and the 340B litigation

From 2018 through 2022, CMS paid most separately payable drugs acquired under the 340B Drug Pricing Program at average sales price minus 22.5 percent. In American Hospital Association v. Becerra (2022), the Supreme Court held that CMS could not set different rates for 340B hospitals without first surveying hospital acquisition costs. CMS returned to ASP plus 6 percent and made remedy payments to affected hospitals.